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Resets Set Back Sears in Q3

Company Still Optimistic About Sears Grand Format

Despite disappointing third quarter results, Sears, Roebuck and Co was able to complete the reset of its home fashions bed and bath categories in hopes of driving higher sales in those areas in the near future, reported the company during its third-quarter conference call.

While Alan Lacy, chairman and CEO, admitted that the home fashions and consumer electronics resets proved to be “more disruptive than originally anticipated” in the third quarter and that the “ramp up in sales volume following the completion of these resets has been slower than expected,” the company was encouraged by some initial results.

In home fashions, overall comp sales in bed and bath increased low single digits, with particular strengths experienced in “key product categories, including bath towels, comforters and kids bedding,” he said, adding that “ ... the resets have better positioned these businesses for success going forward.”

In other news, Lacy said the search is still on, though not pressingly, for an industry executive to fill the post of head of Sears retail. “The position still makes sense to be filled at some point,” he said. “We still look ... to attract talent. Now that we have Luis (Padilla, president of merchandising) on board, we're in no rush right now given his arrival.”

Regarding its Sears Grand format, the company is optimistic about the progress so far of these stores. During the quarter, the company opened in Las Vegas its third Sears Grand unit and the fourth is set to open next week in Rancho Cucamonga, Calif. “Sales at Sears Grand continue to exceed expectations,” Lacy said.

Lastly, over the quarter the company finalized its acquisition of 56 off-mall stores from a combination of former Kmart and Wal-Mart units. Sears expects to take possession of the majority of these sites by next spring and to open them for business before the holiday '05 selling season.

These new units are poised, Lacy said, to help Sears leverage its existing resources and infrastructure as well as expand its distribution.

With the new sites, the company doubles its penetration in San Diego, adds seven new stores in New Jersey, and “increases our presence in important markets, like Florida, the Northeast and Puerto Rico,” he added.

Looking to the fourth quarter, expectations have been curtailed in light of the overall poor performance of business over the past few months.

“We're adopting a more conservative outlook for the fourth quarter,” Lacy said, explaining that fourth-quarter sales and margins assumptions have been lowered and, as a result, adjustments of business plans for the season have been made.

Nonetheless, aggressive advertising and marketing efforts are already in place to motivate traffic and sales over the holiday season, Lacy said. Such initiatives include new holiday-esque broadcast ad campaigns with spokesman Ty Pennington.

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