Profits sink at Sears

By Don Hogsett -- Home Textiles Today, 7/26/2004 12:00:00 AM

HOFFMAN ESTATES, ILL. —

Hampered by weak apparel sales, then hobbled by $80 million in severance and other costs, second quarter profits went into free fall at Sears, Roebuck and Co., dropping 82.8 percent, to $53 million from $309 million.

Alarmed by the poorer-than-expected performance, anxious investors hammered the retailer's stock, at one point driving it down more than 10 percent in unusually heavy trading. But by the time the dust had settled Thursday, July 22, the stock had bounced back, and closed the trading day down $1.00, or 2.9 percent.

Sales at the nation's largest department store chain dipped 1.7 percent, to $8.7 billion from $8.9 billion last year. Overall, domestic same-store sales were off 2.9 percent.

"Like much of the industry, we experienced weak demand in June," said Sears Chairman and CEO Alan Lacy.

The retailer said, "Strong showings in certain key product areas and approximately $38 million earned under the company's long-term alliance with Citigroup, were more than offset by sales declines in most apparel categories, as well as air conditioning."

But a number of business segments, including home, were strong performers, he noted. Lacy said the retailer is "pleased with early customer response in the merchandise categories that are being reset, such as home fashions and kids. In addition, the overall performance of our off-mall formats was positive, including The Great Indoors, Hardware and Dealer Stores."

Not all the news was bad, and average gross margin improved modestly, while continued cost cutting yielded substantial savings. Margins edged up to 27.8 percent from 27.7 percent. And costs were pared to 23.7 percent of sales from 26 percent a year ago, generating savings of $235 million.

Sears, Roebuck & Co.