Target's data hack, shaky Canada expansion cause dramatic Q4 profit loss

No surprise here: Target's (NYSE: TGT) infamous data breach caused a dramatic hit to the company's bottom line in the fourth quarter. The retailer on Wednesday reported a profit drop of $440 million largely due to the data hack, but also because of its hasty, and shaky, expansion into Canada.

Overall, Target said profit plummeted 46 percent to $520 million, or 81 cents a share, from $961 million, or $1.47 a share, a year earlier. Sales fell 3.8 percent to $21.5 billion from last year's $22.7 billion. Revenue at stores open at least a year fell 2.5 percent.

Target's fourth-quarter results were also negatively affected by a rocky expansion in Canada, where it opened 124 stores within a matter of months. The retailer finished its first year of operating in Canada with a fourth-quarter operating loss of $329 million, far short of its original goal of being in the black. The gross margin rate for Target Canada was only 4.4 percent in the fourth quarter as the company aggressively marked down inventory to clear out excess goods.

The long-awaited earnings report confirms what many already knew. Shoppers avoided Target for fear of having their data stolen during the critical year-end holiday shopping season. Remember, too, that Target offered a 10 percent discount storewide for an entire weekend at the height of the holiday rush.

The company said it has spent $61 million cleaning up the mess that the breach created, from offering free credit monitoring to hiring additional staff to man customer service phone lines that were ringing off the hook. Insurance covered $44 million of those costs. The total cost of the breach to Target may not be known for years given litigation, and could reach into the hundreds of millions of dollars according to analysts.

It's still unclear when Target will recover from the negative press caused by the breach. The retailer said it has seen sales improve in recent weeks, though its forecast for this year's profit was lower than what Wall Street analysts had expected on average. CEO Gregg Steinhafel said in a statement that his team is prepared "to work tirelessly to win back the confidence of our guests."

For more:
-See this Target earnings statement

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