HOFFMAN ESTATES, Ill. — Sears, Roebuck & Co. put on a brave face at its analyst meeting Thursday, but the news was bad.

Digesting difficulties at its credit unit, including the departure of another executive and a $222 million increase in its domestic provision for uncollectible accounts, the firm posted a 27.9 percent drop in third-quarter earnings, finishing the period well below recent projections from the company. Investors reacted by taking a 31.8 percent bite out of the firm’s shares, which ended off $10.80 at $23.15 on the New York Stock Exchange.

The day yielded a new 52-week low of $22.76 for the company in intra-day trading. During the last year, the stock has traded as high as $59.90. The bitter pills prevented Sears from partaking in Thursday’s broad rally, which drove the Dow Jones Industrial Average up 3 percent, or 239.01 points, to close at 8,275.04. The Standard & Poor’s 500 rose 2.2 percent, or 19.17 points, to end at 879.20.

"This is not the meeting we thought we were going to have," said Alan J. Lacy, chairman and chief executive, in his opening remarks at the company’s annual fall financial analysts meeting held at Sears’ headquarters here. Instead of beginning with a store tour to demonstrate the progress the firm has made in the last year in reviving its struggling retail operations, as Lacy surely would have preferred, the meeting began on a financially sour note.

Net income for the third quarter retreated to $189 million, or 59 cents a diluted share, compared with $262 million, or 80 cents, a year ago. Earnings, which came in more than 20 cents below the firm’s recent projections, were unexpectedly pulled down by the $222 million increase in the domestic provision for uncollectible accounts.

Citing the "difficulties" in Sears’ credit operations, Fitch Ratings placed the firm’s senior unsecured debt, rated "A-minus," on rating watch negative.

Total revenues for the quarter ended Sept. 28 slid 0.6 percent to $9.67 billion from $9.73 billion a year ago.

As reported, Sears, on Oct. 7, predicted it would post earnings of 80 to 82 cents per share, including 3 cents of dilution from its acquisition of Lands’ End. At that time, the firm also indicated that Kevin Keleghan, president of the credit and financial products unit until just days earlier, was asked to leave when Lacy "lost confidence in his personal credibility."The meeting also brought the news that Vish Vishwanath, vice president of risk management of the division, was let go Wednesday.

At the meeting, Lacy refused to say exactly why the two executives were fired, beyond saying that they had not been "forthcoming" about the condition of the credit card business.

Retail consultant Walter Loeb, who attended the meeting, noted, "Frankly, it’s going to take a long time for Sears to regain the credibility it needs for investors to feel comfortable." Of Lacy, he said, "One has to give him credit for at least being very open." Still Loeb noted that the company did not give guidance for next year and still has to take additional write-offs.

However, he added, "I don’t think Sears is going out of business and I would be buying it at current prices."

Exclusive of noncomparable items and securitization income, Sears’ two divisions each saw significant drops in operating income during the quarter. The retail and related services unit’s third-quarter operating profits dropped 48.8 percent to $42 million, while sales dipped 0.7 percent to $7.26 billion. Operating earnings at the credit and financial products unit slipped 27.7 percent to $284 million on a 4.1 percent rise in revenues to $1.36 billion.

On the bright side, Lacy said the store has made substantial progress in the revamping program that began late last year. That program includes two major merchandising initiatives — the acquisition of Lands’ End last spring and the introduction of a mega private label in apparel called Covington.

Sears, said the ceo, is looking at Lands’ End as a way to "reignite" its apparel business. Lands’ End merchandise will be rolled out to 184 stores this year and to the rest of Sears’ 870 full-line stores in 2003. Ultimately, he said, Lands’ End will account for 15 to 20 percent of the square footage devoted to apparel in the full-line stores.

As for Covington, Kathryn Bufano, executive vice president and general manager of soft lines, said the line will take up 12 to 15 percent of the apparel square footage in the full-line stores and "will be a $500 million business by the end of 2003."For the nine months, the firm’s income shot up 119.1 percent to $528 million, or $1.64 a diluted share, from $241 million, or 73 cents, a year ago. Results this year were pulled down by $208 million, or 65 cents, on an after-tax basis by the cumulative effect of a change in accounting for goodwill. Total revenues for the 39 weeks improved 0.3 percent to $28.85 billion from $28.77 billion a year ago.

Sears also reduced its outlook for the full year to earnings of $4.86 a share, down from the $5.15 previously anticipated. For the year, the firm said it continues to expect comparable earnings increases in the low- to mid-30 percent range at its retail division, but is now looking for the credit unit’s comparable earnings to decrease by the low- to mid-single digits. The latter’s comparable earnings were expected, after a downward revision earlier this month, to increase in the mid-single digit range for the year.

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