Sears' net income falls on higher costs

[May 20, 2010]  HOFFMAN ESTATES (AP) -- Sears Holdings Corp.'s first-quarter net income fell 38 percent on thinner profit margins at its Sears chain, squeezed by discounts on appliances.

The discounts offset a turnaround in revenue at the retailers' Sears and Kmart stores, breaking a long string of declines at Sears stores. It was Kmart's third consecutive quarter of rising revenue at stores open at least a year.

Sears Holdings Corp., which is led by financier Chairman Edward Lampert, said Thursday its net income fell to $16 million, or 14 cents per share, in the quarter ending May 1, down from $26 million, or 21 cents per share, a year earlier.

The thinner profit margins are a blow to a company that has posted rising net income in recent quarters, a result of closing stores and slashing expenses.

Revenue fell slightly to $10.046 billion from $10.055 billion a year ago because the company has 63 fewer stores than in last year's first quarter.

Analysts expected the company, based in Hoffman Estates, Ill. to report profit of 14 cents per share on revenue of $10.21 billion.

Sears stores' 1.2 percent gain in revenue at stores open at least a year was fueled by appliance purchases under the government's cash for appliances program, which offers rebates on energy-efficient items.

The appliance program could fuel Sears' second quarter as well, because the company said much of the revenue for appliance sales in April won't be booked until the items are delivered in that quarter.

Kmart's revenue at stores open at least a year rose 1.7 percent, driven by increases in clothing, home items and toys. That figure is considered an important measure of a retailers' health because it excludes the effects of new stores and closings.

Based in the Chicago suburb of Hoffman Estates, the retailer's portfolio also includes mail-order and online retailer Lands' End and popular brands like Craftsman, Diehard and Kenmore.

Sears plans to focus on its long-struggling clothing business in hopes of attracting new and younger shoppers, officials told investors at the shareholders' meeting. Executives say clothing has been an "Achilles heel" for Sears.

The company will add a line of trendier clothing to Lands' End, which also has its own stores and is an increasing presence inside Sears stores, to draw younger customers as well as a line of store-brand products at Kmart.

It also plans to reinvent much of its Kenmore line of appliances, expand layaway at both Sears and Kmart and even add more high-end fitness equipment at Sears.

[Associated Press]

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