Troublesomely high overhead costs at Sears, Roebuck and Co. continue to decline, but the company eked out only a slight gain in profits because of a special tax charge.
Though overall profits were hurt by the tax charge, Sears` retail organization reported a 43 percent jump in net income, mostly because layoffs helped trim $179 million from Sears` expense structure in the period.
For all of Sears, net income rose less than 1 percent, to $239.3 million, or 70 cents a share, from $237.9 million, or 69 cents a share, a year earlier, the company said Monday. Revenue rose slightly to $14 billion.
Profits were flattened mostly by the $64.1 million deferred tax charge against the Allstate Insurance Group, which a spokesman said Sears expects to recoup because of a proposed revision in income tax accounting rules.
Without the charge, Sears` net income would have been $303.4 million, or 88 cents a share, for the period.
For the second quarter in a row, Sears` balance sheet showed the results of decisions made last year to lay off 33,000 employees from its huge retail work force. Those layoffs have been completed, a Sears spokesman said.
Retail profits rose to $156.9 million, though sales fell almost 3 percent, to almost $7.7 billion, as recession-weary consumers steered away from making major purchases from Sears` catalog or in its 863 stores.
”Sears has done something right for the first time in a long time, but it has to go a lot further,” said Kurt Barnard, author of industry newsletter Barnard`s Retail Marketing Report. ”Increasing profitable sales-that`s what makes the retail world go around.
”They let thousands of people go, but their sales have also dropped, which is an indication that Sears is not as much in favor as it was,” he said.
In the second quarter, overhead expenses ate up about 28 percent of every $1 worth of merchandise purchased by consumers. Though still high by industry standards, that figure marks an improvement in overhead costs, which once devoured 30 cents or more of every sales dollar.
”Twenty-eight percent still leaves them in an uncompetitive position with most other retailers with whom they compete,” Barnard noted, citing Wal- Mart Stores Inc.`s lean 16 percent cost ratio and K mart Corp.`s 22 to 23 percent.
”That`s still not good,” said Walter Loeb, president of the retail analysis firm Loeb Associates. ”They should be at 24 to 25 percent, and by the end of next year they could be.”
In a release accompanying Sears` results, Chairman Edward A. Brennan noted that the recession hurt domestic merchandise sales, especially those of durable goods such as appliances and furniture, on which Sears depends for two-thirds of its revenue.
Loeb said he believes that Sears` men`s and women`s apparel sales improved in the last quarter, which helped profits, but that sales from the catalog and of durable goods continued to pull down earnings.
”The catalog is probably off much more than anything else,” he added, referring to the division that sells about $4 billion in merchandise a year but hasn`t turned a profit for several years.
Top Sears executives are working on a program to bring profits back to the catalog division, which Brennan has said he will not close, despite rumors to the contrary.
Though most attention has focused on Sears` troubled merchandise operations, Allstate Insurance Group reported net income for the period of $75.7 million, down 47 percent from the year-earlier $142.2 million, mostly because of the special tax charge. Revenue rose 6.2 percent, to $4.81 billion. Dean Witter Reynolds Inc. reported net income of $90.6 million, up almost 56 percent, reflecting the continued growth of the subsidiary`s successful Discover card operations. About $48.2 million of that was attributed to Dean Witter`s credit services division, an 87 percent increase from a year earlier. Coldwell Banker Real Estate reported a loss of $3.1 million, which Sears officials said reflected a difference in the timing of property sales at Homart Development Co. Revenue rose to $437.7 million from $357.9 million.
For the first six months, Sears` profits have risen 28 percent, to $442 million from $344.2 million for the first half of 1990. But the performance still lags that of previous years, analysts note.
But one stock fund manager has been encouraged enough by Sears cost-cutting to place its stock among his top 10 positions in recent weeks.
Jeff Vinik, portfolio manager for Fidelity Investment`s Fidelity Growth & Income Fund, said he believes Sears will be among the ”early cycle”
beneficiaries of an economic recovery.
”The last time Sears did well was in 1982, 1984, when we were coming out of a recession. We`re coming out, and their costs are under excellent control,” he said.
Sears stock closed at $38.50, up 75 cents, Monday on the New York Stock Exchange.
