Sears, Roebuck and Co. today reported third quarter 2002 net income of U.S. $189 million, or $0.59 per share, a 26-percent decrease from the prior year third quarter earnings of $0.80 per share. These results reflect a $222 million increase in the domestic provision for uncollectible accounts.
Revised 2002 Outlook
Sears has reduced its 2002 full-year outlook for comparable earnings per share to $4.86 per share, a 15 percent increase over the prior year amount of $4.22. The company had previously expected comparable earnings per share of $5.15 for 2002, or a 22-percent increase. The company continues to expect comparable earnings increases in the low- to mid-30 percent range in its retail and related services segment. The company now expects its credit and financial products segment to report a low- to mid-single-digit decrease in comparable earnings for the year.
"On October 7, in conjunction with discussing the change in management of our Credit and Financial Products business, we reaffirmed our previous earnings guidance for the year," said chairman and CEO Alan J. Lacy. "Today's revision to that guidance reflects additional increases in the allowance for uncollectible accounts as a result of analysis over the past week. However, the credit business remains highly profitable, and I have complete confidence in our credit strategy and the management team."
Retail and Related Services
Retail and Related Services operating income decreased to $42 million from $82 million in the prior year.
Revenues for the third quarter of 2002 were $7.26 billion or 0.7-percent below last year's third quarter revenues of $7.31 billion. Sales increases in direct to customer resulting from the company's acquisition of Lands' End, product repair services, dealer stores, and hardware stores were more than offset by revenue declines in the full-line stores.
The retailer said the decrease in full-line store sales reflects the significant store disruption from the implementation of strategic initiatives. Softline revenues declined as a result of lower apparel sales and exits from the custom window treatment and installed floor covering businesses. Hardline revenues also declined in the third quarter with increases in home appliance sales being offset by decreases in home office, home electronics, and home improvement.
Retail and Related Services gross margin rate improved by 180 basis points to 27.5 percent. Full-line hardlines businesses, and all other retail formats, as well as the inclusion of Lands' End, contributed to the margin improvement. Softlines margin declined 120 basis points in the quarter primarily due to increased promotional activity.
Selling and administrative spending was 8 percent higher than third quarter 2001 primarily due to the addition of Lands' End's selling and administrative expenses since the third quarter of last year. Selling and administrative expenses were 24.1 percent of sales compared with 22.2 percent last year, reflecting decreased expense leverage in a slower sales environment.
Sears Canada's operating income of $8 million compares with an operating loss of $4 million in last year's third quarter. The $12 million profit improvement is primarily related to gross margin rate expansion partially offset by decreased revenues. Sears Canada revenue decreased 4.9 percent to $954 million in the third quarter of 2002, in part due to a 1.2 percent decline in the value of the Canadian dollar relative to the U.S. dollar.
Corporate and Other
Segment operating loss for the quarter of $59 million improved from last year's operating loss of $80 million. Revenues from the home improvement services businesses included in the Corporate and Other segment decreased by 16 percent to $91 million primarily due to the sale of the Sears Termite and Pest Control business in the last half of 2001. The decline in revenue was offset by an improvement in margin rate for the home improvement businesses. In addition selling and administrative expenses declined due primarily to lower costs related to the implementation of strategic initiatives.
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