Byline: Evan Clark / With contributions from Valerie Seckler

NEW YORK — Greater efficiency helped Sears, Roebuck & Co. blow the doors off analysts’ first-quarter estimates with profits, excluding special items, of 93 cents a share — 32 cents ahead of Wall Street’s best guess.
The boost came from tighter retail operations accompanying Sears’ restructuring and pleasantly surprised investors who traded shares of the firm up $2.98, or 5.8 percent, to close Wednesdays at $54.18 on the New York Stock Exchange.
The overall markets were also strong with the Dow Jones Industrial Average advancing 173.06, or 1.7 percent, to 10,381.73. The Standard & Poor’s index was up 12.47, or 1.1 percent, to close at 1,130.27, on par with the S&P retail index, which climbed 10.88, or 1.1 percent, to end the day at 970.46.
Guidance for operating earnings for the retail and related services business shot up to $84 million, a $140 million uptick from the year-ago operating loss of $56 million.
“These results demonstrate the initial success of the strategic initiatives we have begun to implement,” said chairman and chief executive officer Alan Lacy. “While revenues continue to be soft, our focus on gross margin, inventory levels and operating expenses is driving substantial profit growth.”
Sears’ top-line results remain a struggle as March comparable-store sales dropped 4.7 percent in its domestic stores. While hardlines remained strong, an Easter boost in apparel and footwear sales was unable to offset softline declines earlier in the month. In a recent interview, Lacy projected it won’t be until the fourth quarter that Sears sees the financial impact of its moves to trade out of its low-growth, less profitable businesses. “By dropping more than 20 percent of our soft-goods brands, maintaining our trend of recent years, we are trying to get more mass around our new Classic label, which we will introduce in September,” Lacy related. Specifically, Sears aims to slash 570 soft-goods labels to simplify its assortment, and extend the successful Apostrophe career private label into casual clothes. Classic, a broad-based brand for classic, casual women’s, men’s and children’s wear, will replace the Crossroads and Trader Bay proprietary labels.
The projected earnings per share, which are still preliminary, exclude charges of $208 million, or 64 cents a share, for an accounting change, and $40 million, or 13 cents, to convert its Eaton’s stores to the Sears Canada moniker. A gain of $58 million, or 18 cents, from the partial sale of Sears’ Advance Auto Parts investment helped offset the charges.
After special items, EPS for the first quarter should be 34 cents compared with a profit of 53 cents last year, which included net securitization income of $26 million, or 8 cents.
A company spokeswoman noted that the firm is “on track to achieve the $270 million in savings expected in 2002.”
For the full year, Sears now expects adjusted earnings per share to be about $4.94, compared with analysts’ projections of $4.80 and last year’s earnings of $4.22. Prudential Financial equity analyst Wayne Hood noted that, if disruptions from the renovation of 50 full-line stores “aren’t significant and the remodels go according to plan, we could see 2002 earnings reach $5.25 per share for the year.”