Alan Lacy

Sears reported second-quarter profits for the period ended June 28 plunged 82.8 percent to $53 million on sales that fell 13.9 percent to $8.78 billion.

NEW YORK — Sears, Roebuck & Co.’s new life without its credit-card unit suffered a setback in the second quarter, as weak spring apparel sales contributed to a major earnings shortfall.

The nation’s largest department store chain on Thursday said profits for the three months ended June 28 plunged 82.8 percent to $53 million, or 24 cents a diluted share. Excluding special charges, earnings would have been 48 cents, which fell well short of Wall Street’s forecast of 71 cents. Last year, by comparison, Sears had net income of $309 million, or $1.04.

Total revenues declined 13.9 percent to $8.78 billion from $10.2 billion a year ago. A good portion of that decline was expected, since Sears sold its credit card and financial services division last year — a business that had contributed $1.35 billion in revenue in the prior-year period.

More troubling was a 1.7 percent slide in merchandise sales and services to $8.7 billion from $8.85 billion a year ago, as well as a 2.9 percent drop in domestic same-store sales. Sears, which is under pressure from investors to prove it can grow without the lucrative credit card business, saw its shares hit a 52-week low of $31.21 in Thursday trading on the New York Stock Exchange.

“Like other retailers, June sales were below our expectations,” said chief executive officer Alan Lacy on a conference call with analysts. “Sales in key Father’s Day businesses were softer than anticipated. More broadly, in apparel, we continued to be affected by the product assortment and inventory issues. We lacked a sufficient amount of fashion-oriented spring product in what has been a strong fashion-driven season.”

Lacy added that Sears overcompensated for last year’s spring inventory position, resulting in too little spring merchandise throughout the season, especially at Lands’ End.

“While we expect most of these issues to be resolved as we move into the fall season, we anticipate that they will continue to negatively impact our top line until the seasonal transition is complete,” said Lacy.

In a related move, on Monday Sears said it had hired the seemingly ubiquitous ProfitLogic company to implement a new inventory management and markdown system.

This story first appeared in the July 23, 2004 issue of WWD. Subscribe Today.

For the first half of the fiscal year, Sears reported a net loss of $806 million, or $3.71 a share, versus last year’s earnings of $501 million, or $1.63 per share. Excluding an accounting charge, the company would have recorded profits of $33 million, or 15 cents a share.

Total revenues for the six months decreased 13.1 percent to $16.58 billion from $19.08 billion, largely reflecting the sale of the credit card business. Merchandise sales ticked up 0.5 percent to $16.4 billion from $16.33 billion.

In guidance, Sears lowered its full-year earnings forecast to $2.90 to $3.10 a share, from $3.60 to $3.80. Third-quarter earnings are expected to be flat to 10 cents a share, assuming same-store sales come in at a range of flat to a low-single-digit decline.