Sears Slashes Outlook

Hoffman Estates, Ill. — Adding gloom to a grim season for broadline retailers, Sears Holdings cut its fourth-quarter earnings outlook to about half of last year's fourth-quarter result. Wall Street reacted sharply and by noon the day of the announcement the Sears share price had fallen below $90 for the first time since January 2005. (The price has since rallied to above $100 again.)

Sears said it now projects net income for the fourth-quarter ending Feb. 2, 2008 of between $350 million and $470 million, or between $2.59 and $3.48 per fully diluted share. In the fourth quarter of the prior year, the company reported net income of $820 million, or $5.33 per fully diluted share.

The $50 billion merchandiser said that in the combined November and December retail months, same store sales at U.S. Sears stores fell 2.8% and Kmart's fell 4.2%. Total U.S. comps were down 3.5% for the nine-week period.

Gross margin rates fell by 200 basis points in the period, the company said.

Sears Holdings projects a profit of $744 million to $864 million, or $5.96 per fully diluted share for the full year ending Feb. 2, also roughly half of last year's income. The year ago profit was $1.5 billion, or $9.57 per diluted share.

Days later, the company proclaimed a simplified organizational structure and operating model, in a move that chairman Edward Lampert said would "empower individual businesses and teams to focus on the customer experience and performance" and thus "build a stronger company, and be more attractive to partners and talent."

The $53 billion retailer will soon be configured into a range of five different types of business units, Sears said, and "the leadership of each unit will have a separate, internal profit and loss statement to allow greater focus on managing the profitability of the unit, and rapid decision making to capitalize on opportunities and mitigate risks."

The five types of units:

• Operating business units for current lines of business such as home appliances, electronics, and apparel;
• Support units to provide operational and administrative support to the operating businesses including marketing, store operations, customer strategy and finance;
• Brand units for growing the value of Sears Holdings brand portfolio;
• Real estate business to increase "the sales productivity" of the physical real estate;
• Online business unit to increase the sales productivity of the "virtual real estate."

"Our board of directors, our senior leadership team and I believe this will make Sears Holdings a more responsive and competitive company in the future," Lampert said, adding, "We are not doing this overnight; this is a phased transition to enable our business units and their key partners to learn how to leverage the new model."