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Stronger Kmart, Weaker Sears Skews Earnings Pic

Don Hogsett -- Home Textiles Today, December 12, 2005

Sears Holdings Corp., the newly formed combination of the former Kmart and Sears, Roebuck, put up a third quarter profit of $58 million, down almost 90 percent from last year, when profits were swollen by $807 million brought in from the sale of assets.

Sales at the giant retailer — still something of a work in progress as the newly acquired Sears business is being thought out and the Kmart operation is still being fine-tuned — jumped 175.7 percent, to $12.2 billion from $4.4 billion, as Kmart layered on $8 billion in Sears' sales since the March acquisition.

While overall sales almost tripled in the wake of the merger, same-store sales remained problematic and declined at both Kmart and Sears.

Same-store sales weakened 2.8 percent at Kmart units, hurt in large part by a weakening home business.

The picture was even more clouded at the Sears operation, which has yet to go through the kind of overhaul and downsizing that helped improve Kmart results after it came out of bankruptcy. Overall sales at Sears fell 6.3 percent, and same-store sales plunged 10.8 percent. The retailer said the slide in Sears' same-store sales “reflects efforts initiated in 2005 to improve gross margin by reducing reliance on certain promotional events, and weak apparel sales resulting from weaker-than-anticipated customer response to fashion offerings within the full-line stores.”

After the combination, average gross margin improved 310 basis points, or 3.1 percentage points, to 28 percent from 24.9 percent the prior year. Gross margin dollars, helped by the jump in sales after the merger and stronger margins, more than tripled, rising 210.3 percent, to $3.4 billion from $1.1 billion.

Sears Holdings Corp.

Qtr. 10/29 (x000) 2005 2004 % change
Includes results of the former Kmart Corp. and Sears, Roebuck and Co., acquired on March 24, 2005.
b. Third quarter results include a $21.0 million provision for uncollectible accounts; a $15 million gain on the sale of assets, compared with a prior-year gain of $807 million; $59 million in restructuring costs; $1.0 million in bankruptcy related recoveries, compared with $1.0 million asst year; $22.0 million in miscellaneous income, compared with $1 million a year ago; and $14.0 million in interest from the company's minority share in an investment.
c. Nine month results include a $38.0 million provision for uncollectible accounts; a $25 million gain on the sale of assets, compared with $911.0 million a year ago; $104.0 million in restructuring costs; $33.0 million in bankruptcy related recoveries, compared with $13.0 million the preceding year; miscellaneous in come of $33.0 million, compared with $4.0 million last year; $7.0 million in interest form the company's minority share in an investment; and a $90.0 million one-time charge stemming from a change in accounting.
Sales $12,202,000 $4,426,000 175.7
Oper. income (EBIT) 447,000 108,000 313.9
Net income 58,000b 552,000b -89.5
Per share (diluted) 0.35 5.45 -93.6
Average gross margin 28.0% 24.9%
SG&A expenses 24.4% 22.5%
Nine months
Sales 33,039,000 13,893,000 137.8
Oper. income (EBIT) 1,361,000 452,000 201.1
Net income 210,000c 797.000c -73.7
Per share (diluted) 1.39 7.93 -82.5
Average gross margin 27.3% 24.3%
SG&A expenses 23.2% 21.0%


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