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Sears and Kmart comps give Wall Street a shake

Hoffman Estates, Ill. – Sending a shudder through retail stock prices this morning, Sears Holdings Corp. (SHC) reported negative nine-week comparable store results for both its Kmart and Sears stores. The period represents the May and June segment of the SHC second quarter.

 

For the nine weeks, Kmart comps fell by 3.9% and Sears comps dropped 4.0%. In both cases, the company said declines were felt across all merchandise categories, with the exception at Sears of some relief in the upward performance of women’s apparel and footwear.

 

The home appliances category at Sears stores had one of the steepest declines, but the company said the volume was still an improvement over the first-quarter performance in the department.

 

In high-volume trading this morning and early afternoon, SHC shares fell more than 10%. Other retailers felt the effect: Wal-Mart and Bed Bath & Beyond shares were off by about 2%, the price of Target and JCPenney shares fell by as much as 2.5%, Macy’s was off 3%, and Kohl’s shares dipped by more than 4% before recovering to the negative-3% range.

 

If current trends play out for the remaining four weeks of the quarter, SHC said it would expect net income between $160 million and $200 million, compared to 2006 net income for the second quarter of $294 million.

 

Stated in earnings per diluted share, the SHC current quarter projection is for net income between $1.06 and $1.32, compared to year-ago income of $1.88. In a note by Goldman Sachs, analyst Adrianne Shapira said the current SHC earnings projection was “well below our $2.10 estimate and consensus of $2.12.”

 

Shapira added, “ While investors have sought to value Sears as something other than a retailer, its recent results demonstrate that it is not immune to the current challenging sales environment impacting retailers with big-ticket home exposure. Q2 performance was particularly important as it provided answers to the question was Q1’s sales and EPS shortfall an anomaly or the start of a new trend?”

 

SHC ceo Aylwin Lewis said, “Our recent performance underscores our ongoing need to become more relevant to consumers while improving our discipline around expense management.”

 

The SHC board said it has approved the repurchase of up to an additional $1.0 billion of common shares, beyond the $121 million worth still available under the existing $1.9 billion buyback in effect since late 2005.

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