Sears, Roebuck and Co. handed Wall Street a pleasant earnings surprise Thursday, even as sales continued to decline at its core retail operation.
Second-quarter earnings for the nation’s third-largest general retailer came in well above analysts’ expectations, prompting a rally in Sears shares, which have been beaten down in recent weeks because of concerns over credit quality and an industrywide slowdown in the sale of household appliances.
More Top Picks Best Pillows For Large Man Side Sleeper
In a conference call with analysts, Sears Chief Executive Alan Lacy downplayed those concerns and attributed the stronger-than-expected showing to growth in the company’s lucrative credit card business as well as fatter retail margins from cost-cutting efforts.
“We are very pleased with this performance, which shows solid increases across all our business segments,” Lacy said.
Encouraged by the strong first half, Sears raised its profit expectations for the entire year to $5.15 per share, excluding one-time items, which would be a 22 percent increase from 2001’s $4.22 per share.
Investors reacted to the report with enthusiasm, bidding up Sears stock by $1.42 per share, or more than 3 percent, to $45.75.
But that is still far from Sears’ 52-week high of almost $60 per share, prompting Lacy to emphasize the difference between Sears’ $28 billion credit card portfolio and troubled card issuers such as Capital One Financial Corp.
On Wednesday, Capital One’s stock plunged 40 percent after the company said regulators had ordered it to boost reserves for bad debt and improve technology to track loans and credit cards to consumers with poor credit histories or low incomes.
“We’re 180 degrees different than Capital One,” Lacy said. “Our growth, in contrast to Capital One’s, is based on a payment product that is appealing to better-risk customers.”
Lacy was referring to Sears’ newest card offering, a Sears Gold MasterCard that is being offered to shoppers with better credit profiles who want a card that can be used anywhere. Indeed, a strong performance from its credit unit helped Sears report second-quarter net income of $420 million, or $1.31 per diluted share, up sharply from a loss of $197 million, or 60 cents per diluted share, in the year-earlier period.
Sears’ retail business, which is dominated by its national chain of 870 Sears stores, managed to boost its operating income by 41 percent, to $300 million, even as revenue dipped slightly to $7.7 billion.
The problem area for Sears continued to be apparel sales, which declined by between 13 percent and 15 percent. But that decline was partially offset by more than 20 percent increases in sales of such fitness equipment as treadmills and exercise bikes.
Sears’ credit business continued to chug along with operating income increasing 19 percent, to $412 million. Revenue was flat at $10.14 billion.
For the first half, Sears earned $339 million, or $1.05 per diluted share, compared with a loss of $21 million, or 6 cents per share, in the year-earlier period. Revenue was flat at $19.18 billion.
Even as Lacy was increasing his annual earnings forecast, he reiterated a warning about potential third-quarter sales disruptions related to dusty store makeovers.
Sears will be removing cosmetics departments from the center of its stores, filling the space with its new, in-house Covington classic apparel line.
It also will be adding closet shops to 566 stores and converting children’s and athletic shoe departments in 220 stores to a self-service model. And Sears will be introducing Lands’ End apparel to 184 stores this fall, including 22 in the Chicago area. In other earnings news:
– Allstate Corp., helped by rate increases it successfully pushed through for its auto and homeowner insurance policies, said second-quarter operating profit nearly doubled.
The Northbrook-based insurance giant said operating income climbed 97 percent, to $453 million, or 64 cents a diluted share, from the year-ago period’s $230 million, or 31 cents a share. Excluding special items, the company’s operating results topped by 9 cents the 58 cents a share analysts had been anticipating.
Allstate’s profit upturn came on revenue that rose a modest 3.5 percent, to $7.46 billion from $7.2 billion.
“We had a very solid quarter, and our performance improvement strategies are working,” said Chairman and Chief Executive Edward M. Liddy.
Liddy said the company expects operating profit for the full year will be in the range of $2.70 to $2.90 share, exclusive of charges. Because insurance companies generate substantial revenue from investing funds they take in from policyholders, and because such revenue is so variable, Wall Street focuses on operating profit when gauging insurers’ performance.
Allstate stock gained 92 cents, to $35, on the New York Stock Exchange.
– Tribune Co. earnings picked up smartly in the second quarter, as a healthy hike in June television advertising revenue and the fruits of cost-cutting helped offset continuing soft spots in the publishing business.
The company reported net income of $114.2 million, or 33 cents a diluted share, up 57 percent from $72.6 million, or 21 cents a diluted share, a year ago.
Excluding goodwill amortization, restructuring charges and other items, Tribune’s second-quarter profit rose to 52 cents a share, ahead of analysts’ expectations of 42 cents to 47 cents, with a mean of 46 cents, according to research firm Thomson Financial/First Call.
“The cost-control measures we put in place last year are having a solid impact on our cash flow, which continues to improve,” said John Madigan, chairman and chief executive. Consolidated cash operating expenses were down 4 percent in the second quarter.
The performance of the company’s operating groups improved in the final month of the quarter, noted Dennis FitzSimons, president and chief operating officer.
“On a comparable basis, June advertising revenues were up 7 percent at our television stations, 1 percent at our newspapers and 37 percent at our interactive businesses,” he said.
Operating revenue in the quarter was $1.38 billion, up from $1.37 billion in the year-ago quarter. Publishing revenue was down a bit, at $965.2 million, with retail, national, auto and real estate ads showing single-digit gains, while “help-wanted” ads continued their fall, down 23 percent. TV advertising revenue was up 3 percent.
More Top Picks Best Gel Insoles For Standing All Day
Tribune said diluted earnings per share will come in at the top end of the range of analysts’ estimates, which are 30 to 35 cents for the third quarter and $1.50 to $1.65 for the year.
Tribune stock shot up $2.02, or 5.2 percent, to $40.56, on the NYSE.
– Andrew Corp., the Orland Park-based maker of antennas and other wireless communications equipment, reported a sharp earnings decline and said it is considering consolidating its facilities to cut back operating costs by $30 million a year.
The firm reported fiscal third-quarter net income of $2.0 million, or 2 cents a share, down 84 percent from $12.2 million, or 15 cents a share, a year earlier. Sales were $214.9 million, down 12 percent from $245.1 million.
For the nine-month period, income was $20.6 million, or 25 cents a share, down about 50 percent from $41.3 million, or 51 cents a share. Sales were $638.1 million, down 17 percent from $768.3 million.
Andrew expects to take charges of $60 million to $100 million during its fiscal fourth quarter to cover the costs of the cost-reduction reorganization now in planning.
– Fortune Brands Inc. reported that net profit nearly doubled in the second quarter, reflecting higher sales of home and golf products and a one-time gain from a tax refund.
The Lincolnshire-based consumer-products conglomerate said net income for the quarter was $196.9 million, or $1.27 a share, up from $102.9 million, or 66 cents a share, a year earlier.
Sales rose 7.1 percent, to $1.51 billion from $1.41 billion, including robust demand for the company’s kitchen and bath cabinets, Jim Beam bourbon and Titleist golf balls and clubs. Excluding the impact of the acquisition of Omega cabinets and the sale of Fortune’s England-based scotch business, sales increased 5 percent.
Fortune shares fell 30 cents, to $46.90, on the NYSE.
– Illinois Tool Works Inc., whose products include specialized fasteners, food-service equipment and plastic holders for six-packs, reported income from continuing operations of $265.2 million, or 86 cents a share, compared with $252.1 million, or 82 cents a share, a year ago. Sales rose to $2.43 billion from $2.42 billion.
Results were in line with the Glenview-based company’s forecast that it would earn 82 cents to 87 cents a share from continuing operations. Analysts estimated 84 cents a share.
Including income from discontinued operations, ITW had net income of $267.5 million, or 87 cents a share, compared with $232.8 million, or 76 cents a share, a year ago. Analysts had forecast a profit of 82 cents a share.
ITW also indicated full-year earnings would be $3.02 to $3.22, up slightly from its previous estimate of $2.95 to $3.25 a share.
Shares of ITW shed $1.75, to $60.24, on the NYSE.