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Sears Reports Improved CE, Majap Sales

Sales of major appliances, especially cooking and laundry products, recorded a “strong” fourth quarter at Sears, Roebuck and Co., while digital cameras and entertainment software “performed well.”

These product categories were among those that drove Sears domestic merchandise sales and services revenue numbers to $9.6 billion for the three months, ended Jan. 1. However, the totals fell short of fourth-quarter 2003 figures, which came in at $10.2 billion for the same three months.

Domestic comp-store sales, excluding the 53rd week in the fourth quarter of 2003, decreased 0.2 percent in the fourth quarter of 2004.

The domestic merchandise sales and services segment reported operating income of $471 million in the fourth quarter, up from $49 million the previous year. However, the 2003 results included an operating loss of $642 million for divesture of its credit and financial business, as well as a pretax charge of $791 million for retirement of debt.

Gross margin in the domestic end of Sears’ business decreased to 27.2 percent in the fourth quarter, from 29.2 percent the prior year, driven primarily by increased in-season clearance markdowns taken on slower moving inventory and a higher level of promotional markdowns.

Expenses for the fourth quarter in the domestic segment were $1.9 billion and included a $13 million in costs related to the pending Kmart merger. In the fourth quarter of 2003, domestic expenses reached $2.1 billion, including $73 million related to divested businesses.

Consolidated fourth-quarter merchandise and service revenue recorded a small drop to $11.1 billion, down from a year-on-year $11.6 billion. Net income plunged to $378 million in the three months, down from $2.7 billion in the same quarter last year.

Alan Lacy, chairman/CEO, said within CE repositioning included a department reset that was completed chain-wide in September, plus a “narrowing and sharpening” of its product mix to focus on three core categories: video, digital cameras and “family fun,” which includes DVD software. Lacy said consumers embraced the changes, raising CE comps by the low single digits during the fourth quarter compared to the prior-year period, led by sales of plasma and LCD TVs, A/V accessories, digital cameras and entertainment software.

White-goods sales also rose by the low-single digits during the fourth quarter, increasing Sears’ majap market share 100 basis points to 37.5 percent, Lacy said, citing market research group The Stevenson Co. He also reminded investors that Sears still sells more major appliances than Lowe’s, The Home Depot and Best Buy combined.

Lacy added that Sears’ acquisition by Kmart is set for March, and that the merger planning process is “going well.” The deal will greatly accelerate Sears’ off-mall strategy through the conversion of several hundred Kmart stores to Sears units over the next three years in urban and high-density suburban markets, he said.