By  on June 1, 2007

Sears Holdings Corp. on Thursday posted first-quarter earnings at the low end of the retailer's estimates, as the company said results were hurt by declining comps at its Sears and Kmart nameplates.

First-quarter net income for the three months ended May 5 rose 20 percent to $216 million, or $1.40 a diluted share, from $180 million, or $1.14, in the same year-ago quarter. Excluding the impact of certain items, diluted earnings per share were $1.10 versus $1.11 a year ago. During the quarter, the company recognized certain gains, including on a pretax basis: a $30 million gain in connection with the legal settlement of a contractual dispute, a $27 million gain connected with certain amendments made to Sears Canada's postretirement benefit plans and a $15 million benefit in connection with insurance recoveries for properties damaged by hurricanes during 2005. The gains in part were offset by a $21 million loss in connection with the company's return swap investments.

Revenues were down by 2.5 percent to $11.7 billion from $12 billion. The company said domestic same-store sales fell 3.9 percent, with Sears domestic comps shedding 3.4 percent and Kmart comps down by 4.4 percent. Sears domestic stores recorded a comps decline across most merchandise categories and formats, with a notable decrease in home appliance sales, the company said. Kmart also experienced lower transaction volume across most merchandise categories. The one bright spot was Lands' End, which, the company said, posted sales increases.

"In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market," said Aylwin Lewis, Sears Holdings' chief executive officer and president. He added that the company needs to overcome "these factors" by better controlling costs and developing innovative solutions that better meet customers' needs.

Richard Hastings, analyst at Bernard Sands, wrote in a research note, "We are cautious in our outlook for operating income in the next three quarters of this year, with a bias to downside risks."

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