If the economy wasn’t in such bad shape, the news Thursday from Sears, Roebuck and Co. wouldn’t have looked so good.
After all, it’s hardly upbeat news that Sears said it expects to report a second-quarter net loss loss of 60 cents per share next week because of $810 million in one-time pretax charges. That’s a far cry from the $1.11 per share in profits the company reported in the same period last year.
But Wall Street was looking for a silver lining, and it found one: Excluding those big one-time items, Sears said it expects earnings of 96 cents per share, better than the consensus analyst estimate of 92 cents, according to First Call/Thomson Financial, and above the highest estimate of 95 cents.
Investors took heart, bidding up Sears stock to a new 52-week high. Shares of the nation’s third-largest general merchandise retailer rose $2.88 per share, or 6.9 percent, to close at $44.50–its highest close since July 19, 1999.
The news came as a surprise because Sears is not scheduled to release its second-quarter results until Thursday.
Still, most of the one-time charges in the quarter were already known.
In April, Sears said it would take a non-cash charge of $520 million to establish a bad debt reserve for $12 billion in credit-card assets that are being moved back onto Sears’ balance sheet because of changes in accounting standards.
An additional $80 million pretax charge was announced Tuesday to cover the costs of Sears’ exit from the cosmetics business.
Part of that amount represents the cost of a settlement with Avon Products Inc. related to Sears’ backing out of a planned 125-store rollout of Avon’s new beComing line.
But a third big piece was new: Sears said it is taking a $185 million pretax charge to cover the write-off of its 19 percent stake in HomeLife Furniture Corp., which closed its doors Wednesday.
The rest of the charges are for miscellaneous items.
Although Sears said it believes its accountants were conservative in computing the charge, the company warned it may incur additional losses related to HomeLife because of the furniture chain’s lease obligations and other debts.
Sears said its core retail business stayed on track in the second quarter, which was a rocky one for the retail industry in general as consumers cut back their spending.
Although sales slowed, Sears wasn’t forced to take drastic markdowns, which improved its gross profit margin.
“Despite the challenging economic environment, we managed our retail operations well,” said Chief Executive Alan Lacy.
The credit card business also turned in a decent performance, Lacy said, although results were slightly below last year because of higher write-offs and the continued rollout of the Sears Gold MasterCard.
Even with the increased write-offs related to high levels of personal bankruptcy filings, Sears said the credit quality of its portfolio remained high.
