Target’s Shares Jump as Retailer Recovers From Data Breach

Target Corp. shares jumped the most in more than four years after fourth-quarter profit topped estimates and the retail chain said it was beginning to recover from a data breach that struck during the holiday season.

Net income fell 46 percent to $520 million, or 81 cents a share, from $961 million, or $1.47, a year earlier, the Minneapolis-based company said today in a statement. Analysts had projected 79 cents, the average of 21 estimates compiled by Bloomberg. Sales declined 5.3 percent to $21.5 billion in the period, which ended Feb. 1, matching predictions.

The results helped allay the concerns of investors and analysts, who didn’t have high hopes for the company after the hacker intrusion tarnished its reputation, said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis.

“Expectations were so low going in,” said Yarbrough, who recommends buying the shares. “This offered a ray of hope.”

Chief Executive Officer Gregg Steinhafel has been working to keep customers coming into stores after hackers stole card data and personal information from millions of shoppers in December. The company offered customers a weekend of 10 percent discounts that month and a year of free credit monitoring. Those efforts are beginning to pay off, Steinhafel said today.

“We will continue to work tirelessly to win back the confidence of our guests and deliver irresistible merchandise and offers, and we are encouraged that sales trends have improved in recent weeks,” he said in the statement.

Stock Surge

Shares of Target, the second-largest U.S. discount retailer, rose 7 percent to $60.49 in New York. That marked the biggest one-day gain since 2009. The stock has declined 4.4 percent this year, compared with a 5 percent drop for its larger rival Wal-Mart Stores Inc. and a 0.2 percent decrease for the Standard & Poor’s 500 Index.

Target’s U.S. comparable-store sales decreased 2.5 percent in the fourth quarter, in line with the company’s forecast. It attributed the decline to the hacker attack. The sales are expected to be almost flat in February -- a faster recovery than Yarbrough had predicted. Target also indicated that it will make $1 billion to $2 billion in stock repurchases this year. Some analysts were concerned the company would eliminate buybacks altogether this year, he said.

The breach “is a serious situation, but one that we think Target should recover from,” Jason DeRise, an analyst at UBS AG in New York, said in a note before the results were released. He rates the shares neutral.

‘Meaningfully Weaker’

Sales at the U.S. unit were “meaningfully weaker” after the data theft was disclosed, the company said in January. Executives testified before Congress on the matter earlier this year.

Target, which opened its first stores in Canada about a year ago, said it will begin including those results in its adjusted earnings figures. On that basis, which excludes costs from the data breach, it expects profit of 60 cents to 75 cents a share this quarter. For the full year, Target expects earnings of $3.85 to $4.15.

The northern expansion has been a challenge for the retailer. Canadians, who for years had shopped at Target stores just over the border in the U.S., have been disappointed that prices in Canada are higher. Additionally, local competitors cut prices to make Target’s entry difficult, and Canadians aren’t shopping at the stores for basics such as food and medicines the way U.S. shoppers do.

Canadian Losses

The Canadian segment generated sales of $623 million last quarter and reduced earnings by 40 cents, the company said. The operation lost $941 million before interest and taxes in 2013, cutting the year’s profit by $1.13 a share.

This quarter the company expects sales of $400 million to $450 million in Canada -- with a loss of $150 million to $170 million, excluding some items.

“It continues to bleed, but the loss is a lot less,” Yarbrough said.

Target spent $61 million responding to the data breach last quarter, including costs to investigate the incident and offer identity-theft services to customers. Insurance covered $44 million of the tab, leaving the company with an expense of $17 million in the period.

The expenses don’t include potential claims by payment-card networks for counterfeit fraud losses.

“At this time we are not able to reasonably estimate a range of possible losses on the payment card networks’ potential claims,” the company said.

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