Sears Holdings reports sharp drop in 3rd-quarter profit

Department store retailer Sears Holdings Corp., led by hedge-fund manager Chairman Eddie Lampert, said Thursday its third-quarter profit plunged due to a $223 million drop in gross margin, reflecting both lower sales and inventory-clearing markdowns.

The operator of Sears and Kmart stores, which earlier this week said it may buy out the rest of retro-themed retailer Restoration Hardware Inc., reported net income declined to $2 million, or a penny per share, from $196 million, or $1.27 per share, a year ago, which included investments gains of 42 cents per share.

Excluding these gains, earnings for the 2006 period totaled 85 cents per share.

Sales for the quarter ended Nov. 3 slipped 3 percent to $11.5 billion from $11.9 billion in the fiscal 2006 period.

The results widely missed the consensus estimate of analysts surveyed by Thomson Financial, who predicted profit of 50 cents per share. Two analysts had forecast revenue of $11.61 billion.

"We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so," said Aylwin Lewis, Sears Holdings' chief executive and president.

The company said it had cash and cash equivalents of $1.5 billion at Nov. 3, down from $2.1 billion a year ago and $4 billion at Feb. 3, 2007. Gross margin declined 90 basis points to 27.4 percent, hurt by markdowns taken to clear seasonal merchandise and higher inventory levels due to lower sales.

Sears also warned it expects difficult economic conditions to persist in the near-term, with sales and gross margin likely continuing to be pressured through the rest of the year.