What is the company's financial outlook for fiscal year 2014 despite the data breach?

Home Depot reaffirms its fiscal year 2014 guidance, expecting approximately 4.8% sales growth and diluted earnings per share (EPS) of $4.54, which represents a 21% increase. This EPS figure includes estimated costs directly related to the data breach, such as investigation, customer credit monitoring, and increased operational expenses.

Are all potential costs from the data breach accounted for in the current guidance?

No, the company explicitly states that the fiscal 2014 diluted EPS guidance does not include an accrual for other yet-to-be-determined estimable and probable losses related to the breach. These unestimated costs could include liabilities to payment card networks, private label credit card issues, civil litigation, governmental investigations, and future remediation expenses, which could materially impact future financial results.

What new information was revealed about the data breach itself?

The investigation determined that criminals used stolen third-party vendor credentials to access the network and deployed custom malware on self-checkout systems. In addition to payment card data, approximately 53 million email addresses were also stolen. Home Depot is notifying affected customers and advising them to be wary of phishing scams.

What security measures has Home Depot implemented in response to the breach?

Home Depot has implemented enhanced encryption of payment data across all U.S. stores, scrambling data to make it unreadable to hackers. They are also accelerating the rollout of EMV chip-and-PIN technology to U.S. stores, which provides additional payment card protection, and expect to complete this ahead of industry deadlines.

HD 8-K: Regulation FD — Nov 6, 2014

Summary

This 8-K filing from Home Depot provides an update on the ongoing investigation into their 2014 data breach and reaffirms previous financial guidance for fiscal year 2014. Despite the breach, the company expects sales growth of approximately 4.8% and diluted EPS of $4.54, representing a 21% increase. This EPS guidance already includes estimated costs for the breach investigation, credit monitoring for customers, increased call center staffing, and legal/professional services. However, the company explicitly states that this guidance does not include an accrual for other yet-to-be-determined estimable and probable losses. These potential future costs could be material and include liabilities related to payment card networks, private label credit cards, civil litigation, governmental investigations, and remediation activities. Investors should be aware that these additional costs could negatively impact financial results in the fourth quarter of fiscal 2014 and beyond.

Key Highlights

1Home Depot reaffirms fiscal 2014 sales growth guidance of approximately 4.8% and diluted EPS guidance of $4.54 (21% increase).
2The EPS guidance incorporates estimated costs for the data breach investigation, customer credit monitoring, and increased call center/legal expenses.
3Guidance explicitly excludes provisions for other yet-to-be-determined estimable and probable losses related to the breach.
4Potential future costs not included in guidance could include liabilities to payment card networks, private label card issues, litigation, governmental investigations, and remediation.
5Criminals gained network access via a third-party vendor's credentials and deployed custom malware on self-checkout systems.
6Approximately 53 million email addresses were also stolen, separate from payment card data; customers are being notified and warned of phishing scams.
7Enhanced encryption of payment data is now implemented in all U.S. stores, accelerated post-breach, with Canadian rollout by early 2015.
8Rollout of EMV chip-and-PIN technology in U.S. stores is underway and will be completed ahead of industry deadlines.

HOME DEPOT, INC. 8-K Report, Regulation FD Disclosure (Nov 6, 2014)

Summary

Key Highlights

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