About a half year after Target suffered a massive data breach, the retailer is still anticipating further financial hits.
"Our outlook does not have additional costs for the data breach. We believe we have the financial strength to move beyond the financial impacts once they are known," said John Mulligan, Target's interim president and CEO, during a May 21 conference call to discuss the Minneapolis-based retailer's first-quarter earnings. The previous president and CEO, Gregg Steinhafel, resigned May 5.
In the first quarter 2014, Target reported $18 million of net expense that was driven in part by the breach, or $26 million of total expenses offset by $8 million in expected insurance reimbursement. These costs do not reflect future claims by payment card networks for fraud losses connected to the breach, and the retailer may not have visibility into those costs until the third quarter.
The card networks are conducting an investigation into their possible exposure to the breach and will get back to Target with an estimate, Mulligan said. "That's taken several months historically for other breaches and that is where we get the third quarter from," Mulligan said. "That is when our potential liabilities may become clearer."
Mulligan is serving as interim president and CEO while the company searches for someone to fill the position permanently. Target didn't provide a deadline for this decision.
"Rather than focusing in a timeframe, the board is focused on getting the right person to help us become an omnichannel [mobile, Web and in-store] retailer," Mulligan said.
In the wake of the breach, Target has committed to improve security by supporting EMV-chip credit and debit cards ahead of its earlier schedule. The company also entered a deal with MasterCard to offer a chip and PIN version of its REDcard.
Target's performance has suffered due to the breach. The retailer's income dropped 16% to $418 million, or $0.66 per share, for its fiscal first quarter from a year earlier (its fiscal quarter ended May 3). Target expects second-quarter earnings per share of between $0.85 and $1.02. For the full year, Target is projecting earnings to be $3.60 to $3.90 per share, which is down from previous guidance of $3.85 to $4.25 per share.
In addition to the breach, another factor in Target's performance was the poor winter weather and overall slow economic growth for the lower-to-moderate income consumers who make up a large portion of its customer base.
In other recent moves, Target named Bob DeRodes CIO, replacing Beth Jacob, who resigned March 5.
"We're confident that Bob is the right person to lead our technology transformation," Mulligan said.
Target has also incurred additional expenses by expediting marketing programs and discount offers to get people back into its stores.
"These steps will lower operating margins," Mulligan said, adding the company is also investing in more mobile and digital shopping technology. "We need to grow faster in the digital channel to catch up to those who have been on that journey for a longer period of time."
The retailer's overall performance suffered additional headwinds from a slower than expected expansion into Canada. Target has been hit with complaints over pricing and its own real estate costs in the country.
"So far we have not lived up to our potential in Canada and we need to think broadly about all aspects of our business there," Mulligan said.