Sears Says Sales and Profit Won’t Meet Forecasts

Sears, Roebuck & Co. said Wednesday that its sales fell sharply in November and warned that its profit won’t meet expectations this year, pushing its shares down 3.5%.

The largest U.S. department store operator said sales at stores open at least a year, an industry measure of performance, tumbled 3.6% in November, the third consecutive monthly decline. Sears had expected an increase of 3%. For the same period a year ago, sales declined 0.6%.

The warmest November in five years hurt demand for winter apparel, the company said in explaining the sales drop. Sears and other department stores also have been losing customers to discount chains and specialty clothing stores.

“You’re going to see weakness consistently through the department stores,” said portfolio manager Thomas Buynak of Society Asset Management, which owns shares of retailers.

Sears said it expects earnings to rise just 1% to 3% for the full year, to about $3.30 to $3.37 a share. Analysts polled by First Call Corp. expected profit to rise 5.2% to $3.44 a share.

Sears shares fell $1.56 to close at $43 in heavy trading on the New York Stock Exchange. The stock had the fifth-largest decline of the companies in the Dow Jones industrial average, accounting for 6.44 points of the index’s 69-point drop to 9,064.54.

The retailer released its November sales Wednesday to coincide with a meeting with Wall Street analysts. Most other retailers will report November results today.

Department stores are expected to post sales gains of about 1% for the holiday season, according to NationsBanc Montgomery. That’s less than forecasts for increases of 5% at discount retailers and 8% at specialty apparel chains. Overall retail sales are expected to rise 3.5% to 4% in November, according to industry forecasters.

Sears is expected to step up markdowns in coming weeks to clear out excess merchandise and better compete with other mid-priced department stores and specialty chains. Widespread price cuts hurt earnings because the retailers make less on each sale--especially on clothing, which has a higher profit margin.

Sears, based in the Chicago suburb of Hoffman Estates, Ill., operates 838 department stores and more than 2,700 hardware, auto and other specialty shops.

The retailer said in October that it expected a “mid-single digit” gain in per-share earnings this year and a “double-digit” gain next year.

Sears has been losing some clothing sales to department store chains such as J.C. Penney, which has slashed prices as much as 50% in recent weeks to revive slow clothing sales.

Shoppers also are flocking to specialty chains such as Gap Inc.’s Old Navy, which offers trendy clothes such as cargo pants in smaller stores with more customer service, and discount chains such as Wal-Mart Stores Inc. and Dayton Hudson Corp.’s Target that sell brand-name goods at bargain prices. Both groups are expected to post the highest sales gains this holiday season.

“The discounters are eating into the middle-market players,” said analyst Joseph Ronning of Brown Bros., Harriman & Co., who rates Sears a “neutral.”

Today, other department stores are expected to report November sales that are lower than the companies’ forecasts, including Dillard’s Inc., May Department Stores Co. and Federated Department Stores Inc., analysts and investors said.

Nevertheless, these retailers aren’t expected to cut earnings projections in the hope weather will soon turn cold. That could boost clothing sales during the remainder of the holiday shopping season and fourth quarter, which can account for as much as half of a retailer’s annual profit.

With the warm weather, “you may not be in the mood to buy the clothing you otherwise would,” said Sears spokesman William Parke.

During the first weekend of the holiday season, which started Friday, many department store chains’ lower clothing sales were offset by higher sales of kitchen goods, picture frames and other home furnishings, analysts said.