By  on July 11, 2007

NEW YORK — U.S. stock markets tumbled on Tuesday, propelled partly by lowered earnings guidance from Sears Holdings Corp.

Sears said in a statement that second-quarter profit would drop to between $160 million and $200 million, or $1.06 to $1.32 per diluted share, including a gain of $12 million, or 8 cents, because of a bankruptcy settlement and investments. That compares with $294 million, or $1.88 per diluted share, in the year-ago period.

In addition, same-store sales declined 4 percent at Sears and 3.9 percent at the Kmart chain in the first nine weeks of the second quarter that ends Aug. 4.

Sears shares fell 10 percent on the Nasdaq exchange to close at $154.21, the stock's biggest drop in four years and the second consecutive earnings miss for the chain led by chairman Edward Lampert, who combined Sears, Roebuck & Co. and Kmart in 2005.

"Although we believe our business has suffered from many of the same factors that have led other retailers to announce disappointing results and lowered expectations, our recent performance underscores our ongoing need to become more relevant to consumers while improving our discipline around expense management," Aylwin Lewis, Sears chief executive officer, said in a statement.

The Dow Jones Industrial Average fell 1.09 percent to 13,501.70. The S&P 500 lost 1.4 percent to 1510.12 and the Nasdaq declined 1.2 percent to 2639.16.

Sears said the slide in overall comps was in most categories, although there were slight gains in women's apparel and footwear. Sears, based in Hoffman Estates, Ill., operates more than 3,800 namesake and Kmart stores nationwide.

Sears also approved the repurchase of as much as $1 billion in stock, and S&P lowered its outlook for the company to negative.

Separately, Morgan Stanley analyst Michelle Clark initiated coverage of teen retailers with a bleak outlook based partly on the sector's mature core concepts.

Clark started Aéropostale Inc. and American Eagle Outfitters Inc. each with an "equal-weight" rating. She sees a near-term upside for Aéropostale shares, but raised concerns of a possible margin slowdown as the company focuses on next-stage growth. Shares of Aéropostale closed at $41.49, down 2.5 percent in New York Stock Exchange trading. For American Eagle, Clark sees a limited further upside to company shares, as well as returns contracting due to declining margins and slowing asset turns. Shares of American Eagle, however, closed at $26.41, up 2.1 percent, in trading on the NYSE.Clark also started coverage of Abercrombie & Fitch Co. and Urban Outfitters Inc., both with an "underweight" rating. "The market has started to value Abercrombie more on returns and less on growth as existing formats near domestic capacity and sales productivity growth slows," Clark said. Shares of Abercrombie fell 5.4 percent to close at $69.07 in Big Board trading. Shares of Urban Outfitters dropped 5.7 percent to close at $21.81 in over-the-counter trading after Clark said Street expectations of the timing of a turnaround were "too optimistic."

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