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The Data Breach Downfall

by Delainie Britton

While we are still unsure who is responsible for the execution of one of the largest credit-card thefts that took place this past November against Target Corp., light was finally shed on the financial impact of the data breach on Wednesday, February 25th. The earnings report for the quarter ended February 1st, 2014 revealed a drop in profits to $520 million from $961 million for the same quarter in the prior year. Sales fell 3.8%, and the number of transactions dropped 5.5% – the largest quarterly decline since Target began reporting this statistic in 2008. Based on these financial results, it appears shoppers stayed away from the retail giant during this holiday season, afraid they too might become subject to the fraud. Interestingly, after Wednesday’s announcement, Target stock rose roughly 7% on the New York Stock Exchange, closing at $60.49 per share. Apparently investors felt relieved to hear the data breach damages were not as bad as originally assumed.

The data breach compromised an estimated 40 million credit and debit card accounts, as well as personal data from almost 70 million individuals. As a frequent Target shopper myself, I quickly de-activated my credit cards in exchange for a new set of plastic. Target is currently facing 80+ lawsuits from this cyber-attack, including suits filed by individuals affected, credit card issuers, and federal and state investigators. Target CEO, Gregg Steinhafel, claims that costs related to the data breach can be absorbed by cutting stock buybacks and initiating aggressive discounts to persuade consumers to lose the fear and start spending.  In Target’s fourth quarter alone, $61 million of “damage control” expenses were incurred and will continue to adversely affect earnings in the future, as analysts estimate such costs to reach into the hundreds of millions of dollars.

This isn’t even the only challenge Target faces right now. Losses loom over the retailer from the recent international push into Canada, to the tune of a $941 million loss this past year. Despite these challenges, Target and investors continue to remain positive, claiming Canada sales are expected to double in the next year. Looks like Target isn’t going anywhere anytime soon. For a full Target Corp. earnings release break-down, check out this article: http://finance.yahoo.com/news/target-earnings-drop-185010986.html;_ylt=AwrBEiKFbBNTxmUAyhCTmYlQ.

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