Sears’ Jump in Earnings Pushes Shares Up 13%
Sears Holdings Corp. overcame a steep sales drop-off at its namesake department stores to more than double its fiscal fourth-quarter profit, saying Wednesday that it benefited from continued cost cutting and the addition of Sears’ results to Kmart’s.
Net income for the quarter ended Jan. 28 was $648 million, or $4.03 a share, up from $309 million, or $3.09, a year earlier. That easily exceeded the consensus estimate of analysts surveyed by Thomson Financial, who had pegged earnings at $3.62 a share. Fourth-quarter revenue rose to $16 billion from $6 billion.
The better-than-expected results propelled shares of Sears to their biggest one-day gain since it was formed a year ago when Kmart bought Sears, Roebuck & Co. Sears Holdings’ stock jumped $15.02, or 13%, to $132.29 in heavy trading.
Sales at established stores continued to decline sharply during the quarter, even as sales gained slightly at Kmart for the first time since that chain emerged from Chapter 11 three years ago.
Same-store sales tumbled 12% at Sears stores, a decline the company attributed to its decision to forgo costly promotions and to weaker-than-usual results from apparel. Kmart stores registered a 0.9% increase, their first since the second quarter of 2001. The measure tabulates results at stores open at least a year, generally considered a key measure of a retailer’s health.
Chairman Edward Lampert dismissed concerns about same-store sales, calling them “vastly overrated” as a barometer of retail performance and saying the company focuses more on earnings before interest, taxes, depreciation and amortization, as well as per-share value.
“We are aligned around the goal of increasing our EBITDA,” he said in a letter to shareholders posted on the company’s website that constituted Sears’ only public comments about its results.
“While reducing sales is not a prescription for success on a base of healthy, profitable stores, it can be a prescription for success where profit was not the primary objective and where sales came from ‘giving product away’ rather than from providing value to the customer,” Lampert said. “Improving our stores and our store experience will take time, and I am pleased with the progress that we have made to date.”
He said he was disappointed, however, that the Hoffman Estates, Ill.-based company fell short of internal targets established a year ago for savings from the merger. The limited communication left analysts praising Lampert’s efforts to cut costs and improve operating margins, which rose a full percentage point to 3.4% in 2005, but wondering when -- or whether -- the company’s retail slide might end.
Full-year net income fell to $858 million, or $5.59 a share, from $1.1 billion, or $11, a year earlier. Revenue rose to $49.1 billion from $19.8 billion.
