Finally Someone’s Head Rolls Following Target’s Massive Data Breach

Source: Wikimedia Commons

Mistakes can be forgiven, but negligence must be accounted for. That is the message that Target (NYSE: TGT  ) acknowledged on March 5 when the company announced that its Chief Information Officer, Beth Jacob, was resigning from her post. While we may never know if Jacob was forced to resign for fear of being ousted, or if her decision to part ways with the company was her own, the rest of the company's executive team is probably hoping that investor furor will subside as a result.

Given the uncertainty surrounding the situation, what does this mean for the Foolish investor? Since the figurehead that investors blamed for the breach is gone, is now an opportune time to jump into the company's shares or is this departure just the start of more pain for the retailer?

Could poor qualifications lead to a management shakeup?

Source: Target

One of the top concerns by Target's management right now is the possibility of shareholders demanding that heads roll in response to the breach. As of right now, Jacob is the only high-ranking person who has fallen victim to the incident, but there is the question of whether she should have held her position in the first place.

After graduating from the University of Minnesota with her bachelor's degree in merchandising, Jacob landed a job with Target as an assistant buyer. She then left the company in 1986 to pursue her MBA and was allowed to return in 2002 as a director of guest contact centers. In 2006, Jacob was promoted to vice president of guest operations and finally assumed the role of CIO two years later.

Judging from her background, it's difficult to argue that she was suitable for the role of a CIO. With no apparent experience in overseeing information systems, Jacob likely was not the best candidate for the position she worked her way up to. For this reason, shareholders will likely take a closer look at the company's roster and could fight to remove those who either aren't qualified or who advocated bringing on unqualified team members.

A blast from the past!
In order to understand how well Target might fare following the data breach, investors would be wise to look at another case that closely mirrors Target's situation. In 2006, fellow retailer The TJX Companies (NYSE: TJX  ) , discovered a significant data breach in which 45.7 million credit and debit card numbers were stolen from their systems. On top of this, the company noticed that nearly half a million individuals had personal data stolen from merchandise that was returned without receipts from 2003.

Fortunately, the fallout for the company wasn't a game-changer. In the year following the breach, the business reported a 7% spike in revenue from $17.1 billion to $18.3 billion. This was followed by a 4% growth in revenue to $19 billion in 2009 and now stands at $27.4 billion. In terms of profits, the breach was negligible. Despite booking a $197 million charge in 2008, the business was able to credit back nearly $31 million in 2009 as its costs came in less than anticipated and net income rose 19% from $738 million to $880.1 million.

Consumers aren't as forgiving in the case of Target!
Based on the experience seen by TJX, shareholders might think that a data breach of Target's size, which resulted in the loss of 40 million credit and debit card records and 70 million records from other customers, may not mean much. However, consumers appear to be less forgiving these days. For Target's most recent fiscal year, the company reported that sales fell 1% from $73.3 billion to $72.6 billion, while net income fell 34% from $3 billion to $2 billion.

Most of this downside took place during the company's fourth quarter, which saw revenue fall more than 5% while net income declined 46%. During the quarter, the business incurred only $17 million in expenses (net of $44 million from an insurance receivable) relating to its data breach. Unfortunately for shareholders, Target's management claims that it cannot estimate what future expenses relating to the breach might be.

Foolish takeaway
As we can see, Target's situation is anything but great. The business allowed at least one member of its top brass to sit in a position they weren't qualified for. This, combined with falling sales and plummeting profits, could signify even tougher times ahead, both for the company and its management team. In the long run, however, there is probably not too much downside for the retailer.

Although customers are treating the business differently from how they met TJX's data breach, the endgame is probably the same. In the short run, the company might be impaired, but just as TJX continued to grow, Target will probably bounce back too. Considering this likelihood, the Foolish investor who doesn't mind sitting through volatile moves in a company's share price may find the business an attractive prospect.

Is Target the Creme de la creme?
Despite the problems facing Target, there is the possibility that the company can reverse course and deliver significant returns to shareholders during 2014.  Could the company be the No. 1 stock to hold for the year or is there something better out there for the Foolish investor?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2014, at 8:45 PM, owenripley wrote:

    Interesting - that was my first impression when I read about her getting axed and saw the short bio. I was thinking - what part of that background qualified her to be CIO of a large retailer with bank operations??

    Coincidentally, I interviewed with TGT several years ago for an IT Risk Manager position. They said I'd have to come in as a consultant (and less pay) as they didn't like to bring in senior people from outside - but prefered to promote those positions from within. I'm all for promoting from within but not at the expense of losing qualified individuals who perhaps have a more broad background then retail.

    Curious to see if they stick with that philosophy when finding a new CIO.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2865629, ~/Articles/ArticleHandler.aspx, 8/31/2015 11:58:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Daniel Jones

Dan is a Select Freelance writer for The Motley Fool. He focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics!

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:06 PM
TGT $77.71 Down -0.32 -0.41%
Target CAPS Rating: ****
TJX $70.32 Down -0.40 -0.57%
The TJX Companies,… CAPS Rating: ****