By and  on November 30, 2007

Sagging gross margins ate away profits at apparel and chain store retailers heading into the holiday season, with many companies relying on heavy promotions to clear inventory.

In some cases, softer comp sales were cited for the lower profits.

Sears Holdings Corp. was the latest casualty, with a $223 million decline in gross margins, which sent third-quarter earnings down 99 percent. For the three months ended Nov. 3, earnings at the company fell to $2 million, or 1 cent a diluted share, from $196 million, or $1.27, in the year-ago period as sales dropped 3.4 percent to $11.55 billion from $11.94 billion. Total domestic same-store sales declined 4.6 percent.

Shares of Sears Holdings closed down 10.5 percent to a 52-week low of $104.09.

By division, comps fell 4.2 percent and 5 percent at Sears and Kmart, respectively, with notable declines in apparel and lawn and garden at both chains.

"We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macroeconomic environments," said Aylwin Lewis, Sears Holdings' chief executive officer and president, in a statement.

The Bon-Ton Stores Inc. widened its loss in the third quarter, hurt by sluggish same-store sales. For the three months ended Nov. 3, the company posted a loss of $19.4 million, or $1.17 a diluted share, which compares with a loss of $10.9 million, or 66 cents, last year. Sales slid 3 percent to $780.8 million from $804.1 million, while total same-store sales fell 3 percent. Gross margins decreased $22.2 million.

Bud Bergren, president and ceo, said in a statement, "The deterioration of the macroeconomic environment and the unseasonable weather in September and October negatively impacted our comparable-store sales in both months."

The company cut full-year guidance to the range of $1.50 to $1.80 a diluted share from a previous forecast of $2 a share.

Stein Mart Inc. posted a loss in the third quarter of $2.7 million, or 6 cents a diluted share, from a gain of $237,000, or 1 cent, in last year's period. Sales for the quarter dropped 2 percent to $333.3 million from $339.2 million. Total same-store sales fell 6.3 percent."The customer clearly has an appetite for value pricing right now, and we have redoubled our efforts to provide and promote exceptional savings throughout the store," said Linda M. Farthing, president and ceo. "The negative impact on gross margin will be significant in the fourth quarter, but these actions are necessary in order to exit the year without the burden of prior season merchandise."

Meanwhile, The Wet Seal Inc. posted a loss of $3.3 million, or 4 cents a diluted share, which compares with a profit of $2.4 million, or 2 cents, in the year-ago period. Sales for the quarter rose 5 percent to $150.3 million from $143.3 million, while total same-store sales fell 3.4 percent.

One highlight of Thursday's earnings reports was Zumiez Inc., which concluded its third quarter with an earnings increase of 19.4 percent. The company reported quarterly earnings of $8.1 million, or 28 cents a diluted share, versus $6.8 million, or 24 cents. Sales increased to $104 million, up 26.5 percent, from $82.3 million during the third quarter last year. Same-store sales for the period increased 13.2 percent.

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