Problems with its credit card operations helped drive down Sears, Roebuck and Co.’s third quarter net income to $189 million, from $262 million last year.
The firm reported that the 26% plunge in net income reflected a $222 million increase over the prior year in the domestic provision to cover uncollectible accounts. The credit card business is one of Sears’ most important businesses, contributing more than 60% of operating income, the company said. The quarter ended Sept. 30.
CEO Alan Lacy said during an analyst’s call yesterday that additional problems were discovered in the credit card unit after the firm’s CFO Kevin Keleghan was dismissed by Lacy earlier this month, according to news reports. Lacy said he had lost confidence in Keleghan’s personal credibility.
The company now expects its credit and financial products segment, primarily the credit card business, to report a low-to-mid single digit decrease in comparable earnings for the year, a guidance revision first announced last week downward from the low double-digits.
“Today’s revision to that guidance reflects additional increases in the allowance for uncollectible accounts as a result of analysis over the past week,” Lacy said in a statement. “However, the credit business remains highly profitable, and I have complete confidence in our credit strategy and the management team.”
Credit and financial products operating income was $284 million, down 28% compared to last year.
Sears reported revenue for the quarter was $7.26 billion, off 0.7% from $7.31 billion in the third quarter of 2001.
The firm also revised downward its guidance for the full-year 2002 to comparable earnings of $4.86 (a 15% increase) per share compared to previous expectations of $5.15 (a 22% increase) per share.
On news that earnings would fall far short of Wall Streets expectations, Sear’s stock price took a $10.80 dive to $23.15, sending the price down past an 11-year low of $26.65, reached only one week ago, according to news reports. Some 35.7 million shares changed hands, and by day’s end $3.85 billion in market capitalization was wiped out, the report said.
Retail and related services operating income decreased to $42 million from $82 million in the prior year which it attributed to the costs of repositioning its brand. Sales increases in direct to customer resulting from the company’s acquisition of Lands’ End, product repair services, dealer stores and hardware stores were more than offset by revenue declines in the full-line stores, the company said.
Sears acquired Lands’ End last Spring for $1.9 billion to beef up its retail offerings.
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