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Sears ends '99 with a bang
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January 20, 2000: 2:24 p.m. ET
Less discounting, strong sales help world's No. 2 retailer beat 4Q forecasts
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NEW YORK (CNNfn) - Fewer markdowns and strong post-holiday sales helped Sears Roebuck & Co. report substantially higher fourth-quarter earnings Thursday, exceeding Wall Street's heightened expectations.
The world's No. 2 retailer earned $740 million, or $1.98 a diluted share. That eclipses the $572 million, or $1.48 a share, of a year earlier before extraordinary items. Including charges of $37 million, or 9 cents per share, the company's year-earlier net income was $535 million, or $1.39 a share.
The latest quarter handily beat the consensus analyst estimate of $1.77 per share, as compiled by research firm First Call Corp., even though analysts had raised their estimates substantially the past two weeks after Sears said recent efforts to reduce costs would push its fourth-quarter earnings higher than expected.
"The numbers that came out were surprisingly strong," said Steve Kernkraut, a retail analyst with Bear Stearns. "You have to walk away impressed with what they've been able to do in a short amount of time."
Still, despite posting stronger-than-expected profits, investors sent shares of Sears (S) falling 1-5/8 to 32-3/16 in mid-afternoon trading.
Margin boosts profits
The higher quarterly profit was driven mainly by an increase in Sears' gross profit margin, attributable to reduced promotional activity during the quarter and a lower cost for goods sold.
Sears also had improved performance from its credit operations, which lowered its provision for uncollectable accounts by 30 percent during the quarter while boosting operating profit by 34 percent to $421 million.
Revenue from the company's hallmark retail stores increased only 0.9 percent during the quarter, a sluggish rate analysts attributed to the scaled-down marketing efforts.
But sales from U.S. stores open more than a year rose a more robust 2.4 percent, and company officials said revenue got a significant boost from post-Christmas clearance markdowns.
The performance by Sears' international operations, particularly Sears Canada, was more impressive -- sales from those stores jumped 18.2 percent to $1.36 billion during the quarter.
For the full year, Sears' net income rose to $1.45 billion, or $3.81 per diluted share, from $1.05 billion, or $2.68 per share, in 1998. Revenue fell 1.2 percent to $41.07 billion.
The question now, Kernkraut said, is whether the company can maintain that momentum. In a conference call with analysts, Sears Chairman and CEO Arthur Martinez provided some assurances along those lines, predicting year-to-year earnings per share growth of around 10 percent this year. 
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Sears.com
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