Although reports of the massive data breach that occurred at the end of the holidays were horrible, Target shares have made huge gains after reassuring investors that their customers are now returning to Target locations in the U.S. It is safe to assume that the impact of a massive data breach may have been less severe than first anticipated. According to Chief Financial Officer John Mulligan, Target shares fell 11 percent when news broke out of the cyber attack; shares now have risen up 6.8 percent, which is their highest in about a month and a half. Even though Target warned investors that because of the attack their results in the first quarter and beyond will be diminished, its shares still rose, which surprised investors at how good the full-year outlook seemed to be.
Regardless, Target’s reputation for being a store with great shopping experience has been damaged because many customers now have to either replace their credit cards or have to keep a very close eye on monthly statements. In effect, this hurts Target’s relationship with their customers. Target reported a 46 percent drop in net profit during the holiday quarter and reported $61 million in costs due to the cyber attack. Target also posted a 5.5 percent drop in transaction count during the quarter when the cyber attack occurred. This is the worst it has ever been, even worse than during the financial crisis of the fourth quarter in 2008 which was a 4.8 percent drop.
The good news is, Target stated of the $61 million in expenses that are directly related to the attack, $44 million was offset by an insurance payment, which leaves only $17 million of expenses for Target to deal with. Mark Rasch, a former cyber crimes prosecutor who worked on some of the biggest U.S. payment card breach cases, stated that it was way too early to properly estimate how big the bill would be. Target has refused to discuss exactly what sorts of costs its cyber insurance will cover or identify its insurers. Insurers will offer cyber policies that cover the costs for many different items such as, investigating breaches, repairing networks, reimbursing credit card issuers for counterfeit activity and fighting lawsuits.
Mitchell and Mitchell offers cyber liability coverage for your business. Contact us today at 888-512-8878 for a no-obligation quote!