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Sears Q1 CE Results Strong, But Domestic Sales Flat

Hoffman Estates, Ill. — Although hard lines, such as consumer electronics, provided strong first quarter growth for the Sears home group, overall domestic segment sales were flat and the retailer reported an operating loss.

The domestic segment, including all domestic retail formats and corporate functions, recorded first quarter sales and service revenue of $6.79 billion, up from $6.71 billion in the year-ago period. The domestic segment reported a $39 million operating loss, compared with operating income of $299 million year-on-year.

“Our sales performance in the first quarter was mixed,” said Alan Lacy, chairman/CEO. “Our strong assortment and value proposition drove improved home group comparable stores sales, while we were disappointed not to fully participate in the industry-wide improvement in apparel sales.” Overall domestic comp-store sales in the first three months, ended April 3, increased 1.6 percent.

In a conference call, Lacy noted that the company’s home goods segment benefited from sales of such high-technology products as plasma and LCD TVs and high-efficiency major appliances. First quarter CE comp sales were up by the mid-single digits owing to improved in-stocks and the re-introduction of traffic-driving products like entertainment software, while majap comps were up by the low-single digits in dollars and mid-single digits in unit volume. Also up were customer satisfaction scores for that department.

Gross margin in Sears’ domestic venue climbed to 26.8 percent in the first quarter, up from 26.4 percent in the prior-year period, primarily due to income from revenue earned under the retailer’s alliance with Citigroup. Sears sold its credit card operation to this banker last November.

Expenses in the first quarter reached $1.6 billion, including a $30 million gain associated with medical benefits, down from the $1.8 billion year-on-year, which included about $240 million related to business divestitures.

In the first quarter since selling its profitable credit card operation, Sears posted consolidated first quarter revenue of $7.8 billion, down from $8.9 billion in the same three months in 2003. First quarter 2004 revenue included $91 million from credit and financial products revenue, compared with $1.4 billion in the year-ago period.

At the same time, the retailer reported a whopping $859 million net loss, compared with $192 million in income in the same period a year earlier. If the first quarter charge for the way Sears accounts for pension and retirement plans is removed from the earnings information, the retailer’s net loss in the period totals $20 million.

In the second quarter of 2004, Sears assumes comp-store sales will be flat or up slightly.