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Sears Holding rings up 1Q profit

By Staff -- Home Textiles Today, 5/18/2006 1:20:00 PM

Hoffman Estates, Ill. — Beefing up margins, holding the line on costs, and managing its stockpiles carefully, Sears Holdings Corp. swung to a first-quarter profit of $180 million from a year-before loss of $9 million.

Skewing the bottom line somewhat, last year's opening quarter was hit by a $90 million charge stemming from a change in accounting for inventory costs. But after pulling out that charge to level the year-over-year playing field, earnings still more than doubled, shooting up by 122.2%, to $180 from $81 million.

Adding sales from the Sears, Roebuck operation acquired last year to Kmart, sales of the parent company climbed higher by 57.5 percent, to $12.0 billion from $7.6 billion during the same period a year ago.

But it was a different story for same-store sales, which fell by 4.8 percent, hard hit by weakness at Sears stores, which continue to lose dollars and market share to rivals. Same-store sales at Sears tumbled by 8.4 percent, while Kmart compass were relatively flat, giving up just 0.2 percent.

The retailer said "lower transaction volumes within home goods, partially offset by increased sales in apparel and within food and other consumable goods categories put downward pressure on same-store sales at Kmart." Same-store sales at Sears "reflect declines across all categories and formats except within home appliances," which generated a small increase, the company said.

Fueling the swing to a profit from a loss was a stronger margin performance and lower costs. Gauging results on a pro forma basis — as if Sears and Kmart had been tied together for the full year — margins improved by 140 basis points, or 1.4 percentage points. At the same time, costs were whittled down by 110 basis points, or 1.1 percentage points.

And cash was saved by careful inventory management, with stockpiles increasing just 1.1 percent over the past 12 months, while overall sales shot up by more than 57 percent.

Wall Street and investors were enthralled by the results, and responded by sending Sears shares soaring up by $17.88 a share, or 13% in value, during mid-day trading this afternoon. Trading by 1 p.m. was more than four times the usual daily volume.

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