Mixed profit story as Sears pares its forecast

Don Hogsett -- Home Textiles Today, 7/21/2003 12:00:00 AM

HOFFMAN ESTATES, IL —

HOFFMAN ESTATES, IL Raising $93 million from the previously announced sale of bad debt in its credit card business, Sears, Roebuck and Co. boosted second-quarter profits by 34.9 percent, to $309 million from $229 million a year ago.

But honing in on the company's core retailing business — and giving an idea of what Sears will look like once it peels off its entire credit operation to Citigroup later this year — operating profits in the retailing business plunged by almost 40 percent, declining by 39.0 percent, to $183 million from $300 million last year, a daunting profit shortfall of $117 million.

Overall company profits, combining retail and credit, were relatively flat, edging up by 0.5 percent, to $10.2 billion from $10.1 billion last year. Merchandise sales actually performed somewhat better, improving by 0.9 percent, to $7.8 billion from $7.7 billion..

Putting operating profits under pressure in the core retail business was a triple whammy of weaker margins, rising costs and higher interest costs. Average gross margin narrowed by 10 basis points, or one-tenth of a percentage point, to 27.1 percent from 27.2 percent a year ago. The higher cost of sales in the quarter — $5.66 billion vs. $5.60 billion last year, pulled $60 million away from the bottom line. At the same time operating costs jumped up by 110 basis points, or 1.1 percentage points, to 22.2 percent of sales form 21.0 percent a year ago. In absolute dollars, costs climbed higher by 6.6 percent, to $1.7 billion from $1.6 billion, stripping another $107 million out of the unit's operating profits.

In one more blow to the retailing unit's bottom line, interest expense more than tripled, to $16 million from $5 million, pulling another $11 million out of earnings.

SEARS, ROEBUCK AND CO.