World and Nation

Punished by data breach, profit at Target declines 46 percent

The widespread theft of Target customer data had a significant impact on the company’s profit, which fell more than 40 percent in the fourth quarter, the retailer reported Wednesday.

The company said net earnings were $520 million in the quarter, down 46 percent from the same period a year earlier, when earnings were $961 million. Earnings per share were 81 cents, down from $1.47 the year before. Target executives repeatedly called 2013 a “challenging” year on Wednesday. “Results softened meaningfully following our December announcement of a data breach,” Gregg W. Steinhafel, Target’s chief executive, said in a statement.

But all results are relative. J.C. Penney executives were pleased with their company’s performance, though it reported only $35 million in profit in the fourth quarter — much better than the $552 million loss the company reported for the same period the year before. And at Abercrombie & Fitch, a member of the badly struggling teenage retail sector, profit fell to $66.1 million from $157.2 million the year before. (This year’s fourth quarter had 13 weeks, however, and last year’s had 14 weeks.)

On Dec. 19, Target publicly confirmed the data breach, which compromised personal or payment information for as many as 110 million people. Sales in the company’s fourth quarter, which ended Feb. 1, fell 3.8 percent from the year before, and transactions were down 5.5 percent.

Profit margins also suffered, company executives said, partly because of unanticipated promotions the retailer decided to offer to try to lure back customers.

The company reported $61 million of pretax expenses related to the breach in the fourth quarter; it expects $44 million in insurance payments for a net cost of $17 million. Target said it could not estimate the breach’s future costs, which could include litigation, fraud claims and investigative fees, but the company acknowledged that it could have a material adverse effect.

In addition to the fallout from the data breach, and a difficult environment for retailers overall, Target has been struggling with a rocky expansion in Canada, where it opened 124 stores. While the data breach continues to drag on Target’s business, executives said sales began to recover in January and consumer sentiment also began to improve. If not for the weather, they said, sales would have been better. They joined a chorus of retailers, including Wal-Mart, Penney and Home Depot, in saying that an exceptionally cold and stormy January hurt sales.