Hoffman Estates, Jan. 29--Sears, Roebuck & Co. posted a record $2.75 billion profit for the fourth quarter thanks to the sale of its credit-card unit to Citigroup, but with retail sales sagging the company lowered its estimate for earnings in the first quarter and all of 2004.
The news sent Sears' shares down $1.43, or 3 percent, Thursday to close at $44.37 on the New York Stock Exchange after initially plunging 9 percent. They fell another $1 in the extended session.
The one-time windfall enabled Sears to post its most profitable year ever, a $3.4 billion gain that topped the previous high of $2.37 billion in 1993. Beyond that, CEO Alan Lacy told analysts, "I am confident the sale will make us a better retailer, as we are now completely focused" on strengthening sales from the company's 870 department stores.
Analysts agree the lack of distractions from credit should help the struggling company. But the addition of Lands' End apparel to its stores hasn't yet produced a turnaround, and same-store sales have been heading steadily lower for more than two years.
Retail consultant Sid Doolittle said Sears must learn how to get its costs down further and stop losing business to discount-store competitors as well as general merchandisers such as J.C. Penney and Kohl's.
"Some of the changes they're making now will help, such as outsourcing and changing the system operation," he said. "But the real key is figuring out how to improve market share. Lands' End has helped them but it's not the answer by itself. ... They're still under water."
Net income for the last three months of 2003 more than tripled the total of a year earlier and amounted to $10.84 per share. That compared with a profit of $848 million, or $2.67 per share, in the same period of 2002.
Revenues declined 2 percent to $12.25 billion from $12.52 billion.
The results included several large one-time items: a pretax gain of $4.1 billion from the sale of the credit business last year, a $791 million pretax charge on the early retirement of debt linked to that sale, and an $81 million pretax gain for the sale of the company's National Tire & Battery business.
Excluding those items, Sears said earnings per share were $2.24 -- handily beating the $2.02 estimate of analysts surveyed by Thomson First Call. But Wall Street was more focused on Sears' scaling back of estimates for the current quarter and year, especially in the wake of disappointing fall and holiday sales.
The Hoffman Estates, Ill.-based retailer said it expects first-quarter earnings of between 9 cents and 14 cents per share, with comparable-store sales flat to slightly higher. That's well short of analysts' consensus estimate of 20 cents. For the full year, it foresees earnings in the range of $3.60 to $3.80 per share, compared with the First Call estimate of $4.36.
Sears cited the impact of more debt payments related to the credit unit's sale and the effects of having a 53-week fiscal year in 2003 versus 52 in 2004. It said same-store sales should grow in the single-digit percentage range for the year -- hardly a strong comeback for a company that is betting its future on retail. Home appliance and tool sales remain strong, however.
"It was a complicated year," Lacy said on a conference call. "But I do believe we are a fundamentally stronger company than we were just 12 months ago ... and have the right going-forward strategies in place."
For the full year, net earnings amounted to $11.86 per share, compared with $1.38 billion, or $4.29 per share, in 2002. Revenues were $41.12 billion, down from $41.37 billion.
