Data breach takes toll on Target profit

The massive theft of customer information late last year and stumbles expanding into Canada cut Target's fourth-quarter net earnings almost in half. Even so, shares of the company's stock rose by about 7 percent today.

The retailer posted net income of $520 million for the three months that ended Feb. 1. Sales at stores open at least a year, a key retail industry benchmark, dropped 2.5 percent.

For the data breach, Target said it incurred $17 million in net expenses after insurance coverage.

The company said the expenses include provisions for some but not all potential costs of the breach. For instance, Target has not set aside money for claims from the payment card networks for counterfeit fraud losses.

Target warned future breach-related costs could be substantial. Even before the breach, Target was hurting because many U.S. consumers are still hesitant to spend. And Target has stumbled badly in its expansion into Canada with losses eroding profits.

Target opened about 120 stores in Canada over the past year and has had trouble keeping store stocked and placating customers who expected lower prices, like those in the U.S. The company's troubled foray across the border produced pre-tax losses that more than doubled to $330 million, which made up most of Target's overall profit decline.

Investors found some encouraging news in today's report, including projections of slowing losses in Canada and signs that Target's most loyal, highest spending customers are sticking with the retailer. Customer traffic this month is back where it was a year ago, after dropping 4 to 7 percent soon after the data breach.

"The quarter itself wasn't the best quarter Target has ever had. But I think the outlook is somewhat encouraging," said Ken Perkins, retail analyst with Morningstar. "The company has a few things they have to overcome. But it looks like the long-term customer response is still positive for Target."

Customer use of Target REDcards was also up in the most recent quarter. The cards provide five percent discounts on most items. Purchases with REDcards rose by about a third from a year ago and now account for about one fifth of Target's sales.

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