Sears’ Quarterly Revenue Falls; Profit Tops Estimates

Sears Holdings Corp. reported another mixed quarter of skidding sales alongside improved costs and profit margins Tuesday, encouraging investors while leaving questions about its direction as a retailer unanswered.

The parent of Sears department stores and Kmart discount stores bested Wall Street estimates with a modest fiscal third-quarter profit of $58 million even as net income and sales fell from a year earlier. Its stock rose 5.4% in heavy trading.

Chairman Edward Lampert, a hedge-fund operator who engineered the March merger of the two underperforming retailers, said he was pleased with the improved operating results, with the company “focusing relentlessly on profitability.”

But comparable sales continued to sink -- 2.8% at Kmart stores and 10.8% at Sears for the quarter -- and Lampert acknowledged that Sears Holdings had “a long way to go.” He reshuffled the company’s top merchandisers this week and promised improvement in Sears’ poor-selling apparel lineup by spring, among other changes.

Analysts said Lampert was delivering on his promises to cut costs and make money but was not faring so well when it came to reversing years of lagging sales at Kmart and especially Sears.

“Financially, it’s not a bad quarter,” said Neil Stern, a retail consultant with Chicago-based McMillan/Doolittle. “The concern from a retail perspective is that top-line sales number. It’s not where you want to be as an ongoing, viable retailer.... Long term, you don’t want to be losing customers.”

Net income for the three months ended Oct. 29 were $58 million, or 35 cents a share, down from $150 million, or 93 cents, for Sears and Kmart combined a year earlier. Kmart acquired Sears, Roebuck & Co. for $12.3 billion and renamed the enlarged retailer Sears Holdings.

Analysts surveyed by Thomson Financial had expected the Hoffman Estates, Ill.-based company to earn 28 cents a share.

Adjusting for the effects of the merger and excluding such factors as the large 2004 gains on the sale of assets, the company said its earnings would have improved to $426 million from $396 million a year earlier.

Revenue was $12.2 billion, down from $12.8 billion for the two companies a year earlier.

Lampert strongly endorsed the company’s Lands’ End unit, which some experts had said could be sold. He called it a world-class brand that was being embraced by customers in early results from its new display format inside Sears stores. The unit markets most of its products through catalogs.

Lampert also called Sears Essentials “one concept among many to be tested and to learn from” and said the 50 Sears Essentials stores that opened this year have achieved various degrees of success. The “off-mall” stores offer convenience items as well as appliances and clothing.

Sears owns about 2,300 full-line and 1,200 specialty retail stores in the United States and 54% of Sears Canada Inc., a 370-store operation.

The company said Monday that it intended to spend $720 million to acquire the remaining 46% of Sears Canada.

Sears Holdings shares rose $6.26 to $122.97.