NEW YORK — Sears, Roebuck & Co.’s fourth-quarter profits more than tripled thanks to the sale of its credit card business, but investors traded down sharply the firm’s shares after it gave fiscal 2004 guidance well below what Wall Street had expected.
This story first appeared in the January 30, 2004 issue of WWD. Subscribe Today.
For the three months ended Jan. 3, the Hoffman Estates, Ill.-based national department store chain said net income surged 224.2 percent to $2.75 billion, or $10.84 per diluted share. That compares with last year’s earnings of $848 million, or $2.67 per share.
Excluding several special gains and charges, most notably a $10.38 per share benefit from the sale of the retailer’s domestic credit and financial products business to Citigroup, earnings would have been $2.24 a share, easily eclipsing the Wall Street estimate of $2.02, as well as last year’s adjusted earnings of $2.11.
Total revenues for the quarter dipped 2.1 percent to $12.25 billion from $12.52 billion a year ago. Of that, retail and related services saw its top line expand 3.6 percent to $10.09 billion, but comparable-store sales fell 2.1 percent. More importantly, the segment produced gains in operating income, which increased 3.7 percent to $753 million from $726 million a year ago.
However, the relative softness in retail sales led Sears to forecast full-year fiscal 2004 earnings before the effect of an accounting change at $3.60 to $3.80, significantly lower than the current Wall Street consensus estimate of $4.36. Investors responded by trading down Sears’ shares $1.43, or 3.1 percent, to close at $44.37 in Thursday’s New York Stock Exchange session.
Despite disappointing analysts with its future earnings projection, Sears remained bullish on the repositioning and restructuring of its core business, especially as it pertains to the firm’s private label apparel programs.
“We continued to gain traction in our core women’s ready-to-wear business as comparable-store sales for sportswear, outerwear and special sizes were all up in the high-single digits during the fourth quarter,” said chief financial officer Glenn Richter on a conference call with analysts. “Strong performance of these categories can be attributed to the success of our proprietary brands, most notably, Lands’ End, Covington and Apostrophe. Lands’ End, which was rolled out to all 870 full-line stores in September, beat the sales plan in December and, more importantly, contributed more than $400 million of in-store sales in the year.”
Sears is currently in the midst of a major transition, having sold off its credit and financial products division, as well as the company’s National Tire & Battery business, in an effort to concentrate on merchandise sales, thereby streamlining the company, making it simpler and more attractive to investors. An important key to that strategy is the success of its proprietary brands, as differentiated apparel should lure customers away from moderate competitors such as J.C. Penney, as well as keep them from opting for lower-cost alternatives at discounters such as Target. While that approach is still in its relative infancy, Sears said it is already bearing fruit.
“Contrary to external speculation, we continue to be very pleased with the [Lands’ End] brand, since total Lands’ End sales are up over 20 percent versus last year and the brand continues to perform ahead of its acquisition plan,” said chief executive officer Alan Lacy on the call. “Lands’ End has been successful in attracting new customers to Sears, customers who in the past may not have considered purchasing apparel from us. In addition, we have introduced millions of new shoppers to the Lands’ End brand, with over 90 percent of in-store Lands’ End purchasers buying the brand for the first time.”
Overall, for the full fiscal year, Sears said net income more than doubled, shooting up 146.9 percent to $3.4 billion, or $11.86 per diluted share. By comparison, last year the firm reported earnings of $1.38 billion, or $4.29 per share. Excluding special items in both years, earnings per share would have been $4.36 versus $4.92 a year ago.
Total revenues for the year ticked up 1.9 percent to $36.37 billion from $35.7 billion a year ago. Merchandise sales and services revenues improved 1.2 percent to $31.84 billion, but operating profit fell 28.3 percent to $828 million from $1.16 billion last year as the company faced higher consolidated costs and lower top-line contributions from its credit card business.