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Spiegel suffers in 4th quarter

DOWNERS GROVE, IL — With costs climbing sharply higher and margins thinning out, direct-mail giant Spiegel Inc. said profits in the all-important Christmas quarter dropped off at a double-digit pace, and warned that slowing retail sales and mounting consumer credit problems could pressure profits through the first half of this year.

Hit hard by a promotional holiday and continued weakness in its Eddie Bauer business, fourth-quarter profits slipped by 12.5 percent, to $65.4 million from $74.7 million last year, with big gains in its credit card business offset by weak merchandising operations.

Retail sales increased by 4.1 percent, to $1.1 billion from $1.0 billion last year, but those added sales came at a steep price — operating profits from merchandising operations tumbled by 25.9 percent, to $98.0 million from $132.2 million last year. Breaking the business out by segment, Spiegel said catalog and e-commerce sales grew by 11 percent in the period, while sales in retail stores — the Eddie Bauer apparel business — fell by 2 percent.

Putting profits under heavy pressure, costs climbed sharply higher, rising by 370 basis points, to 46.4 percent of retail sales from 42.7 percent a year ago. Measured in real dollars, costs shot up by 13.1 percent, or $58 million, to $500.2 million from $442.2 million last year.

Exerting more downward pressure, average gross margin thinned 130 basis points, to 39.7 percent of retail sales from 41.0 percent a year ago.

One bright spot in the Spiegel operation was continued strength in the credit card business, where operating profits almost tripled in the closing quarter, rising by 173.4 percent, to $29.6 million from $10.8 million last year, as credit revenues almost doubled.

Looking ahead, James Sievers, office of the president and cfo, cautioned, "Slower sales growth, particularly in our Eddie Bauer division, and higher charge-offs in our credit business, caused in part by a slowing economy, will negatively affect our results for the first and second quarters."

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