Sears' Profits Fall Dramatically During Fiscal Q3

HOFFMAN ESTATES, ILL. — Sears Holdings reported net income of $2 million for its third quarter, ended Oct. 28, vs. profits of $196 million for the year-ago period. The 99 percent decline was primarily a result of a $223 million drop in gross margin, reflecting weaker sales and an overall decline in gross margin rate, the company said.

For the three months, total revenues declined $400 million to $11.5 billion in fiscal 2007, as compared with $11.9 billion for the third quarter of fiscal 2006.

"We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so," said Aylwin Lewis, Sears Holdings' CEO/president.

Broken out by chain, Sears Domestic's comp-store sales declined 4.2 percent for the quarter, while Kmart's comp-store sales declined 5.0 percent. Total domestic comparable store sales declined 4.6 percent. Both Kmart and Sears Domestic experienced declines in most merchandise categories, which were "partially offset by increased sales within home electronics, notably at Sears Domestic," the chain said.

Overall comp-store sales results reflect increased competition, unfavorable economic conditions and growing consumer credit concerns, the company noted.

Gross margin rate fell 90 basis points to 27.4 percent during the quarter due to markdowns and higher inventory levels.

Same store sales improved in November, with Sears comps up 1.9 percent and Kmart comps down 3.3 percent for the period from Nov. 4-27, which includes the heavily shopped Thanksgiving weekend. — Additional reporting by Alan Wolf