Sears' Q2 Earnings Slide 62%

By Alan Wolf -- TWICE, 9/4/2008

HOFFMAN ESTATES, ILL. — Sears Holdings said increased competition and the slowing economy contributed to a 62 percent drop in second-quarter net income, to $65 million.

The results include the positive impact of a $62 million legal judgment in Sears' favor.

Total revenue slipped 4 percent to $11.8 billion for the three months, ended Aug. 2, while same-store sales fell 6.2 percent, reflecting a 6.7 percent drop at Sears stores and a 5.6 percent decline at Kmart.

The company's gross margin rate fell from 27.7 percent to 26.5 percent year-over-year due to increased markdowns prompted by "the intense competition for consumer business," the company said.

"Our second-quarter results reflect the continued effects of a slowing economy which contributed to the earnings declines we have experienced since the third quarter of 2007," acknowledged president and interim CEO Bruce Johnson.

On the product front, CE proved to be one of the company's few bright spots, with gains in electronics offsetting sales declines across most major categories including major appliances. Majaps is among several categories directly impacted by housing market conditions, Sears said, although the increased costs of consumer staples such as food and gas have also reigned in discretionary spending.

Johnson added that the company continued to cut costs during the second quarter, including $46 million in payroll and advertising expenses and $500 million in inventory.

Sears also added 65 net stores year-to-date, including Home Appliance Showrooms, dealer stores and outlets, and vastly increased its selection of movies, music, software and books on Sears.com, nearly quadrupling its SKUs.

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We upgraded our whole kitchen appliances last year and went to Sears for competitive quotes on a name brand refrigerator with icemaker, gas stove, and dishwasher all with installation and removal of the old appliances. After trying to get help for 15 minutes by cruising the appliances we finally got a salesman and asked for quotes. When we told him that we already had 2 less expensive quotes from ABC Warehouse and Best Buy. He basicly told us to go shop there. We did and will never consider Sears for anything again!

Valerie Bostic - 2009-17-3 13:27:00 EDT

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