Sears Reports Third-Quarter 2001 Earnings
Comfortable with Analysts' Consensus Estimates for 2001 Earnings
Sears, Roebuck and Co. (NYSE: S) today reported third-quarter 2001 earnings of $262 million or $0.80 per share, an increase of 5.3 percent on a per share basis, over comparable basis third quarter 2000 net income of $261 million or $0.76 per share.
"While the current retail sales environment is very challenging, we are pleased that we delivered operating income growth in our core retail and credit businesses," said Chairman and Chief Executive Officer, Alan J. Lacy. "Our strong retail earnings growth reflects our heightened focus on bottom line results. By tightly controlling margins, inventories and expenses, we more than offset lower retail revenues. Our credit business should continue to build receivables growth momentum while maintaining strong portfolio credit quality."
Reported earnings in the third quarter of 2000 of $0.81 per share included net securitization income of $17 million or $0.05 per share.
Retail and Related Services
Retail and related services revenues for the third quarter of 2001 of $7.33 billion were 1.8 percent below last year's third quarter revenues of $7.47 billion. Sales increases by The Great Indoors, dealer stores and Sears repair services were offset by declines in full-line stores.
"The uncertainty of the economic environment continues to negatively impact sales within the full-line stores," said Lacy. In hardlines, strong growth in appliances and Sears Automotive Centers as well as an increase in lawn and garden sales were offset by decreases in other hardlines categories. In softlines, strong home decor results were driven by the sale of mattresses which were reintroduced by full-line stores in the second quarter of this year. These increases were offset by lower sales in other softlines categories.
Retail and related services gross margin rate improved by 30 basis points to 25.6 percent. Full-line hardlines and softlines businesses, hardware stores and Sears repair services contributed to the margin expansion.
Selling and administrative spending was 1.5 percent lower than third quarter 2000 due to decreases in expenses in full-line stores and direct to customer, partially offset by higher investment in The Great Indoors. Selling and administrative expenses were 22.1 percent of sales compared with 22.0 percent last year as lower revenues continued to constrain expense leverage on a rate basis.
Retail and related services posted operating income of $82 million as compared with operating income of $69 million in the prior year period.
Credit and Financial Products
Third-quarter domestic credit and financial products revenues increased 0.9 percent from a year ago, to $1.31 billion as higher average receivable balances offset a lower portfolio yield. Credit receivables at the end of the third quarter grew 1.7 percent over the prior year.
Funding costs declined by $39 million or 10.2 percent from last year's quarter due to a favorable interest rate environment. Operating expenses increased by 4.0 percent over last year.
The provision for uncollectible accounts increased by $39 million or 11.9 percent over last year's period. The net charge-off rate increased to 5.62 percent from 4.97 percent a year ago. This increase was expected due to higher credit customer bankruptcy filings this year. Bankruptcy filings have declined in the third quarter from second quarter levels. Delinquencies at the end of the third quarter improved to 7.41 percent versus 7.47 percent in last year's quarter. The domestic allowance for uncollectible accounts of $1.1 billion is unchanged from the end of the second quarter.
Operating income excluding non-comparable items increased by $4 million or 1.0 percent to $393 million as favorable funding costs and higher revenues more than offset higher provision expense.
Sears Canada
Sears Canada revenue increased 1.7 percent to $1.0 billion in the third quarter of 2001. Sales increases from new stores were partially offset by a 4 percent decline in the value of the Canadian dollar relative to the U.S. dollar. Sears Canada's operating loss of $4 million compares with operating income of $21 million in last year's quarter. The $25 million profit decline resulted from sluggish sales coupled with increased markdowns and higher expenses to support stores opened in 2000.
Corporate and Other
Revenues from the home improvement services businesses included in the Corporate and Other segment increased by 14.9 percent to $108 million. Segment operating loss was $18 million worse than the third quarter of last year primarily due to consulting expenses related to full line store and home office strategic reviews. Other income improved by $21 million primarily due to dividends and higher earnings from unconsolidated subsidiaries. The company repurchased 3.0 million shares of Sears common stock during the quarter at a cost of $101 million.
Outlook
"Although the current climate has created a high degree of uncertainty regarding consumer spending for the holiday season, we are comfortable with analysts' current full-year 2001 consensus estimates of $4.09, excluding non- comparable items and net securitization income," said Lacy.
Forward-Looking Statements
This release contains forward-looking statements, including the Outlook. The statements are based on assumptions about the future, which are subject to risks and uncertainties, such as competitive conditions in retail, the effects of the current economic climate, including changes in consumer confidence, changes in interest rates, delinquency and charge-off trends in the credit card receivables portfolio, customer reactions to the company's strategic initiatives, 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, particularly given recent national developments. The company believes its forward-looking statements are reasonable, but cautions that actual results could differ materially. The company intends these forward- looking statements to speak only at the time of this release and does not undertake to revise or confirm them as more information becomes available.
About Sears
Sears, Roebuck and Co. is a leading U.S. retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion and approximately 300,000 employees nationwide. The company serves families in the U.S. through Sears stores nationwide, including approximately 860 full- line stores. Sears also offers a wide variety of merchandise and services through its Web site, sears.com. Sears, Roebuck and Co. is the majority owner of Sears Canada Inc. The company makes available by phone a recorded message on sales performance of its domestic stores. The message is updated weekly and can be heard by calling (847) 286-6111.
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
For the 13 Weeks Ended For the 39 Weeks Ended
(millions, except September 29, 2001 and September 29, 2001 and
earnings per share) September 30, 2000 September 30, 2000
2001 2000 % Change 2001 2000 % Change
Revenues
Merchandise sales
and services $8,371 $8,480 -1.3% $25,002 $25,121 -0.5%
Credit and
financial products
revenues 1,382 1,113 24.2% 3,834 3,442 11.4%
Total revenues 9,753 9,593 1.7% 28,836 28,563 1.0%
Costs and expenses
Cost of sales,
buying and
occupancy 6,201 6,284 -1.3% 18,519 18,595 -0.4%
Selling and
administrative 2,197 2,152 2.1% 6,484 6,297 3.0%
Depreciation and
amortization 209 209 0.0% 649 634 2.4%
Provision for
uncollectible
accounts 377 200 88.5% 929 660 40.8%
Provision for
previously
securitized
receivables - - - 522 - -
Interest 378 305 23.9% 1,094 931 17.5%
Special charges and
impairments - - - 287 - -
Total costs
and expenses 9,362 9,150 2.3% 28,484 27,117 5.0%
Operating income 391 443 -11.7% 352 1,446 -75.7%
Other income, net 22 1 - 30 7 -
Income before income
taxes and minority
interest 413 444 -7.0% 382 1,453 -73.7%
Income taxes (150) (159) -5.7% (136) (531) -74.4%
Minority interest (1) (7) -85.7% (5) (21) -76.2%
Net income $262 $278 -5.8% $241 $901 -73.3%
Earnings per share:
Basic $0.81 $0.82 -1.2% $0.74 $2.58 -71.3%
Diluted $0.80 $0.81 -1.2% $0.73 $2.57 -71.6%
Average common and
dilutive common
equivalent shares
outstanding 326.9 341.8 329.5 350.1
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
(millions)
Sept. 29, Sept. 30, Dec. 30,
2001 2000 2000
Assets
Current Assets
Cash and cash equivalents $449 $497 $842
Retained interest in transferred
credit card receivables - 3,847 3,105
Credit card receivables, net 26,720 15,899 17,317
Other receivables 631 406 506
Merchandise inventories 6,002 6,323 5,618
Prepaid expenses and deferred charges 516 507 486
Deferred income taxes 911 651 920
Total current assets 35,229 28,130 28,794
Property and equipment, net 6,684 6,391 6,653
Deferred income taxes 256 352 174
Other assets 1,119 1,477 1,278
Total assets $43,288 $36,350 $36,899
Liabilities
Current liabilities
Short-term borrowings $3,503 $4,238 $4,280
Current portion of long-term debt
and capitalized leases 3,246 2,490 2,560
Accounts payable and other liabilities 6,825 6,736 7,336
Unearned revenues 1,130 1,049 1,058
Other taxes 424 436 562
Total current liabilities 15,128 14,949 15,796
Long-term debt and capitalized leases 18,918 11,523 11,020
Postretirement benefits 1,812 2,017 1,951
Minority interest and other liabilities 1,299 1,420 1,363
Total liabilities 37,157 29,909 30,130
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,519 3,540 3,538
Retained income 6,991 6,613 6,979
Treasury stock - at cost (4,143) (3,620) (3,726)
Deferred ESOP expense (69) (105) (96)
Accumulated other comprehensive loss (490) (310) (249)
Total shareholders' equity 6,131 6,441 6,769
Total liabilities and shareholders'
equity $43,288 $36,350 $36,899
Total common shares outstanding 322.1 336.7 333.2
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended September 29, 2001 and September 30, 2000
Excluding Non-Comparable Items and Securitization Income
Retail & Related Credit & Financial
Services Products
2001 2000 2001 2000
Total Revenues $7,333 $7,471 $1,309 $1,297
Costs and expenses
Cost of sales, buying and
occupancy 5,455 5,579 - -
Selling and administrative 1,620 1,644 202 195
Depreciation and amortization 169 174 5 4
Provision for uncollectible
accounts - - 366 327
Provision for previously
securitized receivables - - - -
Interest 7 5 343 382
Special charges
and impairments - - - -
Total costs and expenses 7,251 7,402 916 908
Operating income $82 $69 $393 $389
Corporate & Other Sears Canada
2001 2000 2001 2000
Total Revenues $108 $94 $1,003 $986
Costs and expenses
Cost of sales, buying and
occupancy 48 36 698 669
Selling and administrative 125 105 250 242
Depreciation and amortization 15 15 20 16
Provision for uncollectible
accounts - - 11 10
Provision for previously
securitized receivables - - - -
Interest - - 28 28
Special charges and impairments - - - -
Total costs and expenses 188 156 1,007 965
Operating income $(80) $(62) $(4) $21
Total
2001 2000
Total Revenues $9,753 $9,848
Costs and expenses
Cost of sales, buying and occupancy 6,201 6,284
Selling and administrative 2,197 2,186
Depreciation and amortization 209 209
Provision for uncollectible accounts 377 337
Provision for previously securitized
receivables - -
Interest 378 415
Special charges and impairments - -
Total costs and expenses 9,362 9,431
Operating income $391 $417
Net Income $262 $261
EPS - Diluted $0.80 $0.76
Average shares o/s 326.9 341.8
Reconciling Items
Securitization Non-comparable
Impact items
2001 2000 2001 2000
Total Revenues $- $(255) $- $-
Costs and expenses
Cost of sales, buying and occupancy - - - -
Selling and administrative - (34) - -
Depreciation and amortization - - - -
Provision for uncollectible accounts - (137) - -
Provision for previously securitized
receivables - - - -
Interest - (110) - -
Special charges and impairments - - - -
Total costs and expenses - (281) - -
Operating income $- $26 $- $-
Net Income $- $17 $- $-
EPS - Diluted $- $0.05 $- $-
Average shares o/s 326.9 341.8 326.9 341.8
Consolidated GAAP
2001 2000
Total Revenues $9,753 $9,593
Costs and expenses
Cost of sales, buying and
occupancy 6,201 6,284
Selling and administrative 2,197 2,152
Depreciation and amortization 209 209
Provision for uncollectible
accounts 377 200
Provision for previously
securitized receivables - -
Interest 378 305
Special charges and impairments - -
Total costs and expenses 9,362 9,150
Operating income $391 $443
Net Income $262 $278
EPS - Diluted $0.80 $0.81
Average shares o/s 326.9 341.8
For the 39 Weeks Ended September 29, 2001 and September 30, 2000
Excluding Non-Comparable Items and Securitization Income
Retail & Related Credit & Financial
Services Products
2001 2000 2001 2000
Total Revenues $21,942 $22,189 $3,885 $3,940
Costs and expenses
Cost of sales, buying and
occupancy 16,325 16,531 - -
Selling and administrative 4,827 4,795 608 590
Depreciation and amortization 530 532 14 12
Provision for uncollectible
accounts - - 1,050 1,019
Provision on previously
securitized receivables - - - -
Interest 21 16 1,110 1,146
Special charges and impairments - - - -
Total costs and expenses 21,703 21,874 2,782 2,767
Operating income $239 $315 $1,103 $1,173
Corporate & Other Sears Canada
2001 2000 2001 2000
Total Revenues $304 $259 $2,980 $2,894
Costs and expenses
Cost of sales, buying and
occupancy 131 106 2,063 1,958
Selling and administrative 347 307 741 703
Depreciation and amortization 44 39 61 51
Provision for uncollectible
accounts - - 32 29
Provision on previously
securitized receivables - - - -
Interest - - 86 84
Special charges and impairments - - - -
Total costs and expenses 522 452 2,983 2,825
Operating income $(218) $(193) $(3) $69
Total
2001 2000
Total Revenues $29,111 $29,282
Costs and expenses
Cost of sales, buying and occupancy 18,519 18,595
Selling and administrative 6,523 6,395
Depreciation and amortization 649 634
Provision for uncollectible accounts 1,082 1,048
Provision on previously securitized receivables - -
Interest 1,217 1,246
Special charges and impairments - -
Total costs and expenses 27,990 27,918
Operating income $1,121 $1,364
Net Income $728 $849
EPS - Diluted $2.21 $2.43
Average shares o/s 329.5 350.1
Reconciling Items
Securitization Non-comparable
Impact items
2001 2000 2001 2000
Total Revenues $(275) $(719) $- $-
Costs and expenses
Cost of sales, buying and occupancy - - - -
Selling and administrative (39) (98) - -
Depreciation and amortization - - - -
Provision for uncollectible
accounts (153) (388) - -
Provision on previously
securitized receivables - - 522 -
Interest (123) (315) - -
Special charges and impairments - - 287 -
Total costs and expenses (315) (801) 809 -
Operating income $40 $82 $(809) $-
Net Income $26 $52 $(513) $-
EPS - Diluted $0.08 $0.15 $(1.56) $-
Average shares o/s 329.5 350.1 329.5 350.1
Consolidated GAAP
2001 2000
Total Revenues $28,836 $28,563
Costs and expenses
Cost of sales, buying and occupancy 18,519 18,595
Selling and administrative 6,484 6,297
Depreciation and amortization 649 634
Provision for uncollectible accounts 929 660
Provision on previously securitized receivables 522 -
Interest 1,094 931
Special charges and impairments 287 -
Total costs and expenses 28,484 27,117
Operating income $352 $1,446
Net Income $241 $901
EPS - Diluted $0.73 $2.57
Average shares o/s 329.5 350.1
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
AND STORE COUNT
(millions)
Average Balance Ending Balance
For the 13 Weeks For the 39 Weeks
ended ended
Sept. 29, 2001 Sept. 29, 2001
and Sept. 30, 2000 and Sept. 30, 2000 Sept. 29, Sept. 30,
2001 2000 2001 2000 2001 2000
Managed domestic
credit card
receivables $26,089 $25,453 $26,138 $25,655 $26,264 $25,825
For the 13 Weeks For the 39 Weeks
ended ended
Sept. 29, 2001 Sept. 29, 2001
and Sept. 30, 2000 and Sept. 30, 2000
Domestic managed
credit card
receivables- 2001 2000 2001 2000
Net interest margin:
Portfolio yield 19.34% 19.70% 19.16% 19.86%
Effective
financing rate 5.19% 5.97% 5.61% 5.92%
Net interest
margin 14.15% 13.73% 13.55% 13.94%
Domestic managed
net charge-off
rate 5.62% 4.97% 5.36% 5.24%
2001 2000
Sep. 29, Jun. 30, Mar. 31, Dec. 30, Sep. 30,
2001 2001 2001 2000 2000
Domestic managed credit
card receivables-
Delinquency rate 7.41% 7.26% 7.50% 7.56% 7.47%
Allowance for
uncollectible accounts $1,089 $1,089 $567 $649 $624
Allowance % of domestic
on-book credit card
receivables 4.15% 4.19% 4.14% 4.03% 4.18%
Sept. 29, Sept. 30,
2001 2000
Domestic inventories -LIFO $5,303 $5,604
-FIFO $5,899 $6,230
For the 13 Weeks For the 39 Weeks
Ended Ended
Sept. 29, 2001 and Sept. 29, 2001 and
Sept. 30, 2000 Sept. 30, 2000
Pretax LIFO charge $6 $6 $30 $30
Dec. 30, Sept. 29,
Domestic retail stores: 2000 Opened Closed 2001
Full-line stores 863 3 (5) 861
Specialty formats 2,158 32 (55) 2,135
Total 3,021 35 (60) 2,996
Gross square feet 147.3 1.7 (1.8) 147.2
SOURCE: Sears, Roebuck and Co.
Contact: Peggy A. Palter of Sears Roebuck and Co., +1-847-286-8361
Website: http://www.sears.com/