Sears’ Net Income Beats Expectations
Sears, Roebuck & Co. on Thursday posted a second-quarter earnings gain that surpassed Wall Street estimates, thanks to strong sales of home appliances and electronics and improved results in its credit business.
But Sears’ shares dropped more than 9%, closing down $5.38 at $51.31 in composite New York Stock Exchange trading. Analysts said the stock was caught in a broad market sell-off that took leading retailers such as Wal-Mart Stores Inc. and Dayton Hudson Corp. sharply lower.
For the three months ended June 30, the Hoffman Estates, Ill.-based retailer recorded net income of $336 million, or 85 cents a diluted share, compared with $117 million, or 29 cents, in the year-earlier period. The current quarter included a gain of 5 cents a diluted share on the adoption of a new accounting standard.
The year-ago period saw a $320-million charge to settle complaints from bankrupt customers that it failed to get court approval for repayment agreements. That was partially offset by a $91-million gain from the sale of Sears’ Advantis data services business to IBM, and a $35-million gain from new accounting standards.
Excluding those items, profit rose 2.3% to $318 million, or 80 cents a diluted share, compared with $311 million, or 78 cents a diluted share, for the year-ago quarter. The earnings exceeded expectations by 1 cent, according to a survey of analysts by First Call Corp.
Sears’ second-quarter revenue rose 5.6% to $10.25 billion from $9.70 billion.
“Sears performed slightly ahead of estimates largely because of the improvement in the credit card operations,” said Todd Slater of Lazard Freres & Co. in New York. Until recently, Sears had been expanding its credit card lending by issuing more cards. That expansion was designed to boost sales and was part of a recovery strategy designed by Arthur Martinez, who has revived Sears since being named chief executive in 1992.
The credit card operation has become the boon and bane of Sears’ operations. It accounted for 41% of the company’s operating profit last year. However, it had been the source of larger and larger expense-related write-downs as more and more of its cardholders fell into delinquency or default.
To reduce losses further, Sears is cutting back on card offerings by raising qualification standards.
“We will continue to implement measures to improve the overall performance of our credit portfolio,” said Martinez, predicting 15% earnings growth in 1999.
“The issue remaining is whether [Sears] can achieve acceptable sales growth in the future with this more conservative credit card operation,” said Michael Exstein, an analyst at the New York offices of Credit Suisse First Boston.
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Times wire services were used in compiling this report.
