Sears Expects 32% Drop in 2nd-Quarter Profit : Earnings: The firm cites casualty losses in its insurance unit, including California fire claims.
Sears, Roebuck & Co. said Friday that it expects about a 32% decline in its second-quarter profit from continuing operations because of anticipated lower profit from its retail operations and its Allstate Insurance Group.
The insurance group profit will be depressed in part because of higher than expected casualty losses, including those from recent fires in Southern California, the Chicago-based retailer said.
Other insurance carriers with substantial homeowner protection exposure in Southern California are also expected to have big losses from the fires, but there is no evidence yet that the fires will greatly affect their profits. State Farm Mutual Insurance Co., which ranks first in California in premiums earned from homeowners insurance, is projecting $42 million in claims from the California fires. Farmers Group, also among the top 10 homeowners insurers, said it expects about $26 million in claims.
A Sears spokesman declined to give more details about the insurance group’s expected losses until the company officially reports its second quarter financial results later this month.
Allstate was expected to report lower profits before the Southern California fires, in part because of regulatory pressure on the insurance company’s profits in several states, including California and New Jersey, which are attempting to control rising automobile insurance rates, said Edward A. Weller, an analyst with Montgomery Securities in San Francisco.
The insurance company’s profit will suffer this year in comparison to last year because the weather was better last year--presenting fewer than normal claims for storm damage, said N. Richard Nelson, an analyst with Chicago-based Duff & Phelps. Weather-related damage claims are more normal this year, he said, adding, “the environment is tougher because of the fires.”
Overall, Sears said it expects to earn about 65 cents a share from continuing operations, compared to 95 cents a per share, or $391.2 million from continuing operations in the year-ago quarter.
Wall Street expected Sears to report lower second-quarter earnings, “but the magnitude surprised me,” Nelson said. Expectations were based in part on the lackluster performance of Sears’ merchandising group, which has been suffering for some time from increased competition from discount stores. The company’s big price reduction last year improved sales some, analysts said, but not significantly.
Sears’ stock price dipped 37 1/2 cents Friday, to $34.25 a share.
Separately, Sears said Friday that gross revenue from continuing operations in the merchandise group for the five weeks ended July 7 rose 3.7%, compared to the same period last year.
