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Sears’ Net Up, But Sales Down In Quarter

5/31/2007 08:34:00 AM Eastern

Hoffman Estates, Ill. — Sears Holdings reported higher earnings for its first fiscal quarter, but lower sales and lower comp sales at both Sears and Kmart stores.

During the first fiscal quarter, ended May 5, net income was $216 million compared to, $180 million for the first quarter ended April 29 last year.

For the quarter, total revenues declined $300 million, or 2.5 percent, to $11.7 billion in fiscal 2007, as compared to $12 billion for the first quarter of fiscal 2006. This decline reflects the above-noted impact of lower comparable store sales partially offset by sales increases within both Lands' End and home services businesses. The largest sales decline for the quarter was recorded at Kmart, where revenues declined $239 million, or 5.6 percent primarily as a result of comparable store sales declines, as well as a decrease in the total number of Kmart stores in operation.

Domestic comparable store sales declined 3.9 percent during the fiscal first quarter. Sears Domestic comparable store sales declined 3.4 percent for the quarter, while Kmart comparable store sales declined 4.4 percent. Sears Holdings blamed the declines on “both increased competition and the impact of external factors such as rising energy costs, a slower housing market and poor weather conditions during the latter part of the first quarter of fiscal 2007.”

Kmart experienced lower transaction volumes across most merchandise categories, while Sears Domestic recorded comparable store sales declines across most merchandise categories and formats, with “a notable decline in home appliance sales, which we believe reflects both a slower U.S. housing market and the impact of increased competition,” the company said.

For the quarter, improved operating results at Sears Canada and lower expenses at Sears Domestic were offset by reduced operating results at Kmart, where a decline in sales resulted in reduced gross margin dollars.

“In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market,” said Aylwin Lewis, Sears Holdings’ president/CEO. “However, as an organization, we need to overcome these factors by better controlling costs and developing innovative solutions that better meet our customers' needs and allow us to generate a more reasonable level of profitability even in the face of such challenges.”

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