Sears Reports Third Quarter 2000 Earnings
17 Percent Earnings Per Share Increase on Strength of Credit Business
Sears, Roebuck and Co. (NYSE: S) reported third-quarter 2000 net income of $278 million, or $0.81 per share, compared with reported 1999 third-quarter net income of $236 million, or $0.62 per share, an increase of 31 percent on a per share basis. Third- quarter 1999 earnings included a non-comparable charge of $29 million, or $0.07 per share, related to a charge for staff reductions and the exit of certain automotive retail markets. Excluding the prior period non-comparable items, third quarter 2000 earnings per share of $0.81 is 17 percent higher than 1999 third quarter earnings per share of $0.69.
The increase in earnings per share was primarily due to the continuing strength of the credit business coupled with the company's share repurchase program. Credit operating income increased by 21.8 percent primarily due to substantial reductions in selling and administrative expense. Excluding 1999 non-comparable items, retail operating income increased by 2.3 percent as solid sales gains and continued selling and administrative expense leverage were offset by gross margin pressures in softlines. Improved credit and retail earnings were partially offset by higher corporate expenses and lower operating income in the international and services segments. The company repurchased 6.4 million shares during the quarter.
"Our credit business contributed very strong growth in operating income," said President and Chief Executive Officer Alan J. Lacy. "We are pleased with the quality of our credit portfolio and our on-going productivity improvements. Retail results reflect strong sales performance across several important businesses and investments in new retail growth initiatives such as The Great Indoors."
For the first nine months of 2000, net income was $901 million or $2.57 per share, compared with $713 million or $1.86 per share for the prior year period, an increase of 38 percent on a per share basis. The year-ago period included a non-comparable charge of $29 million, or $0.07 per share. Excluding this non-comparable item, earnings per share increased 33 percent on a per share basis over the prior year period.
Revenues
Revenues for the third quarter of 2000 increased 4.7 percent to $9.63 billion, compared with $9.20 billion for the same period a year ago. The revenue increase was primarily due to improvements in Sears full-line stores and Sears Canada. Domestic comparable store sales increased 3.5 percent.
"In the third quarter, sales increases in appliances, electronics, lawn and garden, and sporting goods were strong," said Lacy. "In softgoods, footwear, fine jewelry, and cosmetics and fragrances also delivered strong growth but, consistent with difficult industry trends, were offset by soft apparel results. Sears Tire Group, dealer stores and The Great Indoors also posted strong sales performance for the quarter."
Sears Canada's revenue increased 6.9 percent, to $1.02 billion in the third quarter of 2000, due to new store openings and solid comparable store sales growth in its full-line retail stores. Third quarter domestic credit revenues increased 1.4 percent from a year ago, to $999 million. Revenues in the services segment, which include Sears Home Services and Sears Direct Response businesses, were $710 million in the quarter, roughly flat with a year ago.
All revenue amounts reflect the application of SEC Staff Accounting Bulletin 101 (SAB 101), which affected the classification of revenue and related costs of licensed businesses. There was no effect on operating income related to the implementation of SAB 101.
Gross margin and selling and administrative costs
Consolidated gross margin as a percent of merchandise sales and services was 25.6 percent in the third quarter of 2000 compared with 26.5 percent in the comparable 1999 period. Both domestic and international margins declined. The decline in domestic retail margins is due to an increase in apparel markdown activity and a higher mix of hardlines products.
Selling and administrative expense as a percentage of total revenues was 21.9 percent in the third quarter of 2000 compared to 22.5 percent in the prior year period. The improvement reflects selling and administrative expense leverage in the credit and retail segments, partially offset by Sears Canada's integration expenses for Eatons and higher corporate expenses.
Provision for uncollectible accounts
In the third quarter of 2000, the consolidated provision for uncollectible accounts was $200 million, a 5 percent increase from $190 million in the third quarter of 1999. The domestic allowance for uncollectible accounts decreased to $624 million from $725 million at year-end 1999 and the first two quarters of 2000. The decrease in the allowance is primarily due to the transfer of $2.4 billion of receivables to the securitization Master Trust. The transferred receivables and the related allowance for uncollectible accounts have been reclassified on the balance sheet to retained interest in transferred credit card receivables.
Sears, Roebuck and Co. is a leading retailer of apparel, home and automotive products and services, with annual revenue of nearly $40 billion. The company serves families across the United States through approximately 860 full-line department stores, more than 2,100 specialized retail locations, and a variety of online offerings accessible through the company's Web site, http://www.sears.com/ . Sears, Roebuck and Co. owns a majority stake in Sears Canada.
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
(millions, except For the 13 Weeks Ended For the 39 Weeks Ended
earnings per Sept. 30, 2000 Sept. 30, 2000
share) & Oct. 2, 1999 & Oct. 2, 1999
2000 1999* % Change 2000 1999* % Change
Revenues
Merchandise and
services $ 8,561 $ 8,150 5.0% $ 25,365 $ 24,277 4.5%
Credit revenues 1,066 1,048 1.7% 3,311 3,213 3.1%
Total revenues 9,627 9,198 4.7% 28,676 27,490 4.3%
Costs and expenses
Cost of sales,
buying and
occupancy 6,369 5,993 6.3% 18,844 17,922 5.1%
Selling and
administrative 2,105 2,073 1.5% 6,171 6,050 2.0%
Depreciation and
amortization 205 205 0.0% 624 629 -0.8%
Provision for
uncollectible
accounts 200 190 5.3% 660 696 -5.2%
Interest 305 308 -1.0% 931 955 -2.5%
Restructuring
charge 0 46 -100.0% 0 46 -100.0%
Total costs
and expenses 9,184 8,815 4.2% 27,230 26,298 3.5%
Operating income 443 383 15.7% 1,446 1,192 21.3%
Other income, net 1 15 - 7 1 -
Income before income
taxes and minority
interest 444 398 11.6% 1,453 1,193 21.8%
Income taxes (159) (151) 5.3% (531) (452) 17.5%
Minority interest (7) (11) -36.4% (21) (28) -25.0%
Net income $ 278 $ 236 17.8% $ 901 $ 713 26.4%
Earnings per share:
Basic $ 0.82 $ 0.62 32.3% $ 2.58 $ 1.87 38.0%
Diluted $ 0.81 $ 0.62 30.6% $ 2.57 $ 1.86 38.2%
Average common and
dilutive common
equivalent shares
outstanding 341.8 381.5 350.1 383.4
* 1999 amounts restated to reflect licensed business operations under SEC
Staff Accounting Bulletin No. 101 (SAB 101). The restatement
reclassified amounts within the statement of income but did not affect
operating income or net income.
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
(millions)
September 30, October 2, January 1,
2000 1999 2000
Assets
Current Assets
Cash and cash equivalents $ 497 $ 281 $ 729
Retained interest in transferred
credit card receivables 3,741 3,153 3,144
Credit card receivables, net 15,899 16,879 18,033
Other receivables 406 356 404
Merchandise inventories 6,323 5,556 5,069
Prepaid expenses and deferred charges 613 609 579
Deferred income taxes 651 600 709
Total current assets 28,130 27,434 28,667
Property and equipment, net 6,391 6,415 6,450
Deferred income taxes 352 517 367
Other assets 1,477 1,510 1,470
Total assets $ 36,350 $ 35,876 $ 36,954
Liabilities
Current liabilities
Short-term borrowings $ 4,238 $ 3,393 $ 2,989
Current portion of long-term debt
and capitalized leases 2,490 1,393 2,165
Accounts payable and
other liabilities 6,736 6,443 6,992
Unearned revenues 1,049 940 971
Other taxes 436 452 584
Total current liabilities 14,949 12,621 13,701
Long-term debt and capitalized leases 11,523 13,245 12,884
Postretirement benefits 2,017 2,216 2,180
Minority interest and
other liabilities 1,420 1,465 1,350
Total liabilities 29,909 29,547 30,115
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,540 3,563 3,554
Retained income 6,613 5,297 5,952
Treasury stock - at cost (3,620) (2,316) (2,569)
Deferred ESOP expense (105) (154) (134)
Accumulated other comprehensive income (310) (384) (287)
Total shareholders' equity 6,441 6,329 6,839
Total liabilities and shareholders'
equity $ 36,350 $ 35,876 $ 36,954
Total common shares outstanding 336.7 377.7 369.1
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
For the 13 Weeks Ended For the 39 Weeks Ended
Sept. 30, 2000 Sept. 30, 2000
& Oct. 2, 1999 & Oct. 2, 1999
2000 1999 %Change 2000 1999 %Change
Total Revenues:
Retail $ 6,898 $ 6,550 5.3% $ 20,501 $ 19,681 4.2%
Services 710 709 0.1% 2,065 2,092 -1.3%
Credit 999 985 1.4% 3,103 3,021 2.7%
International 1,020 954 6.9% 3,007 2,696 11.5%
Total revenues $ 9,627 $ 9,198 4.7% $ 28,676 $ 27,490 4.3%
Operating income as
reported:
Retail $ 44 $ 18 144.4% $ 237 $ 122 94.3%
Services 80 87 -8.0% 244 256 -4.7%
Credit 385 316 21.8% 1,165 926 25.8%
Corporate (87) (77) 13.0% (269) (213) 26.3%
International 21 39 -46.2% 69 101 -31.7%
Total operating
income $ 443 $ 383 15.7% $ 1,446 $ 1,192 21.3%
Operating income
excluding
noncomparable items:
Retail $ 44 $ 43 2.3% $ 237 $ 147 61.2%
Services 80 87 -8.0% 244 256 -4.7%
Credit 385 316 21.8% 1,165 926 25.8%
Corporate (87) (56) 55.4% (269) (192) 40.1%
International 21 39 -46.2% 69 101 -31.7%
Total operating
income $ 443 $ 429 3.3% $ 1,446 $ 1,238 16.8%
Sept. 30, Oct. 2,
2000 1999
Domestic
inventories
-LIFO $ 5,604 $ 4,940
-FIFO $ 6,230 $ 5,639
For the 13 Weeks Ended For the 39 Weeks Ended
Sept. 30, 2000 Sept. 30, 2000
& Oct. 2, 1999 & Oct. 2, 1999
Pretax LIFO charge $ 6 $ 6 $ 30 $ 30
Jan. 1, Sept. 30,
Domestic retail stores: 2000 Opened Closed 2000
Full-line stores 858 9 (5) 862
Specialty formats 2,153 74 (47) 2,180
Total 3,011 83 (52) 3,042
Gross square feet 146.4 1.8 (1.0) 147.2
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - CREDIT SEGMENT
(millions)
The following credit information relates to the domestic managed portfolio
of credit card receivables which is comprised of on-book credit card
receivables, credit card receivables underlying retained interest
securities and securities which have been sold to third parties. The
effective financing rate is based on both domestic on-book debt of the
company and securitization interest of the Sears Master Trust.
For the 13 Weeks ended For the 39 Weeks Ended
Sept. 30, 2000 Sept. 30, 2000
& Oct. 2, 1999 & Oct. 2, 1999
2000 1999 2000 1999
Average domestic credit card
receivables:
Managed credit card
receivables $ 25,453 $ 25,992 $ 25,655 $ 26,707
Securitized balances sold (6,840) (6,313) (6,540) (6,458)
Retained interest in
transferred credit card
receivables (3,673) (3,553) (3,293) (3,882)
Owned credit card
receivables $ 14,940 $ 16,126 $ 15,822 $ 16,367
Sept. 30, Oct. 2,
2000 1999
Ending domestic credit card
receivables:
Managed credit card
receivables $ 25,726 $ 25,810
Securitized balances sold (7,054) (6,499)
Retained interest in
transferred credit card
receivables (3,741) (3,153)
Other receivables 49 50
Owned credit card
receivables $ 14,980 $ 16,208
For the 13 Weeks ended For the 39 Weeks Ended
Sept. 30, 2000 Sept. 30, 2000
& Oct. 2, 1999 & Oct. 2, 1999
2000 1999 2000 1999
Domestic managed credit card
receivables-
Net interest margin:
Portfolio yield 19.70% 19.32% 19.86% 19.50%
Effective financing rate 5.97% 5.80% 5.92% 5.75%
Net interest margin 13.73% 13.52% 13.94% 13.75%
Domestic managed net
charge-off rate (a) 4.97% 6.39% 5.24% 6.85%
2000 1999
Sep. 30, July 1, Apr. 1, Jan. 1, Oct. 2,
2000 2000 2000 2000 1999
Domestic managed credit
card receivables-
Delinquency rate 7.47% 7.15% 7.20% 7.58% 7.57%
Allowance for
uncollectible accounts $ 624 $ 725 $ 725 $ 725 $ 773
Allowance % of domestic
owned credit card
receivables 4.18% 4.46% 4.48% 4.26% 4.78%
(a) The 1999 domestic managed net charge-off rate includes all of the
accounts in the domestic portfolio. Twelve percent of the accounts
were converted to the new Total Systems Services, Inc. ("TSYS")
account processing system in October 1998, 38% were converted in March
1999, and 50% were converted in April 1999. Balances are generally
charged-off earlier under the TSYS system than under the proprietary
system. For a description of the anticipated effects of the TSYS
conversion, see Sears quarterly report on Form 10-Q dated May 14,
1998.
SOURCE: Sears, Roebuck & Co.
Contact: Peggy A. Palter of Sears, Roebuck & Co., 847-286-8361
Website: http://www.sears.com/