Sears-Kmart Margins Cut Profit

By James Mammarella -- Home Textiles Today, 9/3/2007 12:00:00 AM

Hoffman Estates, Ill. —

Downward pressure on margins drove second-quarter net income down 40.1% to $176 million at Sears Holdings. The retailer said this reflected "sales declines and increased promotional activity."

The company had net income of $294 million for the same quarter last year, although that included a $36 million pre-tax gain, or $22 million after tax, on proceeds from the settlement of Visa/MasterCard antitrust legislation. Not including that prior-year gain, the earnings result this quarter was still down a hefty 35.3%.

The gross margin rate at the 3,800-store discount and mid-tier powerhouse fell to 27.7% from 28.4% a year ago, while SG&A costs as a percentage of sales jumped to 22.9% from 22.1%.

Aylwin Lewis, Sears Holdings president and ceo, noted the company's disappointment at missing targets, offering, "In response, we are enhancing our marketing message to more clearly articulate the advantages of our products and service offerings, including our recently announced Ultimate Appliance Promise."

Total sales of $12.2 billion were down 4.7% from $12.8 billion one year ago, while comp-store sales dropped 4.3% at Sears, and fell 3.8% at Kmart.

The decline was general, and stemmed from "lower operating results at both Sears Domestic and Kmart, partially offset by improved operating results at Sears Canada," the company said. The biggest hurt seemed to be at the U.S. Sears division, where quarterly sales of $6.70 billion were down 4.9% from $7.05 billion, and the gross margin rate of 29.4% was down 130 basis points from 30.7% last year.

In merchandise categories, only footwear, women's apparel and consumer electronics were singled out for increased sales.

On the HTT Top 50 Retailing Giants list, Kmart is ranked No.6 and Sears No.12. Combined, they had 2006 home textiles sales of $1.430 billion.