Sears Posts 26% Rise but Foresees Problem

Sears, Roebuck & Co. on Thursday reported a 26% increase in third-quarter profit but said rising consumer credit delinquencies are likely to hurt its earnings during the holiday shopping period.

News of the rising bad credit pushed down shares of the nation’s No. 2 retailer and the largest retail credit card issuer by $5.81, or 11%, to close at $48.06 on the New York Stock Exchange.

Sears said net income for the three months ended Sept. 30 rose to $353 million, or 89 cents a share, from $279 million, or 68 cents a share, in the comparable period a year ago.

During the 1997 quarter, Sears took a $23-million charge to convert its Western Auto operations into Parts America stores, while gaining $37 million on a cut to retirees’ life-insurance benefits and $38 million on adopting a new accounting standard. Excluding those items, net income would have been $301 million, or 76 cents a share.

The earnings exceeded Wall Street estimates of 75 cents a share.

Revenues rose 8.4% to $9.83 billion from $9.1 billion. The company said retail sales were below its expectations, largely because of warmer than expected weather in some regions. Sales at stores that have been open at least a year, an industry measure of performance, rose 2.2%, while credit card revenues rose 19%, in part on increased late fees.

The retailer said it increased its provision for uncollectable accounts by 44.6%, to $393 million from $272 million in the third quarter of 1996. Had the company not made the accounting change, the provision would have risen 85.2% over the year-ago period.

The provision includes a $40-million addition to the bad-debt reserve, taken in case some customers never pay off their credit cards.

“We’re very concerned, and management has spent a lot of time trying to work the back end and front end of this issue,” said Arthur Martinez, Sears chairman and chief executive. “But the fact is, over 93% of our customers are handling their accounts perfectly with us.”

The retailer has stepped up collection efforts and is more closely monitoring accounts to cut off credit for delinquent customers, he said.

Still, “if our delinquency and charge-off trends continue, the resulting increases in the provision for uncollectable accounts could have a significant adverse effect on the company’s overall operating results in future periods,” Martinez said.

At a Glance:

Coca-Cola Co. said its third-quarter earnings rose 4.6%, matching expectations, as its global sales increased more than expected. The world’s largest beverage company said net income rose to $1.01 billion, or 41 cents a share, from $967 million, or 39 cents, a year ago. The earnings in the latest quarter, as in other quarters during the last three years, include gains from Coca-Cola’s sales of interests in bottling companies to its “anchor” bottler partners. Coke matched the average analysts’ estimate of 41 cents a share.

Coca-Cola’s earnings were disclosed before a regular meeting of its board--the first meeting in 16 years not attended by Chairman and Chief Executive Roberto Goizueta, who is seriously ill with cancer. The board took no formal action regarding Goizueta but is prepared to act should his condition worsen, the company said in a statement.

Merck & Co. reported third-quarter profit a penny below estimates as its cholesterol drug, Zocor, lost ground to Warner-Lambert Co.’s Lipitor. Merck said net income rose to $1.20 billion, or 99 cents, from $1.0 billion, or 83 cents, a year earlier.

Raytheon Co. said third-quarter earnings fell 5.6% to $198.2 million, or 86 cents a share, from $210 million, or 89 cents, a year earlier.

Continental Airlines Inc.’s third-quarter earnings rose 13% before special charges to $114 million, or $1.83 a share, up from $101 million, or $1.55 a share, in the quarter last year.

UST Inc. said its third-quarter earnings fell 7.6%, as expected, to $114.2 million, or 62 cents a share, from $123.7 million, or 65 cents, a year earlier.

Transamerica Corp.’s third-quarter earnings, excluding a loss from investment sales and a gain from tax overpayment, totaled $113.6 million, or $1.74 a share, from $114.0 million, or $1.64, a year earlier.

Occidental Petroleum Corp. said its third-quarter earnings rose 26% to $211 million, or 54 cents a share, from $168 million, or 46 cents, in the year-earlier period.

KeyCorp said third-quarter earnings rose 14% to $236 million, or $1.08 a share, from $207 million, or 90 cents, last year.

Bausch & Lomb Inc. said third-quarter profit jumped 28% to $18.5 million, or 33 cents a share, up from $14.4 million, or 25 cents a share, a year ago.

Polaroid Corp. reported a 25% decline in third-quarter earnings to $25.7 million, or 55 cents a share, compared with $34.2 million, or 74 cents a share, a year earlier.

Clorox Co. said its fiscal first-quarter earnings rose a better-than-expected 14% to $74.4 million, or 72 cents, from $65.5 million, or 64 cents, in the year-earlier period.

Maytag Corp. said its third-quarter profit rose 21.3% to $49.4 million, or 51 cents a share, in the July-September period, up from $40.6 million, or 40 cents a share, a year ago.

Colgate-Palmolive Co. said its third-quarter earnings rose 17% to $188.6 million, or 62 cents a share, from $160.9 million, or 53 cents, a year earlier.

Reading & Bates Corp. said its third-quarter profit fell 72% to $6.4 million, or 9 cents a share, from $22.6 million, or 34 cents, in the year-earlier period.

Case Corp. said its third-quarter earnings rose 26% to $78 million, or $1 a share, from $62 million, or 81 cents, before a charge in the year-ago period.

Rubbermaid Inc. said third-quarter earnings fell 35% to $30.1 million, or 20 cents a share, from $46.1 million, or 31 cents, a year earlier.

Capital One Financial Corp.’s third-quarter earnings rose 27% to $49.3 million, or 72 cents a share, from $38.8 million, or 58 cents, in the year-earlier period.

Office Depot Inc. reported third-quarter net income of $43.7 million, or 27 cents per share, compared with $31.9 million, or 20 cents, a year ago.

McGraw-Hill Cos. said its third-quarter earnings rose 25% to $143.5 million, or $1.44 a share, up from $114.5 million, or $1.15, in the year-earlier period.

BankBoston Corp.’s third-quarter earnings rose 15% to $226 million, or $1.49 a share, from operating earnings of $197 million, or $1.23, in the year-earlier period.

Dime Bancorp Inc.’s third-quarter earnings rose 29% to $39.5 million, or 38 cents a share, from $30.7 million, or 28 cents, before a charge and tax benefit a year earlier.