By  on June 8, 2005

NEW YORK — Sears Holdings Corp., in its first quarterly results, reported a $9 million loss after taking a $90 million aftertax charge from a change in accounting for certain inventory costs.

Chairman Edward Lampert, who created the company by masterminding Kmart Holding Corp.'s $12.3 billion acquisition of Sears, Roebuck & Co. in March, wrote in a message to shareholders: "We will have significant opportunities in the years ahead to create value through a combination of better operating performance and disciplined use of our capital and balance sheet."

Sears Holdings' shares on Tuesday fell $13.41, or 8.66 percent, to close at $141.50 in Nasdaq trading. While average trading volume is 4.3 million shares, about 10.3 million shares changed hands on Tuesday.

For the three months ended April 30, the loss was $9 million, or 7 cents a diluted share, compared with income of $91 million, or 94 cents, in the same period a year ago. Income before the change in accounting in the current quarter was $81 million, or 65 cents. Analysts had expected earnings per share at 63 cents. Revenues were $7.63 billion, versus $4.63 billion a year ago. The 13-week reporting period includes all of Kmart's results of operations, but for Sears, only a five-week period starting from March 25, the day the two companies became one.

"While the financial opportunity related to the Sears-Kmart combination is quite compelling and has significant upside potential long term, we continue to believe that management's goal of becoming a best-in-class retailer is a vast undertaking that will require years to achieve,'' Robert Drbul, analyst at Lehman Brothers, wrote in a research note. "We also believe that there is significant operational downside risk associated with this endeavor."

Drbul, who emphasized that the merger is only five weeks old, added, "Given Mr. Lampert's track record ... we expect a high level of success'' even though "Sears Holdings remains several years away from being a more formidable competitor in the industry.''

Sears said same-store sales and total sales at Kmart decreased 3.7 percent and 2.3 percent, respectively, during the first quarter. The decline at Kmart was partly because of lower transaction volumes. Merchandise sales and service revenues at Sears inched up 0.5 percent for the 13-week period, with the slight increase due to strong home services sales that were partly offset by a 3.1 percent decline in comps.

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