Target takes $148M data breach hit

Updated 5:15 p.m.

Target Corp. is warning investors to brace for more losses when the company releases its second quarter report two weeks from now.

The warning came as the Minneapolis retail giant on Tuesday reported a big financial hit related to the consumer data theft late last year.

Those breach-related costs will reach $148 million in the second quarter, bringing the total to $235 million, the company said. Insurance will offset about 40 percent, $90 million, of the cost.

The company's report Tuesday may be an effort to get all the bad financial news out before incoming CEO Brian Cornell takes the reins next week. Target's first earnings report on Cornell's watch is slated for the following week.

Target also reported a pre-tax loss of $285 million from paying off some long-term debt.

On a down day for the major stock indices, Target shares closed down more than 4 percent Tuesday.

"The worst is over. That's the good news. But it had to get worse before it could get better," said retail consultant Carol Spieckerman.

"Once Brian Cornell comes in, there's going to be a lot of news about new initiatives, about where they're going next," she said. "That will help drown out some of that negativity and, I think, instill some confidence in the investor community that the worst is over."

The company still faces a range of other operational challenges, including generating sales online and in stores, where the company is reporting "essentially flat" sales in the U.S.

That's concerning because Target has been trying hard to woo shoppers with price cuts, known in the industry as "promotions," said Brian Yarbrough, an analyst with the investment firm Edward Jones.

"This quarter they really upped the promotions because they wanted to drive traffic back, and it's not really working," he said. "They've got an issue here. When you up promotions you typically expect traffic is going to improve as well, and that's not occurring."

Although the overall economy is improving, stagnant middle class wages have forced American consumers to be careful, and that translates to middling retail spending, Yarbrough added.

Things are even worse for Target in Canada.

Early last year the retailer rolled out more than 120 new stores across the country, an expansion that happened far too quickly in Canada's highly competitive retail market, said Toronto-based retail analyst Antony Karabus.

So far Target has lost more than $1 billion on its foray north of the border and said Tuesday sales there are softer than expected.

"Walmart and Costco are so well developed. You've got Giant Tiger, which is a fantastic Canadian retailer. So you've got some really world class retailers in the market that are doing extremely well," he said. "For Target to come in and open 120 stores in just over a year against these world class retailers is not an easy task."

Karabus said a recent visit to a Target in his neighborhood was disappointing, with a poor selection and a lot of empty shelves.

"I went in there to look for a few things for my daughter and, to be honest, I couldn't find anything and we left," he said. "We went to the mall around the corner and got everything we wanted in a short period of time."