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Sears sees profits nose-dive

Plagued by bad weather that stunted sales and continuing woes in its big credit card business, first-quarter profits before one-time at Sears, Roebuck and Co. tumbled by 39.6 percent, to $192 million from $318 million last year.

On paper, earnings jumped up by almost 74.5 percent, to $192 million from $110 million a year ago, but skewing the year-over-year comparison, last year's results were artificially depressed by a $208 million non-cash charge stemming form a change in accounting. On an apples-to-apples basis, profits were off by almost 40 percent, hit hard by rising delinquencies in the credit card business and softer retail sales.

Overall sales at Sears slipped by 1.7 percent, to $8.9 billion from $9.0 billion last year, as a tick up in credit revenues failed to offset slumping retail sales. Merchandise sales and services fell by 2.3 percent, to $7.5 billion from $7.6 billion last year. Same-store sales declined by 6.7 percent, hurt by the weak economy, anticipation of war and a late Easter selling season. Credit revenues improved by 1.2 percent, to $1.4 billion.

The credit business remains problematic as consumers continue to default on their debt. Sears' reserve for bad debt is now approaching $500 million for the quarter. So Sears increased its provision for uncollectible accounts to by 26.8 percent, to to $483 million from $381 million last year.

Average gross margin on merchandise sales and services improved somewhat, to 26.8 percent from 26.4 percent, but margin strength was more than offset by sharply higher costs, which climbed to 28.2 percent of sales from 27.0 percent a year ago.

Given the shortfall in sales, Sears recorded a $23 million operating loss in its merchandising division, compared with a prior-year profit of $87 million.

Alan Lacy, Sears chairman and ceo, noted, "Substantial progress was made in our merchandise repositioning efforts with the launch of the Whole Home brand in home fashions and the continued rollout of Lands' End."

Sears, Roebuck and Co.

Qtr. 3/26 (x000) 2003 2002 % chg
Average gross margin and SG&A expenses are calculated as a percentage of merchandise sales and services.
a- Total company sales, including merchandise sales and services and credit revenues. Merchandise sales and services totaled $7.5 billion, down 2.3 percent from $7.6 billion last year. Credit revenues increased by 1.2 percent, to $1.4 billion.
b- First-quarter profits include a $483 million provision for uncollectible accounts, up 26.8 percent from $381 million the prior year; $1 million in miscellaneous income, down from $78 million last year; and a $3 million loss from a minority interest, compared with a $32 million profit the preceding year. Prior-year results in the same period included $111 million in special charges and impairments and a $208 million charge stemming from a change in accounting.
Sales $8,880,000a $9,037,000a -1.7
Oper. income (EBIT) 1,071,000 1,140,000 -6.1
Net income 192,000b 110,000b 74.5
Per share (diluted) 0.60b 0.34b 76.5
Average gross margin 26.8% 26.4%
SG&A expenses 28.2% 27.0%


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