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Sears Holdings Corporation - Corporate Website

Sears Reports Lower Than Expected Third Quarter EPS of $0.59

Provision Increase Leads to Revised 2002 Outlook

PRNewswire-FirstCall
HOFFMAN ESTATES, Ill.
Oct 17, 2002

Sears, Roebuck and Co. (NYSE: S) today reported third quarter 2002 net income of $189 million, or $0.59 per share, a 26 percent decrease from the prior year third quarter earnings of $0.80 per share. These results reflect a $222 million increase in the domestic provision for uncollectible accounts.

2002 Outlook

Sears has reduced its 2002 full-year outlook for comparable earnings per share to $4.86 per share, a 15 percent increase over the prior year amount of $4.22. The company had previously expected comparable earnings per share of $5.15 for 2002, or a 22 percent increase. The company continues to expect comparable earnings increases in the low- to mid-thirty percent range in its retail and related services segment. The company now expects its credit and financial products segment to report a low- to mid-single digit decrease in comparable earnings for the year.

"On October 7, in conjunction with discussing the change in management of our Credit and Financial Products business, we reaffirmed our previous earnings guidance for the year," said Chairman and Chief Executive Officer Alan J. Lacy. "Today's revision to that guidance reflects additional increases in the allowance for uncollectible accounts as a result of analysis over the past week. However, the credit business remains highly profitable, and I have complete confidence in our credit strategy and the management team."

Retail and Related Services

Retail and Related Services operating income decreased to $42 million from $82 million in the prior year.

Revenues for the third quarter of 2002 were $7.26 billion or 0.7 percent below last year's third quarter revenues of $7.31 billion. Sales increases in direct to customer resulting from the company's acquisition of Lands' End, product repair services, dealer stores and hardware stores were more than offset by revenue declines in the full-line stores.

The decrease in full-line store sales reflects the significant store disruption from the implementation of strategic initiatives. Softline revenues declined as a result of lower apparel sales and exits from the custom window treatment and installed floor covering businesses. Hardline revenues also declined in the third quarter with increases in home appliance sales being offset by decreases in home office, home electronics and home improvement.

Retail and Related Services gross margin rate improved by 180 basis points to 27.5 percent. Full-line hardlines businesses, and all other retail formats, as well as the inclusion of Lands' End, contributed to the margin improvement. Softlines margin declined 120 basis points in the quarter primarily due to increased promotional activity.

Selling and administrative spending was 8 percent higher than third quarter 2001 primarily due to the addition of Lands' End's selling and administrative expenses since the third quarter of last year. Selling and administrative expenses were 24.1 percent of sales compared with 22.2 percent last year, reflecting decreased expense leverage in a slower sales environment.

Credit and Financial Products

Credit and Financial Products' operating income was $284 million, down 28 percent compared to the prior year, as favorable funding costs and higher revenues were offset by higher provision and selling and administrative expenses.

Third quarter domestic Credit and Financial Products revenues increased 4 percent from a year ago to $1.4 billion, due primarily to higher average receivable balance growth. Credit receivables at the end of the third quarter grew 11.5 percent over the prior year to $29.3 billion.

Funding costs declined by $89 million or 26.0 percent from last year's quarter due to a favorable interest rate environment.

The domestic provision for uncollectible accounts increased $222 million over the prior year period due to a $189 million increase to the allowance for uncollectible accounts. The allowance increase reflects receivables growth, recent increases in charge-off trends and a cautious economic outlook for the remainder of the year. The net charge-off rate for the quarter decreased to 5.55 percent from 5.62 percent last year, reflecting increased charge-offs offset by the effect of receivables growth.

Year-over-year delinquencies declined 17 basis points from 7.41 percent to 7.24 percent, benefiting from the aforementioned effect of receivables growth. The domestic allowance for uncollectible accounts of $1.6 billion is 5.57 percent of ending credit receivables compared with 5.10 percent at the end of last quarter.

Sears Canada

Sears Canada's operating income of $8 million compares with an operating loss of $4 million in last year's third quarter. The $12 million profit improvement is primarily related to gross margin rate expansion partially offset by decreased revenues. Sears Canada revenue decreased 4.9 percent to $954 million in the third quarter of 2002, in part due to a 1.2 percent decline in the value of the Canadian dollar relative to the U.S. dollar.

Corporate and Other

Segment operating loss for the quarter of $59 million improved from last year's operating loss of $80 million. Revenues from the home improvement services businesses included in the Corporate and Other segment decreased by 16 percent to $91 million primarily due to the sale of the Sears Termite and Pest Control business in the last half of 2001. The decline in revenue was offset by an improvement in margin rate for the home improvement businesses. In addition selling and administrative expenses declined due primarily to lower costs related to the implementation of strategic initiatives.

Forward-Looking Statements

This release contains guidance on 2002 comparable earnings per share, which is a forward-looking statement based on assumptions about the future that are subject to risks and uncertainties, such as competitive conditions in retail; changes in consumer confidence and spending; changes in interest rates; delinquency and charge-off trends in the credit card receivables portfolio; continued consumer acceptance of the Sears Gold MasterCard Program; the successful execution of and customer reactions to Sears' Full-line store strategy and other performance improvement initiatives; Sears' ability to integrate and operate Lands' End successfully; anticipated cash flow; labor unrest on the West Coast; the possibility of increased hostilities in the Middle East; general economic conditions and normal business uncertainty. In addition, Sears typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. While the company believes its forecasts and assumptions are reasonable, it cautions that actual results may differ materially. The company intends these forward-looking statements to speak only as of the time of this presentation and does not undertake to update or revise them as more information becomes available.

About Sears

Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2001, the company's annual revenue was more than $41 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web site, www.sears.com . In June 2002, Sears acquired Lands' End, a direct merchant of traditionally styled, classic Lands' End clothing offered to customers around the world through regular mailings of its specialty catalogs and online at www.landsend.com .

  SEARS, ROEBUCK AND CO.
  CONSOLIDATED INCOME


                          For the 13 Weeks Ended   For the 39 Weeks Ended
                          September 28, 2002 and   September 28, 2002 and
                            September 29, 2001       September 29, 2001
     (millions, except
      earnings per common
      share)               2002    2001  % Change   2002     2001   % Change

  REVENUES
    Merchandise sales
     and services         $8,239  $8,348   -1.3%  $24,639  $24,936    -1.2%
    Credit and
     financial products
     revenues              1,430   1,382    3.5%    4,209    3,834     9.8%
       Total revenues      9,669   9,730   -0.6%   28,848   28,770     0.3%

  COSTS AND EXPENSES
    Cost of sales,
     buying and
     occupancy             5,934   6,178   -3.9%   17,902   18,453    -3.0%
    Selling and
     administrative        2,340   2,197    6.5%    6,637    6,484     2.4%
    Provision for
     uncollectible
     accounts                603     377   59.9%    1,685      929    81.4%
    Provision for
     previously
     securitized
     receivables               -       -      -         -      522  -100.0%
    Depreciation and
     amortization            219     209    4.8%      650      649     0.2%
    Interest                 298     378  -21.2%      866    1,094   -20.8%
    Special charges and
     impairments               -       -      -       111      287       -
      Total costs and
       expenses            9,394   9,339    0.6%   27,851   28,418    -2.0%

  Operating income           275     391  -29.7%      997      352   183.2%
  Other income, net           10      22               98       30       -

  Income before income
   taxes and
   minority interest         285     413  -31.0%    1,095      382   186.6%

  Income taxes               (94)   (150)            (382)    (136)  180.9%

  Minority interest           (2)     (1)              23       (5)      -

  Income before cumulative
   effect of accounting
   change                    189     262  -27.9%      736      241   205.4%

  Cumulative effect of
   change in accounting
   for goodwill              -       -        -      (208)       -       -

  NET INCOME                $189    $262             $528     $241

  EARNINGS PER COMMON SHARE

    Basic
      Earnings per share
       before cumulative
       effect of a change
       in accounting
       principle           $0.60   $0.81            $2.32    $0.74   213.5%

      Cumulative effect of
       change in accounting
       for goodwill         $-      $-             $(0.66)    $-         -

        Earning per share  $0.60   $0.81  -25.9%    $1.66    $0.74   124.3%

    Diluted
      Earnings per share
       before cumulative
       effect of a change
       in accounting
       principle            $0.59   $0.80            $2.29    $0.73   213.7%

      Cumulative effect
       of change in
       accounting for
       goodwill               $-      $-            $(0.65)    $-         -

        Earning per share   $0.59   $0.80  -26.3%    $1.64    $0.73   124.7%

     Average common and
      dilutive common
       equivalent shares
       outstanding          320.1   326.9            321.7    329.5


  SEARS, ROEBUCK AND CO.
  CONSOLIDATED BALANCE SHEET

      (millions)
                                           September  September  December
                                              28,        29,        29,
                                             2002       2001       2001
      Assets
        Current Assets
           Cash and cash equivalents            $637       $449     $1,064
           Retained interest in transferred
             credit card receivables                                     -
           Credit card receivables            30,810     27,841     29,321
           Less allowance for
            uncollectible accounts             1,676      1,121      1,166
          Ner credit card receivables         29,134     26,720     28,155
          Other receivables                      452        631        658
          Merchandise inventories              5,961      6,002      4,912
          Prepaid expenses and deferred
           charges                               621        516        458
          Deferred income taxes                  992        911        858
            Total current assets              37,797     35,229     36,105

        Property and equipment, net            6,748      6,684      6,824
        Deferred income taxes                    502        256        415
        Goodwill                                 943        291        294
        Tradenames and other intangible
         assets                                  700          -          -
        Other assets                           1,313        828        679
            Total assets                     $48,003    $43,288    $44,317

      Liabilities
        Current liabilities
          Short-term borrowings               $4,289     $3,503     $3,557
          Current portion of long-term
           debt and capitalized lease
           obligations                         4,774      3,246      3,157
          Accounts payable and other
           liabilities                         6,867      6,825      7,176
          Unearned revenues                    1,189      1,130      1,136
          Other taxes                            486        424        558
            Total current liabilities         17,605     15,128     15,584

        Long-term debt and capitalized
         lease obligations                    20,781     18,918     18,921
        Postretirement benefits                1,592      1,812      1,732
        Minority interest and other
         liabilities                           1,811      1,299      1,961
            Total liabilities                 41,789     37,157     38,198

      Commitments and Contingent
       Liabilities

      Shareholders' Equity
        Common shares                            323        323        323
        Capital in excess of par value         3,512      3,519      3,500
        Retained earnings                      7,723      6,991      7,413
        Treasury stock - at cost              (4,489)    (4,143)    (4,223)
        Deferred ESOP expense                    (42)       (69)       (63)
        Accumulated other comprehensive
         loss                                   (813)      (490)      (831)
            Total shareholders' equity         6,214      6,131      6,119
            Total liabilities and
             shareholders' equity            $48,003    $43,288    $44,317

            Total common shares
             outstanding                       317.4      322.1      320.4



  SEARS, ROEBUCK AND CO.
  Segment Income Statements

  (millions)

  For the 13 Weeks Ended September 28, 2002 and September 29, 2001



         Excluding Non-Comparable Items and Securitization Income


                                Retail & Related         Credit & Financial
                                    Services                   Products
                               2002          2001         2002         2001

  Merchandise sales and
   services                   $7,261        $7,310          $-           $-
  Credit and financial
   products revenues               -             -       1,363        1,309

  Total Revenues               7,261         7,310       1,363        1,309

  Costs and expenses
     Cost of sales,
      buying and
      occupancy                5,266         5,432           -            -
     Selling and
      administrative           1,752         1,620         233          202
     Provision for
      uncollectible
      accounts                     -             -         588          366
     Provision for
      previously
      securitized
      receivables                  -             -           -            -
     Depreciation and
      amortization               180           169           4            5
     Interest                     21             7         254          343
     Special charges and
      impairments                  -             -           -            -
            Total costs
             and expenses      7,219         7,228       1,079          916

  Operating income               $42           $82        $284         $393




  For the 39 Weeks Ended September 28, 2002 and September 29, 2001

                  Excluding Non-Comparable Items and Securitization Income

                               Retail & Related         Credit & Financial
                                   Services                  Products

                               2002          2001        2002         2001

  Merchandise sales and
   services                  $21,728       $21,876          $-           $-
  Credit and financial
   products revenues               -             -       4,002        3,885

  Total Revenues              21,728        21,876       4,002        3,885

  Costs and expenses
     Cost of sales,
      buying and
      occupancy               15,873        16,259           -            -
     Selling and
      administrative           4,880         4,827         725          608
     Provision for
      uncollectible
      accounts                     -             -       1,352        1,050
     Provision for
      previously
      securitized
      receivables                  -             -           -            -
     Depreciation and
      amortization               524           530          14           14
     Interest                     22            21         772        1,110
     Special charges and
      impairments                  -             -           -            -
            Total costs
             and
             expenses         21,299        21,637       2,863        2,782

  Operating income              $429          $239      $1,139       $1,103



  For the 13 Weeks Ended September 28, 2002 and September 29, 2001

                Excluding Non-Comparable Items and Securitization Income

                                       Corporate & Other     Sears Canada

                                        2002      2001      2002       2001

  Merchandise sales and services         $91      $108      $887       $930
  Credit and financial products
   revenues                                -         -        67         73

  Total Revenues                          91       108       954      1,003

  Costs and expenses
     Cost of sales, buying and
      occupancy                           33        48       635        698
     Selling and administrative          106       125       249        250
     Provision for uncollectible
      accounts                             -         -        15         11
     Provision for previously
      securitized receivables              -         -         -          -
     Depreciation and amortization        11        15        24         20
     Interest                              -         -        23         28
     Special charges and impairments       -         -         -          -
            Total costs and expenses     150       188       946      1,007

  Operating income                      $(59)     $(80)       $8        $(4)



  For the 39 Weeks Ended September 28, 2002 and September 29, 2001

                  Excluding Non-Comparable Items and Securitization Income

                                       Corporate & Other     Sears Canada
                                        2002      2001      2002       2001

  Merchandise sales and services        $241      $304    $2,670     $2,756
  Credit and financial products
   revenues                                -         -       207        224

  Total Revenues                         241       304     2,877      2,980

  Costs and expenses
     Cost of sales, buying and
      occupancy                           89       131     1,940      2,063
     Selling and administrative          310       347       722        741
     Provision for uncollectible
      accounts                             -         -        33         32
     Provision for previously
      securitized receivables              -         -         -          -
     Depreciation and amortization        39        44        73         61
     Interest                              -         -        72         86
     Special charges and impairments       -         -         -          -
            Total costs and expenses     438       522     2,840      2,983

  Operating income                     $(197)    $(218)      $37        $(3)




  For the 13 Weeks Ended September 28, 2002 and September 29, 2001

                                                          Reconciling Items

                                                            Securitization
                                              Total             Impact

                                          2002      2001     2002    2001

  Merchandise sales and services         $8,239    $8,348     $-      $-
  Credit and financial products
   revenues                               1,430     1,382      -       -

  Total Revenues                          9,669     9,730      -       -

  Costs and expenses
     Cost of sales, buying and
      occupancy                           5,934     6,178      -       -
     Selling and administrative           2,340     2,197      -       -
     Provision for uncollectible
      accounts                              603       377      -       -
     Provision for previously
      securitized receivables                 -         -              -
     Depreciation and amortization          219       209      -       -
     Interest                               298       378      -       -
     Special charges and impairments          -         -      -       -
            Total costs and expenses      9,394     9,339      -       -

  Operating income                         $275      $391     $-      $-

  Net Income before cumulative effect
   of change in accounting                 $189      $262     $-      $-

  Cumulative effect of change in
   accounting                                $-        $-     $-      $-

  Net Income                               $189      $262     $-      $-

  EPS - Diluted                           $0.59     $0.80     $-      $-

     Average shares o/s                   320.1     326.9  320.1   326.9


  For the 39 Weeks Ended September 28, 2002 and September 29, 2001

                                                         Reconciling Items

                                                Total      Securitization
                                                               Impact

                                           2002      2001   2002    2001

  Merchandise sales and services        $24,639   $24,936     $-      $-
  Credit and financial products
   revenues                               4,209     4,109      -    (275)

  Total Revenues                         28,848    29,045      -    (275)

  Costs and expenses
     Cost of sales, buying and
      occupancy                          17,902    18,453      -       -
     Selling and administrative           6,637     6,523      -     (39)
     Provision for uncollectible
      accounts                            1,385     1,082      -    (153)
     Provision for previously
      securitized receivables                 -         -              -
     Depreciation and amortization          650       649      -       -
     Interest                               866     1,217      -    (123)
     Special charges and impairments          -         -      -       -
            Total costs and expenses     27,440    27,924      -    (315)

  Operating income                       $1,408    $1,121     $-     $40

  Net Income before cumulative effect
   of change in accounting                 $909      $728     $-     $26

  Cumulative effect of change in
   accounting                                $-        $-     $-      $-

  Net Income                               $909      $728     $-     $26

  EPS - Diluted                           $2.83     $2.21     $-   $0.08

     Average shares o/s                   321.7     329.5  321.7   329.5



        For the 13 Weeks Ended September 28, 2002 and September 29, 2001

                                    Reconciling Items

                                   Non-comparable items   Consolidated GAAP

                                      2002       2001      2002        2001

  Merchandise sales and services       $-         $-     $8,239      $8,348
  Credit and financial products
   revenues                             -          -      1,430       1,382

  Total Revenues                        -          -      9,669       9,730

  Costs and expenses
     Cost of sales, buying and
      occupancy                         -          -      5,934       6,178
     Selling and administrative         -          -      2,340       2,197
     Provision for uncollectible
      accounts                          -          -        603         377
     Provision for previously
      securitized receivables           -          -          -           -
     Depreciation and
      amortization                      -          -        219         209
     Interest                           -          -        298         378
     Special charges and
      impairments                       -          -          -           -
            Total costs and
             expenses                   -          -      9,394       9,339

  Operating income                     $-         $-       $275        $391

  Net Income before cumulative
   effect of change in
   accounting                                     $-       $189        $262

  Cumulative effect of change in
   accounting                                     $-         $-          $-

  Net Income                           $-         $-       $189        $262

  EPS - Diluted                        $-         $-      $0.59       $0.80

     Average shares o/s             320.1      326.9      320.1       326.9


           For the 39 Weeks Ended September 28, 2002 and September 29, 2001

                                  Reconciling Items

                                   Non-comparable items   Consolidated GAAP
                                      2002       2001     2002        2001

  Merchandise sales and services       $-         $-    $24,639     $24,936
  Credit and financial products
   revenues                             -          -      4,209       3,834

  Total Revenues                        -          -     28,848      28,770

  Costs and expenses
     Cost of sales, buying and
      occupancy                         -          -     17,902      18,453
     Selling and administrative         -          -      6,637       6,484
     Provision for uncollectible
      accounts                        300          -      1,685         929
     Provision for previously
      securitized receivables           -        522          -         522
     Depreciation and
      amortization                      -          -        650         649
     Interest                           -          -        866       1,094
     Special charges and
      impairments                     111        287        111         287
            Total costs and
             expenses                 411        809     27,851      28,418

  Operating income                  $(411)     $(809)      $997        $352

  Net Income before cumulative
   effect of change in
   accounting                       $(173)     $(513)      $736        $241

  Cumulative effect of change in
   accounting                       $(208)        $-      $(208)         $-

  Net Income                        $(381)     $(513)      $528        $241

  EPS - Diluted                    $(1.18)    $(1.56)     $1.64       $0.73

     Average shares o/s             321.7      329.5      321.7       329.5


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
  AND STORE COUNT
  (millions)


                                                  Average Balance
                                        For the 13 Weeks   For the 39 Weeks
                                             Ended              Ended
                                      September 28, 2002  September 28, 2002
                                       and September 29,   and September 29,
                                              2001              2001

                                          2002     2001     2002     2001

  Sears Card credit card receivables     19,175   23,428   20,331   24,176
  Sears Gold MasterCard credit card
   receivables                            9,541    2,661    7,589    1,962
  Managed domestic credit card
   receivables                          $28,716  $26,089  $27,920  $26,138


                                       For the 13 Weeks    For the 39 Weeks
                                             Ended             Ended
                                      September 28, 2002  September 28, 2002
                                       and September 29,  and September 29,
                                              2001              2001

                                         2002     2001     2002     2001
  Domestic managed credit card
   receivables-
  Net interest margin:
  Portfolio yield                        18.26%   19.34%   18.42%   19.16%
  Effective financing rate                3.51%    5.19%    3.66%    5.61%
  Net interest margin                    14.75%   14.15%   14.76%   13.55%

  Domestic managed net charge-off rate    5.55%    5.62%    5.43%    5.36%



                                                    Ending Balance

                                             September 28,     September 29,
                                                   2002              2001

  Sears Card credit card receivables              18,513            23,213
  Sears Gold MasterCard credit card
   receivables                                    10,768             3,051
  Managed domestic credit card
   receivables                                   $29,281           $26,264


                                          2002                  2001
                               Sep. 28, Jun. 29, Mar. 30, Dec. 29, Sep. 29,
                                 2002     2002    2002      2001     2001

  Domestic managed credit card
   receivables-
  Delinquency rate               7.24%    6.87%    7.31%    7.58%     7.41%

  Allowance for uncollectible
   accounts                     $1,630   $1,441   $1,115   $1,115    $1,089

  Allowance % of domestic on-book
   credit
       card receivables          5.57%    5.10%    4.13%    4.04%     4.15%



                                              September 28,    September 29,
                                                   2002              2001

  Domestic inventories      -LIFO                 $5,368            $5,303
                            -FIFO                 $5,988            $5,899



                          For the 13 Weeks Ended   For the 39 Weeks Ended
                             September 28, 2002       September 28, 2002
                                     and                      and
                             September 29, 2001       September 29, 2001

  Pretax LIFO charge            $6            $6        $30          $30


                           December 29,                        September 28,
                              2001        Opened      Closed        2002
  Domestic retail stores:
     Full-line stores          867            14         (9)         872
     Specialty formats       1,318            19        (38)       1,299
            Total            2,185            33        (47)       2,171

     Gross square feet       148.9           2.8       (1.2)       150.5

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SOURCE: Sears, Roebuck and Co.

CONTACT: Media, Peggy A. Palter, +1-847-286-8361, or Investor Relations,
Pam White, +1-847-286-1468, both of Sears, Roebuck and Co.

Web site: http://www.sears.com/



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