Target warns cost of data breach could hurt profit in future

A cash register screen indicates a customer is entering their PIN number at a Target store in Miami.
Getty Images

Target's net profit almost halved in the holiday quarter as the third-largest U.S. retailer dealt with the fallout of a massive data breach and warned that costs related to the event could hurt future profits.

Target incurred $61 million in expenses related to the breach during the quarter, but those costs were offset by a $44 million insurance payment, bringing down the impact to $17 million. The retailer said it has not been able to estimate future expenses related to the data breach.

After the earnings announcement, the retail giant's shares rose in premarket trading. (Click here for the latest quote for the company.)

Wednesday marks the first time Target faces Wall Street since the breach, which led to the theft of about 40 million credit and debit card records and 70 million other records with information such as addresses and phone numbers of shoppers compromised.

(Read more: Target CEO'still shaken' by the data breach)

"These costs may have a material adverse effect on Target's results" in the current quarter, the year and future periods, it warned investors on Wednesday.

Net earnings fell to $520 million, or 81 cents a share in the three months that ended on Feb 1, from $961 million, or $1.47 a share, a year earlier.

Securing your credit card with EVM technology

The data breach "took the wind out of Target's sails—and unfortunately sales," said Sandy Skrovan, US Research Director at Planet Retail.

Representatives for Target have declined to discuss exactly what sorts of costs its cyber insurance will cover or identify its insurers.

(Read more: Eh, don't put too much stock in retail earnings)

Large corporations typically obtain cyber insurance from multiple carriers, who share the risk, sometimes requiring the carrier to pay some expenses as well before the policies reach their maximum.

Insurers offer cyber policies that cover costs for items such as investigating breaches and repairing networks, compensating credit card issuers for fraudulent activity, fighting lawsuits and responding to regulatory probes.

Target said on Wednesday it may have to incur costs tied to reissuing cards, lawsuits, governmental investigations and enforcement proceedings, legal expenses, investigative and consulting fees, and capital investments, among other things.

By Reuters