Looking at Home Depot’s earnings report Tuesday, you’d be forgiven for thinking that the home-improvement retailer emerged from its recent data breach virtually unscathed.
The retailer reported better-than-expected sales for the third quarter, signaling consumers weren’t dissuaded from visiting the retailer’s stores even after its recent data breach, which took place earlier this year and exposed millions of payment cards and e-mail addresses. Home Depot (HD) said it saw transaction growth in each month of the fiscal third quarter, and added it would be very difficult to determine if there was any impact at all from a data breach that first generated headlines in September.
“I think [the transaction growth] represents the strength of our customers’ confidence in The Home Depot,” said Ted Decker, executive vice president of merchandising.
But costs have been incurred, and observers say more expenses will be booked as Home Depot manages the fallout from the breach.
Chief Financial Officer Carol Tomé told analysts that the breach-related expenses incurred during the quarter came to about $43 million, while projected known gross breach costs were about $27 million for the fourth quarter. Home Depot said it carried a $100 million insurance policy for breach-related expenses.
Those expenses include legal fees, as well as IT and credit monitoring costs. But Home Depot also said there are a handful of people working around the clock on enhance security measures after the breach, and their costs, as Tomé explained, “have not been captured.”
“The numbers they gave were surprisingly low when compared to the Target breach,” said Efraim Levy, equity analyst at S&P Capital IQ. “The insurance helps mitigate the impact to Home Depot, but I think the cost may rise depending on how things play out.”
Target’s (TGT) well publicized breach resulted in $148 million in expenses in the second quarter.
Still, operationally Home Depot performed well. Notably, transactions for items that cost more than $900 — which make up about 20% of Home Depot’s U.S. business — leapt 5.9% in the third quarter. Home Depot executives said the housing market continues to recover in the U.S., and the retailer’s executives are encouraged by projections of gross domestic product growth in 2015, as well home price appreciation and current housing turnover of about 4% of units. As home values increase, Home Depot has often contended that consumers are more willing to spruce up their homes if they see it as a more valuable investment.
Tomé told Fortune that she was also encouraged by some recent news that suggests regulators are considering changes to mortgage financing.
“If we see some mortgage finance reform, that could be really good for our business,” Tomé said.
Looking ahead to the upcoming winter months, Tomé said Home Depot was doing “our best to be as nimble as we possibly can.” Last year, Home Depot bought a record number of heaters, and this year the retailer has purchased even more. Because heaters are manufactured abroad, Home Depot has to put in orders about a year in advance.
But in other departments, Home Depot will respond to Mother Nature, as needed. Tomé said Home Depot’s size gives it a significant advantage.
“We can demand more product than our competitors,” Tomé said, adding that Home Depot will certainly have enough rock salt, or other winter-related items, that might be needed depending on the severity of the weather this winter.
