Target CEO is out following credit card breach; stock drops

Updated 3 p.m.

Target's massive data breach, together with its financial struggles expanding into Canada, have cost the company's chief executive his job.

Gregg Steinhafel is out, nearly five months after the retailer disclosed the breach, which has hurt its reputation among customers and cost the company millions.

Steinhafel, a 35-year veteran of the company who took over as CEO in 2008 during the depths of the Great Recession, agreed to step down immediately. He also resigned from the board of directors, Target said Monday.

While there was no loud public drumbeat to oust Steinhafel, analysts said his departure from the nation's third-largest retailer was likely in the works for a while and might offer the company a chance to regain its footing.

Investors, though, did not seem impressed. Target stock fell nearly 3.5 percent Monday. The stock price has fallen 15 percent in the past 12 months.

Target hired the executive search firm Korn Ferry to advise the board on finding a new CEO. The statement gave no time frame for completing a search.

Target named Chief Financial Officer John Mulligan its interim president and CEO. Roxanne S. Austin, a member of Target's board, was tapped as interim non-executive chair of the board. Both will serve in those roles until permanent replacements are named.

Steinhafel will serve as an adviser during the transition. In a federal Securities and Exchange Commission filing Monday, Target said Steinhafel is entitled to severance but the board hasn't made a final decision on what additional payments, if any, he will receive.

In a 2013 SEC filing, Target pegged the value of Steinhafel's "involuntary termination" package at more than $26 million.

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While the security breach grabbed headlines, Target had already been hurting financially because many U.S. consumers have been hesitant to spend.

Target also stumbled badly in its expansion into Canada, racking up nearly $1 billion in operating losses last year that eroded the company's profits.

Target opened about 120 stores in Canada over the past year and has had trouble keeping stores stocked and placating customers who expected lower prices, like those in the United States.

Given those struggles, Steinhafel's departure isn't a complete surprise, said Brian Yarbrough, an analyst with the investment firm Edward Jones.

"The last five quarters, the U.S. operations have struggled, as far as revenue, trying to get revenue to grow. Then you look at the Canadian operations, and that has been a pretty big disappointment. And then you throw on top of that this data breach in December and I think they made the decision that it was time to look elsewhere to try and find a new leader for the firm," he told MPR News' Morning Edition.

Under Steinhafel's leadership, the company expanded into fresh food offerings, experimented with new-look stores and grew internationally.

The company, though, took a huge public relations and financial hit in the security breach.

Some observers said the Target's tactical errors prolonged the data security crisis and did little to ease the public's worries.

"Target should have come out of the gate and expressed outrage that they had been violated," University of Minnesota marketing professor Akshay Rao told the MPR News show Daily Circuit on Monday.

The company, Rao added, should have pointed out the entire retail sector was vulnerable and "we're going to get together and address this issue. As opposed to saying, 'We're sorry. We're saddened.'"

The price tag for the snafu is unclear. Target faces dozens of lawsuits and other claims from aggrieved consumers, banks and other parties who say they got hit with fraudulent charges, card replacement and other costs.

Target has warned breach-related costs could be substantial in the end.

Analysts say Target's financial results for the last year-plus have been disappointing and that investors were raising questions about Steinhafel even before Monday's announcement.

Steinhafel's departure comes two months after the company announced that Chief Information Officer Beth Jacob resigned and outlined a series of changes it was making to overhaul its security systems and its security department.

Timeline: Steinhafel's tenure (story continues below)