Sears Holding Back Sears Holdings

By Don Hogsett -- Home Textiles Today, 9/12/2005 12:00:00 AM

Hoffman Estates, Ill. — —

Hoffman Estates, Ill. — Hobbled by continued poor performance at its recently acquired Sears business, Sears Holdings Inc., parent of the newly combined Kmart and Sears, reported that second quarter profits edged ahead by 4.5 percent, to $161 million from $154 million last year.

Sales virtually tripled at the nation's third largest retailer, shooting up by 175 percent, to $13.2 billion from $4.8 billion, as Kmart layered Sears sales onto its own in the period following the March 25 acquisition.

But segment sales for each retailer told another story. Sales at the persistently troubled Sears operation declined 3 percent, while same-store sales there tumbled even further, dropping 7.4 percent. Sears U.S. same-store sales were hurt, the company said, by a drive “to improve gross margin by reducing reliance on certain promotional events and reducing inventory levels to lower merchandise holding costs.”

Kmart comps, on the other hand, appear to be stabilizing somewhat after a long period of double-digit declines, and a turn-around appeared to be gaining traction in its once-flailing women's apparel business. Kmart said its same-store sales slipped 3.2 percent, a big improvement over drops as steep as 13 percent a year ago. Overall Kmart sales held steady, off 0.3 percent compared with the prior-year quarter. The retailer said Kmart's overall sales were hurt by a lower number of stores. The retailer said, “While Kmart's same-store sales declined as a result of lower transaction volumes, several businesses, including apparel, had positive same-store sales during the period.”

Looking at the quarterly results, a heads-on year-over-year comparison is confusing, if not misleading, since this year's numbers measure a newly combined Kmart and Sears against a stand-alone Kmart during 2004. Evening out the playing field, and measuring results on a pro forma basis, as if the companies had been wedded together in both 2004 and 2005, earnings jumped 46.4 percent, to $161 million from $110 million last year, with the Sears operation acting as a drag on a substantially improved and profitable Kmart.

Sears Holdings Corp.