Hoffman Estates, IL, Oct. 17—Sears, Roebuck and Co. has logged an unexpected shortfall in third quarter profits, and reduced estimates for the rest of the year because of uncollectible credit card debt. The surprise warning and 26% profit drop came just ten days after Sears said it expected to roughly break even for the third quarter and was on track to meet fourth quarter profit targets.
CEO Alan Lacy told analysts additional problems were discovered in the credit card unit, already under pressure from the deteriorating economy, after he fired credit chief Kevin Keleghan early this month for a loss of credibility about what was going on in the business.
As a result, Sears increased its allowance for uncollectible accounts by $189 million for the quarter, skewing previous estimates.
“It''s a difficult situation for all of us,” said Lacy. “There''s no question that this is a setback.”
Lacy insisted that the credit business, which he headed before becoming chief executive in 2000, remains “highly profitable” and that the change has nothing to do with the retail business. He noted that the company still expects to finish the year with 15% profit growth.
Retail revenues, however, slipped 0.7% to $7.26 billion in the quarter. Sears said declines in revenue from its full line stores—which have been undergoing a complete renovation for months—had more than offset increases from hardware stores and direct sales as a result of its June acquisition of catalog and online merchant Lands'' End.
The credit business provides a majority of Sears'' profit.
Net earnings for the quarter were $189 million, or 59 cents a share, down from $262 million, or 80 cents a share, in the same period a year ago. Revenues were $9.67 billion, down from $9.73 billion the previous year.
The company lowered its full-year earnings forecast by 29 cents, or about 6%, to $4.86 a share. The consensus forecast of analysts was for earnings of $5.16 a share for the year.
For the first nine months of 2002, net income was $528 million, or $2.29 a share, more than double the $241 million, or 73 cents a share, of the previous year thanks to the earlier strength of the credit unit.
Revenues were $28.85 billion, up 0.3% from $28.88 billion.
