Despite a disappointing downturn in its credit business and declining same-store sales, Sears, Roebuck and Co. posted strong fourth-quarter and annual income Thursday.
Sears’ numbers were helped by its acquisition of Lands’ End Inc. and a sale of its interest in an auto-parts chain, which generated a nearly $200 million gain in 2002’s final quarter.
Sears Chief Executive Alan Lacy said he was “very pleased” with the results, which occurred while “nearly every aspect of our business has undergone change.”
Investors were pleased as well. They bid up Sears stock $1.83, or almost 7 percent, to $28.53 per share.
Even so, Lacy wasn’t making any big promises for 2003.
Sears’ earnings per share, excluding one-time items, will rise only about 5 percent this year, he told analysts, as the company continues to work through a rocky economy and rising delinquencies among its credit-card customers.
That growth rate is less than a third of the 17 percent increase Sears posted in 2002.
Lacy vowed to increase sales at Sears’ department stores this year, although most of the improvement is projected to come in the second half. Rising sales would be a welcome change from 2002, when Sears’ same-store sales declined every month of the year, sometimes by double digits.
Part of the improvement will come from Lands’ End’s casual apparel, Lacy predicted. Lands’ End’s corduroys and sweaters will be in place in 400 Sears stores by spring and throughout the 870-store chain by the fall.
But the predictions weren’t as rosy for Sears’ credit business, which frequently generates more than half of the Hoffman Estates-based retailer’s annual operating profit.
Acknowledging 2003 will be a workout year, Paul Liska, Sears’ president of credit, said bad debt levels will continue to rise, peaking in the second half.
Write-offs of uncollectible debt also will increase as the $12 billion Sears Gold MasterCard portfolio continues to mature, Liska said. The result: 2003 operating profit from credit is expected to fall by about 5 percent.
Sears recognized that it had a new round of problems with its credit card business last October when rising bad debt levels forced the company to revise its earnings target.
In the fourth quarter, operating earnings for Sears’ credit card unit fell $63 million, or 15 percent, to $363 million, as its provision for bad debt rose $160 million, or 41 percent.
The news was far better on the retail side of the business, where operating earnings rose 10 percent to $726 million.
Overall, Sears posted fourth-quarter net income of $848 million, or $2.67 per diluted share, up 72 percent from $494 million, or $1.52 per diluted share, in the year-earlier period.
The bottom line was boosted by an after-tax gain of $179 million, or 56 cents a share, from the sale of Sears’ stake in Advance Auto Parts Inc.
Excluding one-time items, Sears’ net income rose only 2 percent, to $669 million, or $2.11 per share, from $657 million, or $2.02 per share, in the year-earlier period.
Revenue rose 2 percent to $12.52 billion from $12.22 billion.
For the year, Sears reported net income of $1.38 billion, or $4.29 per diluted share, up from $735 million, or $2.24 per diluted share, in 2001.
Revenue rose less than 1 percent to $41.37 billion from $40.99 billion.
