Source: Target
The holiday season is once again upon us, and with it comes happiness, love, and precious time with friends and family. Yet "the most wonderful time of the year" also plays host to stampeding, and often violent, crowds, those dreadful visits from the in-laws, and for Target (TGT 1.06%), one of the largest data breaches in recorded history.
If you shopped at a Target between November 27 and December 17 you are being told to call your credit card company, request a replacement card, and change your PIN. Those who shopped at Target during this period had their name, credit or debit card numbers, expiration dates, and security codes stolen.
On Thursday, December 19, Target first acknowledged the historic hack, estimating that 40 million accounts were affected by the breach. The theft is the second largest in U.S. history, behind only the 2007 scam involving TJX Companies (TJX +0.19%), which affected an estimated 45.7 million card users, a projection which was later increased to 100 million.
To try to lessen the backlash, Target said it would offer affected customers a free credit monitoring service and set up a telephone hotline. Target also ran a storewide 10% discount on both the 21st and 22nd. Still, customer anger has run rampant. Angry customers expressed their displeasure via comments on Target's Facebook page. Many went as far as threatening to stop shopping at the store.
The pain doesn't stop there
The question as to how much this would affect Target's sales was partially answered by the Wall Street Journal, which on the 22nd reported that the number of transactions at Target slipped 3%-4% over this past weekend compared with the final weekend before Christmas last year. These figures were according to the retail consultancy firm Customer Growth Partners LLC.
The president of Customer Growth Partners, Craig Johnson, remarked, "this is the worst possible time something like this could happen." According to his firm's estimates, U.S. retail sales on Saturday, December 21, totaled $17 billion, which exceeded Black Friday sales by $2 billion.
Time to hit the panic button?
These revelations come on top of reports by the National Retail Federation that Thanksgiving-weekend shopping declined 2.9% year over year to $57.4 billion, even while the total number of shoppers increased. All of this developments combine together to make for a not so merry holiday season for Target.
TJX, the parent company of T.J. Maxx and Marshalls, had to spend $256 million as a result of its security breach incident in 2007, which ending up being more than 10 times its original estimate. Robert Siciliano, an identity theft analyst, would not be surprised to see Target go through a similar ordeal, which will ultimately result in costs in excess of $100 million. "They've got a year's worth of legal issues in front of them," Siciliano said. "They will have to hash it out with banks and credit card companies. There could be fines. They could potentially have government officials after them." Safe to say, this is not the type of present Target was hoping to receive for Christmas.
Yet even if costs surmount the $256 million TJX had to pay, it's not the end of the world for Target. In the company's 2013 fiscal year, which has already been completed, Target clocked in $4.52 in EPS. Already analysts have dragged down estimates for 2014, projecting only $3.48 in EPS. By 2015, Target is expected to be back in record territory, with a projected $4.73 in EPS.
The Foolish Bottom Line
While there is still a lot of uncertainty surrounding this situation, it is by no means the time to panic if you are an investor in Target. Just like in the TJX case, if management does a good job of controlling the damage in a few years people won't even remember this entire debacle. But in the short time, there will be a lot of noise surrounding the situation and the company.
For the long-haul, however, Target is still the same company it was a few days ago, but now it is "on sale" due to its recent slip up. The company trades with a pretty middle-of-the-pack P/E ratio of 16.5, sports a dividend which has grown by more than 250% over the past 5 years, and is rapidly expanding its store count domestically and internationally. By 2020, the company is projected to have 302 international locations and 1,890 U.S. locations, compared to 124 and 1,780 today, respectfully.
All in all, while this data breach debacle may have a negative short term impact on the company and stock, in the long-term Target's growth story is still intact.
