Sears: Earnings Up but Credit Woes Continue

Sears, Roebuck and Co. (Hoffman Estates, Ill.) reported stronger-than-expected fourth-quarter earnings, as solid holiday sales from recently acquired Lands' End made up for weaker profits at its credit card division.

Sears said the retail side is also likely to outperform the credit card business in 2003, forecasting that earnings this year would show a percentage increase in the low- to mid-single digits.

The credit card division, which generates about two-thirds of Sears' profits, struggled for the second straight quarter. A 26 percent jump in personal bankruptcies forced Sears to write off more unpaid credit card balances. Delinquencies for the quarter rose to 7.69 percent, from 7.58 percent a year ago.

Overall, Sears earnings jumped nearly 2 percent for the fourth quarter, ended Dec. 28, 2002, from the same period last year. Operating income rose 9.7 percent in the quarter. For 2003, the company said it expects operating income in the retail unit to grow in the mid-teens on a percentage basis, while operating income in the credit card side will likely fall at a low- to mid-single-digit rate.

Sears said it expects higher same-store sales in the second half of 2003. Through December, it had reported 17 straight monthly declines.

Some analysts noted that the series of declines, rather than the reported earnings performance, might be a more tell-tale sign of the company's performance. According to a report in Crain's Chicago Business, analysts pointed out that cost-cutting and Lands' End accounted for much of the improvement, but overall sales remained weak. “This doesn't give us any reason to change our view that Sears' retail strategy is flawed,'' said one. “The big thing for them in 2003 is to show that they're able to grow sales. Cost-cutting is an easier thing to do.''