Stronger Kmart, Weaker Sears Skews Earnings Pic

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

Hoffman Estates. Ill. —

Sears Holdings Corp., the newly formed combination of the former Kmart and Sears, Roebuck, put up a third quarter profit of $58 million, down almost 90 percent from last year, when profits were swollen by $807 million brought in from the sale of assets.

Sales at the giant retailer — still something of a work in progress as the newly acquired Sears business is being thought out and the Kmart operation is still being fine-tuned — jumped 175.7 percent, to $12.2 billion from $4.4 billion, as Kmart layered on $8 billion in Sears' sales since the March acquisition.

While overall sales almost tripled in the wake of the merger, same-store sales remained problematic and declined at both Kmart and Sears.

Same-store sales weakened 2.8 percent at Kmart units, hurt in large part by a weakening home business.

The picture was even more clouded at the Sears operation, which has yet to go through the kind of overhaul and downsizing that helped improve Kmart results after it came out of bankruptcy. Overall sales at Sears fell 6.3 percent, and same-store sales plunged 10.8 percent. The retailer said the slide in Sears' same-store sales “reflects efforts initiated in 2005 to improve gross margin by reducing reliance on certain promotional events, and weak apparel sales resulting from weaker-than-anticipated customer response to fashion offerings within the full-line stores.”

After the combination, average gross margin improved 310 basis points, or 3.1 percentage points, to 28 percent from 24.9 percent the prior year. Gross margin dollars, helped by the jump in sales after the merger and stronger margins, more than tripled, rising 210.3 percent, to $3.4 billion from $1.1 billion.

Sears Holdings Corp.