TOM GARA AP 1:34 pm ET Aug 5, 2014
The massive breach of Target’s computer systems in late 2013 was a costly one: Financial institutions alone spent more than $200 million in response to the hack, replacing millions of credit cards whose data had been compromised, while the company’s Chief Information Officer and CEO both left their posts in its wake.
And today, another sign of the hack’s full cost: Target TGT +0.17% says its coming second-quarter results will include $148 million in expenses related to the breach. It will get back $38 million of that via an insurance payout, but it’s still enough to be a drag on results. It means to total costs of the hack across all the parties involved is likely over $350 million.
During fourth quarter 2013, Target experienced a data breach in which an intruder gained unauthorized access to its network and stole certain payment card and other guest information. In second quarter 2014, the Company expects to record gross breach-related expenses of $148 million, partially offset by the recognition of a $38 million insurance receivable.
Expenses for the quarter include an increase to the accrual for estimated probable losses for what the Company believes to be the vast majority of actual and potential breach-related claims, including claims by payment card networks. Given the varying stages of claims and related proceedings, and the inherent uncertainty surrounding them, the Company’s estimates involve significant judgment and are based on currently available information, historical precedents and an assessment of the validity of certain claims.
These estimates may change as new information becomes available and, although the Company does not believe it is probable, it is reasonably possible that the Company may incur a material loss in excess of the amount accrued. The Company is unable to estimate the amount of such reasonably possible excess loss exposure at this time. The accrual does not reflect future breach-related legal, consulting or administrative fees, which are expensed as incurred and not expected to be material in any individual period.
Target lowered its earnings expectations, saying U.S. sales were flat and margins were lower due to discounts. Results will be reported on August 20.