Sears’ 99% profit decline spurs sell-off

Sears Holdings Corp. stumbled to its worst performance yet under Chairman Edward Lampert, earning just $2 million in a dismal quarter that heightened questions about his strategy and Sears’ future as a retailer, prompting a sell-off of its stock Thursday.

Sears blamed its 99% profit decline on stiff competition and economic factors that weakened margins and sales at its Sears and Kmart department stores. The company signaled little hope for improvement in the near future in a challenging retail environment.

Wall Street pummeled Sears’ stock amid a growing exodus of those who had thought Lampert, the hedge fund guru who combined the two faltering chains in 2005, would figure out a way to turn the company around.

Shares tumbled $12.25, or 10.5%, to close at $104.09 on Thursday after earlier hitting an annual low of $98.25 -- down nearly half from their peak of $195.18 in April.

“I think a lot of people who had been hanging on departed this morning,” said Neil Stern, a retail consultant for McMillan/Doolittle in Chicago. “Until the performance of retail comes around, it’s a bit difficult to see what other rabbits are going to come out of the hat.”

The Hoffman Estates, Ill.-based company, which this week said it might buy out the rest of retro-themed retailer Restoration Hardware Inc., narrowly avoided its first loss with net income of a penny a share. That was down from earnings of $196 million, or $1.27, a year earlier and far off the estimate of 50 cents a share from analysts surveyed by Thomson Financial.

Sales for the fiscal third quarter ended Nov. 3 slipped 3%, to $11.5 billion from $11.9 billion.

“We are very disappointed in our performance for the third quarter,” said Aylwin Lewis, chief executive and president. “We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so.”

Retail consultant George Rosenbaum said acquiring Restoration Hardware -- a widely questioned move -- would be a “bold and correct move.” But that’s not nearly enough, he indicated.

“They can’t cut costs any more, or only marginally,” he said. “They have to become merchants.”