Slow Sales Pull Sears’ 4th Quarter Down 14%
Sears, Roebuck & Co. said Thursday that slow holiday sales contributed to a 14% decrease in fourth-quarter earnings and warned of lower results in the first quarter as well, as a cooling U.S. economy saps retail sales.
Sears, the second-largest U.S. retailer behind Wal-Mart Stores Inc., said operating profit fell to $639 million, or $1.91 cents a share, in the quarter ended Dec. 30, from $740 million, or $1.98 cents, in the year-earlier period.
The performance topped analyst forecasts of $1.86 a share, however, according to research firm First Call/Thomson Financial.
The latest results exclude charges to cover costs associated with the previously announced plan to close 89 stores and eliminate about 2,400 jobs. Additional store closings are not likely in the foreseeable future, the company said.
Revenue edged up 2% to $12.4 billion, despite a 5% decline in credit revenue to $1.01 billion as customers kept lower balances on Sears-branded cards. Sales at U.S. stores open at least a year inched 0.9% higher, helped by sales of appliances, electronics and sporting goods.
Consolidated gross margin as a percent of merchandise sales and services fell to 27.7% in the fourth quarter from 28.8% a year ago. Sears’ margins, like those of many other retailers, were hurt by the deep discounts needed during the holidays to spur sales.
Most U.S. retailers saw holiday sales growth slow as the U.S. economy lost steam and consumers scaled back purchases of gifts.
That sluggish shopping environment is expected to continue through the first half of the year and may result in lower first-quarter earnings, Sears said.
“The current retail and economic environment points to a challenging first half of the year, particularly in the first quarter, which is likely to be down, with the second half offering opportunity for improved year-over-year performance,” Chief Financial Officer Jeffrey Boyer told analysts on a conference call.
Sears earned 65 cents a share in the year-ago first quarter and analysts polled by First Call/Thomson Financial expect the retailer to earn 71 cents during the current first quarter.
“Operating income is planned to deliver mid-single-digit growth,” Sears Chief Executive Alan Lacy said. “Income growth combined with our share repurchase program should allow us to achieve” earnings-per-share growth in high single to low double digits.
One Wall Street analyst said Sears’ growth goal for operating earnings in 2001 will be difficult to deliver unless it can jump-start its retail business, which saw operating income drop 37% from a year ago to $452 million in the fourth quarter.
“Sears is really going to have to find a way to drive up receivables in credit or make the retail side more profitable,” said Joe Grillo, retail analyst with Deutsche Banc Alex. Brown.
Sears shares fell 26 cents to close at $34.49 on the New York Stock Exchange.
At a Glance
Other earnings, excluding one-time gains or charges unless noted:
* Boise Cascade Corp. said fourth-quarter earnings plunged 56% to $20.7 million, or 29 cents a share, on flat sales of $1.9 billion as the lumber industry struggles with low prices and higher energy costs. The results beat estimates of 21 cents that had been revised downward last month after the company warned that profit would miss forecasts.
* Caterpillar Inc., the largest maker of construction and earthmoving equipment, reported better-than-expected earnings for the fourth quarter but said profit will fall and sales will be virtually flat in 2001 because of the slowing U.S. economy and higher spending. Earnings in the latest quarter rose 10% to $264 million, or 75 cents a share, beating forecasts of 64 cents, on a 2% rise in sales to $5.11 billion.
* Freddie Mac said fourth-quarter profit increased 12% to $663 million, or 89 cents a share, as its mortgage portfolio grew and it earned more money on investments. Revenue grew 10% to $1.16 billion.
* Providian Financial Corp., which issues credit cards to consumers with tarnished credit, said fourth-quarter profit rose 48% to $236 million, or 80 cents a share, well beyond forecasts of 73 cents, as it earned more from fees. Revenue jumped 35% to $1.66 billion. The company added 1.3 million customers in the quarter for a total of 16.3 million at year-end.
* USA Education Inc., the No. 1 buyer of government student loans and better known as Sallie Mae, said earnings on a core cash basis rose 28% to $138 million, or 80 cents a share, in the fourth quarter, helped by its recent acquisition of USA Group Inc.
* United Technologies Corp. said fourth-quarter profit rose 18% to $426 million, or 84 cents a share, bolstered by sales growth at its Pratt & Whitney jet engine and Otis elevator units, as well as by acquisitions and cost-cutting. Revenue rose 3.8% to $6.77 billion. The company, which also makes air conditioners, lost a bid in October to buy Honeywell International Inc. when General Electric Co. offered a sweeter deal. The company said it continues to consider the possibility of a large acquisition, even one that doesn’t fit within its current businesses. It declined to comment on whether it has had discussions with other aerospace companies.
