Target (NYSE:TGT) has a major PR problem and every time the company's PR spokesperson speaks it seems to become a bigger problem. But, that problem may present a unique window for investors. My guess is that if you took a survey today and asked the question "what is the first thing that comes to mind when you think of Target, the majority answer may be "that is where they stole the credit-debit card data", perhaps followed up by "I don't trust what the company is saying". Nowhere on the response landscape would be "they have great product selection and provide great discounts. Target is reportedly ranked in the top 3 for sales of U.S. retailers behind Walmart (NYSE:WMT) and Kroger (NYSE:KR). Nor would you likely hear about their good customer service, clean stores and polite workers in red polo shirts, all obviously a problematic situation for the retailer who is desperately trying to rebuild trust among its customer base.
New news is bad news
Widely reported in the media, the company announced on Friday that the theft of customers data is more far reaching than previously announced. Company representatives said to the effect that names, home and e-mail addresses for approximately 70 million people were hijacked, adding to the company's initial statement regarding credit and debit-card data of 40 million accounts being stolen. The breach happened in the fourth quarter of 2013, in the height of the Christmas shopping season and is expected to have a material adverse effect on fourth-quarter results not yet made public. Target's nightmare began when an apparent hacker virus hit the company's point-of-sale systems in December, when in-store purchases were being made using company and financial institution credit cards. The company hoped that the fallout for the Minneapolis, MN firm would be short term, but as additional disclosures become public, it's apparent the story continues to sprout legs and cause ill effect on the company's brand. The question is, how much damage is there to the brand and can it be repaired?
Company representatives used the phrase "meaningfully weaker" when discussing same-store sales of U.S. units and expect a 2.5% to 6% fall in the quarter through January. The company lowered earnings per share (EPS) projections to $1.20--$1.30, down from $1.50--$160 range for Q4, 2013. Reportedly there are dozens of lawsuits in the making against the company for not adequately safeguarding private customer information.
Window of Opportunity
So while the company brand is under attack, leaving customers unsure about their card numbers and information while shopping, the investors mindset may be different at this point. At year end 2013, Target's share price closed up 6% from the prior year. Revenues for 2013 had showed growth but reduced profit. There were stronger-than-expected fourth quarter sales before the late December (Dec 19th announcement) payment card data breach. Shares are now trading around $62.00, on the low end of it's 52-week range of 59.72 - 73.50. Therein lies the good news and window of opportunity. Likely, there is continued room for the price to fall as the company muddles its way through this PR mess. Worst case, another breach involving customer data happens, causing a free fall of consumer and investor confidence and stock price, and we start to hear about class action lawsuits. More likely is that the company's ongoing investigation reveals a little more bad news and keeps some customers out of the stores for a few quarters, making 2014 its worst performing revenue and profit year in recent history, again leading to price falls on shares. Entry at $60 or even mid $50 is potentially a good buy, as the rising revenue history of 2013 will likely return after the short term fallout of this problem. If the company can turn that revenue into profit we will see the share price reflect that effort in late 2014, early 2015.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.