Leading home improvement retailer, Home Depot Inc. (HD), after thorough investigation of the recent data breach from its payment systems, revealed that the incident impacted nearly 56 million debit and credit cards.
This makes Home Depot’s data breach the second-largest one in recent times as it caused even greater damage than Target Corp’s (TGT) massive breach last year before Christmas, where hackers robbed about 40 million credit and debit card information. However, the attack trails TJX Companies Inc’s (TJX) cyber attack in 2007 that affected about 90 million records.
Coming back to Home Depot, the company also disclosed that the malware used in the attack has been completely removed from its U.S. and Canadian networks. Further, to step up the security of its payment systems and safeguard consumer records, the company has rolled out a major payment security project providing superior encryption of payment data at point of sale in its U.S. stores. The company also stated that it aims to extend this project to its Canadian stores at the beginning of 2015.
However, the company said that its Canadian stores are already equipped with EMV "Chip and PIN" technology that provides enhanced security. Home Depot also revealed that it is on track to roll out EMV "Chip and PIN" technology to all U.S. stores by the end of this year, ahead of the Oct 2015 deadline established by the payments industry.
Despite the disturbance caused by this breach throughout September, the company estimates sales for the third quarter to remain the same as expected earlier. Driven by third quarter-to-date results, the company reiterated its previous fiscal 2014 sales growth target of 4.8%. Nevertheless, it revised its earnings per share forecast for the year to $4.54 (from $4.52 projected earlier), reflecting year over year growth of nearly 21%.
The company’s revised earnings forecast includes estimates for the expenses incurred to investigate the data breach, provide credit monitoring services to its customers, increase call center staffing and pay legal and professional services.
However, the profit guidance does not include the potential losses associated with the breach as the company mentioned that it is yet to estimate further costs that it might incur in relation to the same. These may include liabilities related to payment card networks for reimbursements of credit card fraud and card reissuance costs as well as future civil litigation and governmental investigations and enforcement proceedings.
Home Depot had begun investigating the breach on Sep 2, after being informed by its banking partners and law enforcement about the matter. Since then, the company’s internal IT security team has been working with leading IT security firms, its banking partners and the Secret Service to get hold of the situation.
The breach was first reported by security blogger Brian Krebs, who sighted an attack of malware on Home Depot’s systems similar to the one that had hacked Target Corp’s systems last year.
Apart from Target and Home Depot, other companies, including Michaels, SuperValu Inc. (SVU) and Neiman Marcus, have faced system hacking issues amid increased security threats from hackers.
A recent report, by the Department of Homeland Security and the Secret Service, reveals that over 1,000 businesses in the United States had been infected with malware that is programmed to drain off payment card details from cash registers in stores.
To counter this threat and provide improved security to its customers, retailers have teamed up with banks and card companies by steadfastly adopting microchips into U.S. credit and debit cards, in order to make transactions more secure.
While Home Depot’s recent guidance indicate no major impact from this incident, we believe the data breach might cost the company as customers lose confidence in shopping with the do-it-yourself retailer. Currently, Home Depot holds a Zacks Rank #2 (Buy).
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