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Apparel Sales Boost Sears Holdings’ Earnings in 4th Quarter

Sears Holdings Corp. said Thursday that fourth-quarter earnings jumped 26.5 percent, beating the consensus earnings per share estimate by 15 cents.

Sears Holdings Corp. said Thursday that fourth-quarter earnings jumped 26.5 percent, beating the consensus earnings per share estimate by 15 cents.

Results got a boost from better margins in apparel sales at Kmart and Sears domestic stores.

For the three months ended Feb. 3, net income climbed to $820 million, or $5.33 a diluted share, from $648 million, or $4.03, in the year-ago quarter. Wall Street analysts’ consensus estimate was $5.18 a share. Revenues rose 1.3 percent, to $16.29 billion from $16.09 billion. Same-store sales fell 3.1 percent as comps declined 4.9 percent at Sears domestic stores and 0.9 percent at Kmart stores.

The company said improved results reflected increased operating income at Kmart and Sears domestic stores, driven by an improved margin rate performance, particularly in apparel.

For the year, net income leapt 73.7 percent, to $1.49 billion, or $9.57 a diluted share, from $858 million, or $5.59, in 2005. Revenues rose 7.9 percent, to $53 billion from $49.1 billion.

Edward S. Lampert, in his annual letter to shareholders, wrote, “Lands’ End had a record year in profitability in its traditional business (i.e., catalogue, online and inlet stores). In addition, we saw a significant improvement in the profit performance of Lands’ End merchandise in our Sears stores. With a new leadership team and a more integrated approach to working across Sears Holdings, the business is moving in the right direction.”

The chairman also pointed to overall improvement in the apparel businesses at both Kmart and Sears. “Kmart is further along in partnering with our sourcing and design groups, and we believe that we have improved our offering for our customers with higher quality, better fit and appropriate fashion at great value. Sears apparel has turned around the decline that occurred in 2005 when it moved away from the styles our customers wanted to buy. The team has made significant progress this year, and is focused on creating the kind of breakthrough improvement that would return Sears to its previous levels of profitability in this area,” he wrote.

Aylwin Lewis, chief executive officer and president, said in a statement that the strategic actions taken in 2006 would provide opportunities for the company in 2007. He noted, “Our improved apparel results are an indication of what can happen when we enhance our offerings and services to better meet customers’ needs.”

In his letter, Lampert also sought to dispel any doubt about the future of the company as a viable retailer in the market. “Some commentators have asserted that we want to shrink the company, but that is simply not so….But before embarking on a growth plan, it is critical to provide a sound base from which to grow. To this end, we have set out to improve the profitability of our business model. Our objective is disciplined growth,” he wrote.

Lampert told shareholders that one key to improvement was understanding customers and learning what they want to buy, how and where they buy it, and the different ways they want to be served. He said the company had become responsive to customer needs, but would have to be innovative to continue to serve its customers, and that both were crucial to achieving disciplined growth in a manner attractive for shareholders.