Target CEO is out following credit card breach; stock drops

Gregg Steinhafel
Gregg Steinhafel, former Target CEO, at a Target store on Thursday, Nov. 22, 2012 in Bloomington, Minn.
Janet Hostetter/AP

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's share price underperformed
Target's share price underperformed the S&P 500 index over Steinhafel's tenure. From the day Target announced Steinhafel would lead the company until last Friday, the final trading day he was CEO, Target's share price was up 24 percent, compared to a 33 percent increase for the S&P 500 index over the same period.
Source: Bloomberg

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.

NewsCut: Did a little honesty cost Target CEO his job?
Has your view of Target changed after the credit card breach?

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)

Target last week said it hired Bob DeRodes to serve as chief information officer. He's been a senior information technology adviser for the U.S. Department of Homeland Security, the U.S. Secretary of Defense, and the U.S. Department of Justice.

Target also said last week that it plans to replace its credit and debit cards with some 20 million so-called smart cards with computer chips but personal identification numbers intended to fight fraud.

Steinhafel traces his retail roots back to the Milwaukee furniture store his grandfather opened in 1934.

Steinhafel began working at the store while in grade school, pulling weeds and mopping floors, according to a 2008 Milwaukee Journal Sentinel profile.

"Growing up, the Steinhafels had a favorite phrase - 'ratlike cunning' - which they doled out as praise to family members who demonstrated clever salesmanship," the Journal Sentinel wrote, adding, "Gregg Steinhafel demonstrated it when he talked his way into Northwestern University's Kellogg School of Management in Evanston, Ill., after originally being placed on the waiting list."

Steinhafel has been facing increasing pressure since December, when Target acknowledged that a data breach exposed the payment card information of about 40 million of its customers who shopped in stores during peak year-end holiday shopping season.

Weeks later, Target admitted the holiday data breach worse than the company previously knew and that hackers grabbed the personal information of 70 million customers, including their names, phone numbers and email and mailing addresses.

Target reported in February that its fourth-quarter profit fell 46 percent on a revenue decline of 5.3 percent as the breach scared off customers.

Target's fourth quarter net income
Following the massive data breach during last winter's holiday shopping season and ongoing troubles in Canada, Target's net income dropped 46 percent in the company's fourth quarter compared to the same period a year before.
Source: Target Corp.

The company had once set aggressive goals for investors, but the Canadian expansion took its toll, generating operating losses of more than $940 million last year, said Kenneth Perkins, an analyst who tracks Target for the investment research firm Morningstar.

"When you're trying to achieve those goals in a very difficult macroeconomic environment and then you throw on the fact that the calculated decision to enter Canada has resulted in bigger losses than expected, and the data breach has really weighed on sales, the trajectory is such that it's unlikely to get to that target," Perkins said.

Letter from Steinhafel to Target's board of directors