Appliance retailer Sears, Roebuck and Co. reported a net loss of U.S. $61 million, or $0.29 per share, on an average base of 210.7 million common equivalent shares, for the third quarter ended Oct. 2, 2004, compared with net income of $147 million, or $0.52 per share, on an average base of 281.0 million common equivalent shares in the third quarter of 2003. The prior-year results include the results of the domestic Credit and Financial Products and National Tire & Battery (NTB) businesses divested in the fourth quarter of 2003.
"A number of factors contributed to a disappointing third quarter, including softer retail demand, larger than expected costs associated with seasonal transitions, and a slower ramp up of sales following certain business resets," said Sears Chairman and CEO Alan J. Lacy.
The retailer's Domestic segment, which includes all domestic retail formats as well as the company's corporate functions, reported an operating loss of $106 million for the third quarter of 2004, compared with operating income of $222 million in the third quarter of 2003. The prior-year results included operating income of $369 million and $6 million, respectively, from the divested domestic Credit and Financial Products and NTB businesses, and a pretax charge of $141 million related to the company's refinement of its business strategy for The Great Indoors. Of the $141 million charge, $112 million was reflected in special charges and impairments and $29 million in cost of sales, buying, and occupancy.
Merchandise sales and services revenues for the 2004 third quarter were $7.1 billion, compared with $7.4 billion in the prior year period. Prior-year revenues include $115 million attributable to NTB, Sears said. Sales decreases across most categories within the full-line stores more than offset sales increases in certain specialty store formats and the $39 million of revenues earned under the long-term alliance with Citigroup. Overall, domestic comparable store sales decreased 4.0 percent in the third quarter of 2004.
Sears Canada reported operating income of $21 million for the third quarter of 2004, compared with operating income of $20 million in the third quarter of 2003. Revenues for the third quarter increased 11.2 percent to $1.2 billion due to increased sales across most formats as well as the effects of foreign exchange.
"Based on our sales and margin performance over the past two quarters, coupled with a more cautious holiday outlook, we have adopted a more conservative outlook for the fourth quarter," Mr. Lacy said in a statement. "While we remain optimistic about a favorable holiday shopping season, we believe that it is appropriate to lower our fourth quarter sales and margin assumptions," he added.
For the year, the company now expects earnings per share, before the cumulative effect of change in accounting principle, but including $0.24 per share related to the second quarter special charges and additional depreciation, to be between $1.46 and $1.66. The company said the new outlook reflects the lower than expected year-to-date results, assumes fourth-quarter domestic comparable store sales to be flat, and lowers the projected fourth quarter gross margin rates.
Sears said the full-year outlook includes the negative carrying cost of approximately $0.20 to $0.25 per share on the company's remaining legacy debt related to its former Credit and Financial Products business.
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