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Target Announces Profit Warning on Flat Sales

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Target Corp has cut its profit estimate for the second quarter as it has resorted to cutting prices to attracted consumers who are cash strapped and win customers back who were unnerved by the huge data breach over the holiday season.

The Tuesday warning showed that Brian Cornell the new CEO, who takes over the third biggest retailer in the U.S. next week, would not have an easy time of it.

One analyst put it simply by saying the new boss inherits a mess.

Sales at mass merchandisers in the U.S. such as Walmart and Target have been hit hard as consumers struggle with wages that remained stagnant and higher taxes that caused them to cut back on their spending.

However, Target is facing additional work in rebuilding its image and reputation after a huge breach of data resulted in 40 million debit and credit cards being stolen and more than 70 million other forms of customer data like phone numbers and email addresses.

Target, whose stock was off by 4.2% at $58.20 in early afternoon training, said sales at same stores in the U.S. were flat in the second quarter that ended in July.

One Wall Street analyst was concerned that Target has already started with promotional spending and that still has not driven traffic.

Target’s sales at same stores have dropped in three of the last five quarters.

On Tuesday, the company said it expected its expenses to be $110 million, related to the breach of data for this quarter, compared to only $18 million during the first quarter.

Costs were up because of an increase in potential and actual breach retail claims that included claims by card networks, said the company.

Target also announced its Canada sales had been softer than what was expected during the quarter. The retailer had losses of close to $1 billion in Canada in 2013 after an expansion plan that was aggressive stumbled.

Net income would also be lowered the retailer said due to a $1 billion payment to retire over $725 million in debt.

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