Sears cuts 3,300 jobs as profit falls 83%

`Is this a business we should keep investing in?'

July 23, 2004|By Becky Yerak | Becky Yerak,CHICAGO TRIBUNE

CHICAGO - Weakened by poor clothing sales, Sears, Roebuck and Co.'s second-quarter profit fell 83 percent, to $53 million, about a third less than what Wall Street expected.

The nation's biggest department store chain warned yesterday of a bleaker outlook for the rest of the year and announced the elimination of 3,300 jobs, or 1.6 percent of its work force.

For the three months that ended July 3, Sears reported net income of $53 million, or 24 cents a share, down from $309 million, or $1.04 a share, for the second quarter last year.

The difficulty in finding a silver lining in Sears' quarterly results prompted retail observers to question everything from the company's apparel strategy to the staying power of its management.

"At what stage of the game do you stop and say, `Is this a business we should keep investing in?' " said Credit Suisse First Boston analyst Michael Exstein.

The clock also is ticking on Sears Chief Executive Officer Alan J. Lacy, others said.

"He's running out of reasons" to explain Sears' disappointing results, said Sid Doolittle, retail consultant with Chicago's McMillan/Doolittle. "Alan is on borrowed time."

Analysts were expecting Sears to earn about 70 cents a share in the second quarter.

The retailer actually earned 24 cents a share, after two pre-tax charges totaling 24 cents a share. One was a charge of 12 cents a share for severance costs related to the pending job cuts.

Of the 3,300 jobs to be shed, about 3,000 are support workers performing administrative and back-office functions in the field. Another 340 headquarters positions were eliminated, half of them unfilled jobs.

In the second quarter of 2003, Sears earned $1.04 a share, which included the profits of the credit business as well as its National Tire & Battery unit. Both were sold in late 2003.

Sears had operating income of $42 million in the second quarter. A year earlier, it posted operating income of $466 million, most of that from its credit and financial services arm.

Sears stock fell nearly 3 percent, or $1 per share, to close at $33.93. In December, Sears' shares were trading at about $55.

Sears said it was "disappointed" with its second-quarter results and pointed out that much of the retail industry experienced weak demand in June. But it concedes that some problems are Sears-specific and have yet to be solved.

In the first quarter, the company posted poor sales partly because it was slow to stock spring clothing and, when it did, bought too little.

"We continue to be affected by product assortment and inventory issues" in apparel, Lacy said yesterday. "We lacked a sufficient amount of fashion-oriented spring products in what has been a strong fashion-driven season."

As such, sales in Sears stores open at least a year fell 2.9 percent in the second quarter.

While Sears hopes to have its apparel problems fixed for the fall season, it said second-half sales would be flat. That means 2004 is shaping up to be Sears' fourth straight year of falling sales.

To improve its apparel selection, Sears bought the Lands' End clothing line in June 2002. But results have been mixed.

"Lands' End total brand sales were flat in the first half of the year due to reduced store inventory levels," Lacy said. But the line's revenues and profit margins should widen in the second half.

Another notable disappointment was sales of air-conditioning units because of unseasonably cool weather.

In response to criticism about his leadership, a spokesman said Lacy realizes that pressure comes with the territory of being CEO. But he has "plans to fix and grow the company," spokesman Chris Brathwaite said. "There are a number of strategic initiatives under way that position Sears for growth."

The Chicago Tribune is a Tribune Publishing newspaper.

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