By Thomas Wailgum
February 05, 2008
By the end of 2007, The TJX Companies, which owns T.J. Maxx, HomeGoods
and Marshalls stores, had reported that approximately 100 million credit
and debit card owners' information had been compromised by hackers,
possibly dating back to 2003. The size and scope of the breach, as well
as the lack of adequate security controls to mitigate the criminal
activity, were breathtaking.
And yet Wall Street analysts didn't seem to care. In January 2007, when
TJX first announced the "unauthorized intrusions," its stock traded
around $29.The price hit a low of $26 in the spring as the scope of the
breach expanded, but the stock price rebounded to a high of $32 in the
fall. (In early February 2008, it was still trading around $32.)
In fact, the lack of financial fury by the analyst community was
entirely predictable. Research from Emory University's Marketing
Institute in 2006 found that when a company announces a security breach
its stock price drops between 0.6 percent and 2.1 percent, which is
usually not a huge hit to the bottom line.
To retail analyst Paula Rosenblum, a managing partner with Retail
Systems Research, the reason why TJX was able to escape unscathed is
simple: TJX's customers didn't care, so why should Wall Street.
"Sales continued to riseespecially same-store sales," a retail metric
whose value trumps all else, she notes. "The fines that have been
leveled against TJX metaphorically amount to a parking ticket, and even
the most draconian statements by analysts that 'final costs may be a
billion dollars' still borders on immaterial over a long enough time."
Another factor that saved TJX's stock price was the economy, says
Patricia Edwards, a portfolio manager and managing director at
Wentworth, Hauser and Violich who focuses on retail. "As we started to
see cracks in the economy this past summer, all the department stores
were making noises about too much inventory," Edwards says.
For TJX, economic conditions don't get any better than that because its
stores feed off the inventory gluts of the department stores. "And when
the economy gets rough, shoppers still want name-brand merchandise but
at discount prices," Edwards says. "TJX delivers that in spades."
Now, as the economy seems even more unsettled than last summer, TJX
seems well-positioned for the future. "Most of the lawsuits have been
settled, the customers didn't blink, comparable store sales are up,
earnings are on track and a down economy is always good for companies
like TJX," Rosenblum says. "Why would Wall Street pummel them?"
Copyright 2007 CXO Media Inc.
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