Sears, Roebuck and Co. reported net income of $53 million on revenues of $8.8 billion the second quarter ended July 3, 2004. That compares to income of $309 million on sales of $10.2 billion in the second quarter of 2003.
The prior year results include the results of the domestic Credit and Financial Products and National Tire & Battery (NTB) businesses divested by Sears in the fourth quarter of 2003.
"Like much of the industry, we experienced weak demand in June," said Chairman and CEO Alan J. Lacy. "That, combined with the overhang of our spring apparel assortment and inventory issues, resulted in a disappointing quarter."
Sears´ second quarter 2004 earnings included two pretax charges:
* $41 million for severance costs associated with the restructuring of the company´s home office organization and field initiatives to gain efficiency, primarily in back office operations.
* $39 million for additional depreciation expense due to shortening the estimated remaining useful lives for the assets sold to Computer Sciences Corp. under the previously announced purchased services arrangement.
The Domestic segment, which includes all domestic retail formats as well as the company´s corporate functions, reported operating income of $42 million for the second quarter of 2004, compared with operating income of $466 million in the second quarter of 2003. The prior year results included operating income of $358 million and $6 million, respectively, from the divested domestic Credit and Financial Products and NTB businesses.
Merchandise sales and services revenues for the 2004 second quarter totaled $7.7 billion, compared with $7.9 billion in the prior year period. Prior year revenues included $106 million attributable to NTB.
Domestic comparable store sales decreased 2.9% in the second quarter of 2004 vs. the same period last year.
"We were encouraged by the performance of several businesses during the quarter, ranging from lawn mowers and patio furniture in our ´Lawn & Garden´ business to projection televisions and digital cameras in our ´Consumer Electronics´ business," says Lacy.
"We are also pleased with early customer response in the merchandise categories that are being reset, such as ´Home Fashions´ and ´Kids.´ In addition, the overall performance of our off-mall formats was positive, including ´The Great Indoors,´ ´Hardware´ and ´Dealer´ stores."
Selling and administrative expenses for the domestic segment in the second quarter were $1.8 billion, which included a $21 million pretax charge for establishment of additional insurance reserves resulting from the financial difficulties being experienced by one of Sears´ third party insurance providers. The prior year selling and administrative expenses of $2 billion included approximately $243 million related to divested businesses.
Sears Canada reported operating income of $11 million for the second quarter of 2004, compared with operating income of $23 million in the second quarter of 2003.
Revenues in Canada for the second quarter increased 4.6% to $1.1 billion due primarily to the effects of foreign exchange.
Sears has entered into an agreement to acquire ownership or leasehold interest in up to 61 off-mall Kmart and Wal-Mart stores for approximately $620 million in cash. Sears says most of the new stores will be converted to a new mid-size format based on the new Sears Grand format.
Sears has more than 2,300 Sears-branded and affiliated stores in the U.S. and Canada. In the U.S., Sears owns close to 870 full-line and 1,100 specialty stores.
