Sears Holdings profit drop; stock tumbles

NEW YORK (CNNMoney.com) -- Sears Holdings on Thursday posted a second-quarter profit that fell 40 percent from a year ago, which the company blamed on an increased level of discounting in the period.

The Hoffman Estates, Ill.-based retailer, which operates the Sears and Kmart department store chains, posted a net income of $176 million, or $1.17 a share for the period, down from $294 million, or $1.88, a year ago.

Sears shares (Charts, Fortune 500) fell more than 3 percent in morning trading.

Sears Holdings' revenue for the period declined to $12.2 billion from $12.8 billion a year ago.

By a separate measure, Sears Holdings' sales at Sears and Kmart stores open at least a year, a key measure of retail performance known as same-store sales, declined 4.1 percent in the quarter. Separately, same-store sales at Sears fell 4.3 percent and dropped 3.8 percent at Kmart stores.

Analysts had forecast profit of $1.13 a share on sales of $12.3 billion, according to earnings tracker Thomson Financial.

"We are disappointed with our second-quarter results," Aylwin Lewis, Sears Holdings' chief executive officer, said in a statement. "Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations."

Sears, Wal-Mart (Charts, Fortune 500), Home Depot (Charts, Fortune 500) and other big-box retailers have blamed the housing slump and credit and mortgage markets meltdown for hampering their consumers' spending ability in recent months.

Sears' gross margin rate declined across merchandise categories primarily due to increased discounts, the retailer said, most notably within spring and summer seasonal apparel categories.

However, the company said these negative factors were only partially offset by lower overall consolidated expenses and improved operating results at its Sears Canada division.

Inventory also rose during the quarter to $10.2 billion compared to $9.5 billion for the same period a year ago. Sears said the increase was primarily due to the acquisition of planned pharmacy inventory at Kmart.