Kmart Sales Surge Benefits Sears Holdings

Don Hogsett, March 20, 2006

Fourth-quarter profit at Sears Holdings Corp. more than doubled, soaring by 109.7%, to $648 million from $309 million last year. The rise was aided by improving margins as markdowns were cut and promotional events were reduced. Stronger same-store sales at Kmart added a further lift.

As sales of Sears, Roebuck were layered onto Kmart returns, overall sales of what is now the nation's third largest retailer almost tripled, rising to $16.1 billion from $6.0 billion during the year-before fourth quarter.

In something of a milestone for Kmart, same-store sales rose during the closing quarter of 2005 by 0.9%, the first gain in same-store sales since the second quarter of 2001. Same-store sales, the retailer said, were boosted by stronger sales of apparel and home products.

At Sears, same-store sales plunged by 12.2%, hobbled by weak apparel sales, the failure of new fashion offerings and fewer sales events.

While the drop in promotional events may have hurt same-store sales at Sears' full-line stores, it resulted in wider margins and bolstered the bottom line of its parent. As the retailer took fewer markdowns, average gross margin widened by 340 basis points, or 3.4 percentage points, to 28.5% from 25.1% a year ago.

Sears Holdings Corp.

Qtr. 1/28 (x000) 2005 2004 %change
a. Fourth quarter results include a $12 million provision for uncollectible accounts; a $14 million gain on the sale of assets, compared with a $36 million year-ago gain; a $317 million gain on the sale of a business, its share of the proceeds from the sale o Sears Canada's credit card business; a $7 million restruct6uring charge; bankruptcy-related recoveries of $7 million, compared with $46 million last year; miscellaneous in come of $5 million; and $308 million in minority interest expense from its share of Sear Canada.
b. 12-month results include a $49 million provision for uncollectible accounts; a $39 million gain on the sale of assets vs. $946 million last year; a $317 million gain on the sale of its share of the Sears Canada credit card business; a $111 million restructuring charge; $40 million in bankruptcy recoveries vs. $59 million last year; miscellaneous income of $38 million vs. $3 million a year ago; and $301 million in interest expense from its share of Sears Canada.
Sales $16,086,000 $5,950,000 170.4
Oper. income (EBIT) 1,500,000 449,000 234.1
Net income 648,000a 309,000 109.7
Per share (diluted) 4.03 3.09 30.4
Average gross margin 28.5% 25.1%
SG&A expenses 19.1% 17.5%
12 months
Sales $49,124,000 $19,843,000 147.6
Oper. income (EBIT) 2,860,000 902,000 217.1
Net income 858,000b 1,106,000b -22.4
Per share (diluted) 5.59 11.00 -49.2
Average gross margin 27.7% 24.7%
SG&A expenses 21.9% 20.2%

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