Retailer’s profit slumps on sagging sales

SEARS HOLDINGS

CHICAGO— Sears Holdings Corp. posted lower quarterly profit on sluggish sales yesterday, but its shares rose 5.4 per cent as earnings beat expectations. The third-largest U.S. retailer said comparable-store sales fell at both Kmart and Sears. Kmart reported weak demand for electronics and home products, while Sears continued to struggle with poor clothing sales.

It said it plans to scale back 2006 expansion of its Sears Essentials format, which was touted among the reasons for Kmart’s purchase of Sears, Roebuck and Co. in March. The stores combine Kmart’s discount merchandise with Sears staples such as appliances and tools, but the company said results were mixed.

In a letter to shareholders, company chairman Edward Lampert said it was focusing on adding exclusive brands such as Kenmore appliances and Craftsman tools to existing Kmart stores instead of trying to promote a new format through Sears Essentials. Net income dropped to $58 million ( U. S.), or 35 cents per share, in the third quarter ended Oct. 29, from $552 million, or $ 5.45 per share, a year earlier. Last year’s results included an $807 million gain from selling Kmart stores.

Analysts expected 32 cents per share. When adjusted to reflect results from both Kmart and Sears, last year’s profit was $ 150 million, or 93 cents per share.

Lampert, the hedge fund manager who brought Kmart out of bankruptcy in 2003 and orchestrated the takeover of Sears, has been cutting costs to better position the retailer to compete. The side effect has been slumping sales, as it cut profit-draining promotions and store investment. Cash and cash equivalents fell to near $900 million from more than $2 billion at the end of the second quarter. Gross margin improved to 27.5 per cent of revenue, up from 24.9 per cent a year earlier. Revenue jumped to $ 12.2 billion from the $ 4.4 billion. Last year’s results do not include Sears sales. Adjusted revenue was $ 12.8 billion a year earlier.

Comparable- store sales fell 10.8 per cent at its U. S. Sears stores, and were down 2.8 per cent at Kmart.

Shares of Sears Holdings , down more than 20 per cent over the past six months, jumped $6.26 to close at $ 122.97 on Nasdaq.