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Sears rings up profit
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October 16, 1997: 2:53 p.m. ET
However, fourth quarter warning and credit card debts send stock lower
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NEW YORK (CNNfn) - Sears, Roebuck and Co. reported higher third quarter profits Thursday but a warning about fourth quarter earnings helped trigger a slide in the company's stock.
Sears, the nation's second largest retailer, earned $353 million, or 89 cents a share in the third quarter, compared with $279 million, or 68 cents a share, during the third quarter of last year. Revenues rose 8.4 percent to $9.83 billion.
Excluding one-time items, Sears earned $301 million, or 76 cents a share in the third quarter, in line with Wall Street estimates.
However, a warning that negative trends in the consumer credit business would put a drag on profits in the fourth quarter sent shares of the retailer lower. By midday, Sears was down 3-5/8 to 50-1/4.
"While we are relatively pleased with Sears performance year-to-date, as we enter the fourth quarter we are concerned about the adverse trends in our credit card business," Sears Chairman and Chief Executive Officer Arthur Martinez said in a statement.
"As a result, it is unlikely we will be able to achieve our goal of mid-teens earnings growth in the fourth quarter of 1997," he said.
Sears said it continues to experience an increase in the rate of delinquencies and write-offs for uncollected credit card debt.
The company had $393 million in uncollectible credit card charges, compared with $272 million in 1996, a 44 percent increase, a spokesman said.
"If our delinquency and chargeoff trends continue, the resulting increases in the provision for uncollectible accounts could have a significant adverse effect on the company's overall operating results in future periods," Martinez said. "We are taking steps to mitigate the effect of these trends on earnings, and are assessing their expected magnitude and duration."
Bernard Sosnick, an analyst with Genesis Merchant Group Securities, said the fourth quarter profit warning and uncertainty for 1998 triggered the stock downturn.
"They can't speak with any confidence about 1998," Sosnick said.
David Tuong, an analyst with Argus Research, was more optimistic. He said Wall Street's fears were an overreaction and that the company's core retail business is still strong. But he also said Sears last year predicted the credit card problem would ease.
"The delinquency trends put a scare into investors … but I don't think it's a disaster," Tuong said. Stores had a good Columbus Day weekend, and the weather has turned colder, sending shoppers inside, he said.
Domestic profits totaled $294 million, compared with $292 million last year. International earnings were $7 million, compared with a loss of $13 million in 1996. Sears attributed the increase to strong sales in Sears Canada. The company blamed the 1996 loss on underperforming Sears Mexico.
In the first quarter of the year, the company had a one-time charge of $36 million on the sale of its controlling interest in Sears Mexico.
Domestic revenue totaled $9.04 billion, compared with $8.28 billion last year, a 9.1 percent increase.
Sears, based in Illinois, has more than 3,000 stores nationwide.
-- Martine Costello
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Sears
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