Sears 2Q Earnings Off 40%

Hoffman Estates, August 31, 2007- Sears Holdings posted its lowest profit in nearly two years Thursday after another round of weak sales at Kmart and Sears stores sent the retailer's net income tumbling 40%.

Led by hedge fund wizard Eddie Lampert, Sears has seen much of its recent financial success boosted by investment income. But after months of curtailing expenses, the company continues to be vexed by falling sales and profit margins.

Net income for the period fell to $176 million, or $1.17 per share, from $294 million, or $1.88 per share, a year earlier, when the company was helped by a one-time gain. Revenue dipped 4% to $12.24 billion.

"We are disappointed with our second-quarter results," Aylwin Lewis, Sears Holdings' chief executive and president, said in a statement. "Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations."

Analysts surveyed by Thomson Financial expected earnings of $1.13 per share and revenue of $12.32 billion after the company narrowed its financial projections earlier this month. The analysts' estimates typically exclude one-time items.

Troubling too is the loss of the once-strong interest and investment income, which so far this fiscal year has accounted for a loss of $82 million.

Thursday's results are the latest in a series of lackluster news from Sears, which has seen its stock price fall about 25 % in the past four months.

Meanwhile, the company's once-robust war chest is shrinking too, dropping to $2.6 billion from $4.4 billion in January 2006. And since mid-April, when shares reached an all-time trading high of $195.18, the company's stock price is down nearly 25%.

The company blamed its latest performance on lower operating results at Kmart and Sears' U.S. stores, which were partially offset by improved results at Sears Canada.

Still, same-store sales at Sears' U.S. stores sank 4.3%, while Kmart's comparable store sales fell 3.8%. Same-store sales figures are an important retail industry metric of stores open at least one year.

Sales in Kmart and Sears stores were sluggish in nearly all categories.

Sears said it has $2.6 billion in cash and equivalents on hand at the end of the quarter, down from $3.7 billion last year. The company said much of the money was used to repurchase about $1.5 billion in shares during the second-quarter.