Sears 4th-Quarter Profit Falls 79% : Huge Restructuring Cited, but Analysts Say It’s Justified

Sears, Roebuck & Co., the largest U.S. retailer, said Thursday that its fourth-quarter earnings dropped 79% to $117.4 million as the company launched a massive restructuring to boost future earnings.

Chicago-based Sears said the fourth quarter included a $500-million restructuring charge. In the year-ago period the company earned $554.4 million.

Despite the poor appearance of the results, Sears and analysts said they were pleased with the retailer’s health. Without the restructuring, net income rose 11% to $618 million. Revenue rose to a record $14.56 billion from $13.36 billion.

Sears shares closed unchanged at $42.25 on the New York Stock Exchange.

The huge retailer announced its sweeping restructuring in October after a sluggish third quarter.

“This has been a year of major transition,” Edward Brennan, Sears chairman and chief executive, said in a statement. “The actions announced last October . . . will position Sears to compete more effectively in the future.”

“The transitional phase changes are going to help 1989 results and the considerable expenses are well justified,” added analyst John Landschulz at Cowen & Co.

The company’s full-year earnings dipped to $1.45 billion from $1.63 billion in 1987. Revenues rose 9.5% to a record $50.25 billion last year from $45.90 billion in 1987.

Sears, which also owns Allstate Insurance, Dean Witter Financial Services and Coldwell Banker Real Estate Group, said last fall that its third-quarter earnings fell 16% amid intense retail competition and slumping securities volume.

Sears restructured to avoid being taken over, announcing cost cuts, a large stock buyback and the sale of the 110-story Sears Tower in Chicago and Allstate’s group life-health insurance business.

In addition, Sears said it would change its retail strategy of frequent sales and promotions to one of “everyday low pricing” to reduce inventories and boost sales.

Sears Merchandise Group lost $113.5 million in the fourth quarter after a $442-million charge from the restructuring. Without the charge, the group earned $328.5 million on revenue of $9.52 billion.

The unit, which contributes about 60% of Sears’ revenue, suffered from fierce competition in the retail industry, but Brennan said the group’s revamping is proceeding on schedule.

Allstate Insurance earned $206.3 million in the fourth quarter, compared to $217.2 million a year earlier. Earnings suffered mainly from a $58.6-million restructuring charge.

Dean Witter, the company’s financial services arm, earned $26.3 million in the fourth quarter, versus a loss of $33.8 million in 1987 after the October market crash.

Sears’s Discover credit card earned $6.7 million in the fourth quarter against a loss of $31 million a year ago.

Dean Witter is a “fortress of earnings strength,” said Josephthal & Co. analyst Janet Mangano, who said the financial unit and Discover were the highlights of Sears’ results. “They were core to profits in 1988 (and) will continue in 1989.”

Coldwell Banker earned $61.9 million last quarter, in contrast with a $5.1-million loss a year ago.