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Target rocked by data breach.

MINNEAPOLIS -- Target Corp. is striving to regain consumers' confidence after a nightmarish 2013 in which the retailer's first international expansion ran awry and tens of millions of its customers had financial and personal information stolen by hackers.

The retailers' sales and profits have taken hits from each calamity, and the final cost of the data breach may not be known for years. Target is facing dozens of lawsuits and investigations as a result of the theft, and it is overhauling its information security and compliance division as it prepares to convince courts and juries that its payment card system complied with industry standards at the time of the cybertheft.

"We know that our guests' trust in us is shaken," said Gregg Steinhafel, who at the time was Target's chairman, president, and chief executive officer. "But we also know they love our stores they love our brand, and we're going to learn from this experience and become a better retailer over time," Steinhafel told CNBC earlier this year.

Steinhafel this month became the first boss of a major corporation to lose his job over a breach of customer data security. The 35-year Target veteran resigned nearly five months after Target disclosed the security breach.

Chief financial officer John Mulligan was named interim president and CEO while the board looks for a permanent replacement.

Earlier, the company's chief information officer, Beth Jacobs, resigned amid an overhaul of Target's information security and compliance division. She was replaced by Bob DeRodes, an experienced information officer who held similar jobs at Home Depot Inc., Citigroup Inc. and Delta Air Lines Inc.

To help allay consumers' concerns, Target in April announced plans to become the first major U.S. retailer to have store credit and debit cards with chip-and-PIN security technology. The company also is offering free credit monitoring for a year for any customer who wants it.

The company is pledging to win back customers this year with "eye-popping, irresistible deals."

Target's U.S. shoppers have started coming back after being scared off by reports of the data theft, executives said in February while discussing fourth quarter financial results with investment analysts.

Fourth quarter profit margins suffered in part because of promotions offered to lure back customers, such as the 10% discount at its stores the company offered just after the breach was announced and clearance sales at the end of the holiday season.

Target said it spent $61 million in the fourth quarter on costs related to the cybertheft, but it expects insurance to cover about $44 million of that total.

Regaining the confidence of Canadian shoppers poses a different challenge following Target's rocky debut there. The company charged into the Canadian market last year with 124 new stores, but the launch was dogged by execution issues. Too many shoppers couldn't find what they wanted, and many of the stores had to unload unwanted inventory at clearance prices.

Target took a $941 million loss in its first year in Canada. Company officials think Canadian sales this year can double the $1.3 billion generated in 2013.

Steinhafel insisted that Target has the right long-term strategy for Canada. But some analysts predict that a new CEO will consider major changes to the Canadian stores, including possibly closing some or getting out of Canada altogether within a year or two if their performance doesn't improve significantly.

Meanwhile, Target's security breach could eclipse the biggest-known data theft at a retailer: TJX Cos. in 2007 disclosed a breach of customer information that compromised more than 90 million records at its T.J. Maxx, Marshalls and HomeGoods stores.

While the data theft record is not one Target executives would relish owning, the TJX incident nonetheless offers reason for optimism: TJX succeeded in rebuilding customer loyalty and has bottom-line results to prove it.

TARGET

FINANCIAL RESULTS (2/1/14) *

SALES: $72.60 billion (+0.9%) **

SAME-STORE SALES: -0.4% (on an equal-week basis)

NET INCOME: $1.97 billion (-34.3%) ***

NET MARGIN: 2.7%

OPERATIONS

HEADQUARTERS: Minneapolis

FISCAL YEAR-END STORE COUNT: 1,793 (includes 251 SuperTargets and 8 City Targets)

PRIOR YEAR-END STORE COUNT: 1,778 (Includes 251 SuperTargets and 5 City Targets)

BANNERS: Target, SuperTarget, City Target

RANK

5 in sales

* The prior fiscal year had 53 weeks.

** Sales represent merchandise sales only. Total revenues declined 1%.

*** Net income figures for the current and prior year include numerous charges and adjustments.
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Title Annotation:TARGET
Publication:MMR
Date:May 26, 2014
Words:732
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