SEARS QUARTER FEELS PULL OF SLOWER APPAREL SALES

Byline: Jennifer Weitzman

NEW YORK — Sears, Roebuck & Co. reported that its fourth-quarter earnings met Wall Street’s expectations, but the nation’s second largest nonfood retailer said that softness in apparel contributed to a 37.1 percent decline in retail operating income.
Sears also warned that a slowing economy would likely result in a challenging first half.
The Hoffman Estates, Ill.-based company said the soft apparel results reflected disappointing holiday sales and an intensely promotional environment, offsetting strong performances in softline areas including footwear, cosmetics, fragrances and fine jewelry.
Total domestic retail revenues were up 2.4 percent to $9.2 billion on a 0.9 percent comparable sales gain.
Alan Lacy, chairman and chief executive, said he was “unhappy” with Sears’ retail performance overall, but was committed to improving fundamentals and considered delivering meaningful results in retail a top priority.
“From an operational point of view, we fell short of our last year’s objective,” Lacy said. “While our comparable sales on balance were good, we did not convert enough of these sales to bottom-line profit.”
Chief financial officer Jeffrey Boyer said softline inventories at end of quarter were “in good shape,” down by $59 million. More importantly, he noted the “quality is good, with a high balance of spring versus promotional goods.”
In addition to softness in retail for the fourth quarter ended Dec. 30, its credit business caused corporate profits to plummet 40.3 percent to $442 million, or $1.32 a diluted share, from $740 million, or $1.98. Those decreases offset gains from the company’s share repurchase program, lower corporate expenses and higher services’ income. Credit revenues were down 5 percent.
Excluding special charges, net income would have been $639 million, or $1.91. Wall Street was looking for $1.91 a share, down from $1.98 a year ago. Shares of Sears fell 26 cents, or .75 percent, to $34.49 on the New York Stock Exchange Thursday.
Special items include a charge $197 million, or 59 cents, for the closure of 89 underperforming stores, the elimination of 2,400 jobs and an impairment charge related to Sears Termite and Pest Control.
Revenues for the fourth quarter improved 2.4 percent to $12.4 billion compared with $12.1 billion. Merchandise and service revenues rose 3.1 percent to $11.3 billion, from $11 billion.
Lacy said sales results came from “solid growth in hardlines led by sales increases in sporting goods, appliances, electronics and lawn and garden.”
Analysts said that in light of the dismal retail environment, Sears delivered. Steven Kernkraut of Bear, Stearns, said the quarter was “really pretty good given that this has been such a problematic quarter for everyone.” He pointed to Sears’ earnings being on track and ending the season with clean inventory, unlike many of its competitors, as good signs.
For the year, Sears reported net income of $1.34 billion, or $3.88 a share, compared with $1.45 billion, or $3.81. Excluding the effect of noncomparable items, net income would have been $1.54 billion, or $4.45, compared with $1.48 billion, or $3.89. Total revenues improved 3.7 percent to $41 billion from $39.5 billion.
Looking ahead, Sears said it expects overall consolidated operating income in 2001 to go up 4 to 5 percent. Earnings per share are expected to grow 9 to 10 percent, benefiting from the company’s common stock repurchase program and more normalized expenses associated with the rollout of its Internet effort.

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