Sears First Quarter 2002 Comparable Earnings Increase 107%
Sears, Roebuck and Co. (NYSE: S) today reported first quarter 2002 net income, excluding non-comparable items, of $300 million, or $0.93 per share, a 107 percent per share increase over the prior year comparable first quarter of $0.45 per share. The increase is due primarily to improved performance in the company's core retail and credit businesses.
"Despite lower sales, our Retail and Related Services profits showed a solid increase, driven by margin rate improvements across virtually all of our retail formats," said Chairman and Chief Executive Officer Alan J. Lacy.
First quarter 2002 was affected by three non-comparable items which consist of the cumulative effect of a change in accounting for goodwill, a charge relating to Sears Canada's plan to convert existing Eaton's stores to the Sears Canada banner, and a gain from the sale of a portion of the company's investment in Advance Auto Parts. These non-comparable items resulted in a charge of $190 million, or $0.59 per share, after-tax and minority interest. First quarter 2001 was affected by one non-comparable item, net securitization income of $26 million, or $0.08 per share.
Reported first quarter 2002 net income, before cumulative effect of a change in accounting principle, was $318 million or $0.98 per share, compared with $176 million, or $0.53 per share in the first quarter of 2001. First quarter 2002 net income, including the cumulative effect of a change in accounting principle, was $110 million or $0.34 per share.
Retail and Related Services
Retail and Related Services operating income, excluding non-comparable items, increased $143 million to $87 million from an operating loss of $56 million in the prior year due to margin rate improvements and expense reductions. "We continue to be pleased by our strong profit performance in Retail and Related Services. These results demonstrate the benefits of improved inventory management, improved promotional profitability and providing our customers with more relevant merchandise assortments," said Lacy.
Revenues for the first quarter of 2002 of $6.77 billion were 0.6 percent below last year's first quarter revenues of $6.81 billion. Sales increases by product repair services, commercial sales and dealer stores were more than offset by declines in revenue from full-line stores. In hardlines, revenue growth was strong in home appliances, projection TVs and home fitness products. Sales in the softlines categories were lower than anticipated.
Retail and Related Services gross margin rate improved by 170 basis points to 26.0 percent. Full-line hardlines and softlines businesses, and nearly all other retail formats contributed to the margin improvement.
Selling and administrative spending was 1.2 percent lower than first quarter 2001 due to expense decreases in full-line stores and direct to customer, partially offset by higher investment in The Great Indoors. Selling and administrative expenses were 22.3 percent of sales compared with 22.5 percent last year.
Credit and Financial Products
Credit and Financial Product's operating income, excluding non-comparable items, increased by $78 million or 21.4 percent to $443 million as favorable funding costs and higher revenues offset higher provision and selling and administrative expenses.
First quarter domestic Credit and Financial Products comparable revenues increased 1.4 percent from a year ago, to $1.32 billion due to higher average receivable balances. Credit receivables at the end of the first quarter grew 5.1 percent over the prior year to $27.0 billion.
Funding costs declined by $131 million or 32.6 percent from last year's quarter on a comparable basis due to a favorable interest rate environment.
The provision for uncollectible accounts on a comparable basis, increased by $37 million or 11.1 percent over last year's period. The net charge-off rate for the quarter increased to 5.43 percent from 5.07 percent last year primarily due to increased customer bankruptcy filings over last year. Year-over-year delinquencies decreased 19 basis points from 7.50 percent to 7.31 percent, indicating stable portfolio quality. The domestic allowance for uncollectible accounts of $1.1 billion is 4.13 percent of ending credit receivables compared with 4.14 percent at the end of last year's quarter.
Sears Canada
Sears Canada's operating income, excluding non-comparable items, of $6 million compares with an operating loss of $10 million in last year's quarter. The $16 million profit improvement is primarily related to margin rate improvements and expense reductions partially offset by decreased revenues. Sears Canada revenue decreased 5.2 percent to $893 million in the first quarter of 2002, in part due to a 4.2 percent decline in the value of the Canadian dollar relative to the U.S. dollar.
Corporate and Other
Segment operating loss, excluding non-comparable items, increased to $69 million from $67 million last year primarily due to costs related to the company's strategic initiatives. Revenues from the home improvement services businesses included in the Corporate and Other segment decreased by 31.0 percent to $58 million primarily due to the sale of the Sears Termite and Pest Control business.
The company repurchased 8.2 million shares of Sears common stock during the quarter at a cost of $427 million.
2002 Outlook
"As previously announced, due to the strong first quarter performance, we expect 2002 full year comparable earnings per share to increase approximately 17 percent from the prior year amount of $4.22. It is still early in the year and we continue to be cautious due to the uncertain economic outlook for the year as well as the business disruption and execution risk inherent during the implementation of our Full-line store strategy," said Lacy.
Forward-Looking Statements
This release contains forward-looking statements, including an 2002 Outlook. These statements are based on assumptions about the future which are subject to risks and uncertainties, such as competitive conditions in retail, changes in consumer confidence and spending; interest rates, delinquency and charge-off trends in the credit card receivables portfolio; continued consumer acceptance of the Sears Gold MasterCard Program; the successful execution of and customer reactions to the company's Full-line store strategy and other strategic initiatives; anticipated cash flow; general economic conditions 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. While the company believes its forecasts and assumptions are reasonable, it cautions that actual results may differ materially. The company intends the forward-looking statement in this release to speak only as of the time of this release and does not undertake to update or revise this projection as more information becomes available.
About Sears
Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2001, the company's annual revenue was more than $41 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web site, sears.com. Sears, Roebuck and Co. is the majority owner of Sears Canada Inc. 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
March 30, 2002 and March 31, 2001
(millions, except earnings per
common share) 2002 2001 % Change
REVENUES
Merchandise sales and
services $7,647 $7,754 -1.4%
Credit and financial products
revenues 1,390 1,103 26.0%
Total revenues 9,037 8,857 2.0%
COSTS AND EXPENSES
Cost of sales, buying and
occupancy 5,626 5,836 -3.6%
Selling and administrative 2,061 2,031 1.5%
Provision for uncollectible
accounts 381 191 99.5%
Depreciation and amortization 210 215 -2.3%
Interest 292 312 -6.4%
Special charges and
impairments 111 - -
Total costs and
expenses 8,681 8,585 1.1%
Operating income 356 272 30.9%
Other income, net 78 1 -
Income before income taxes and
minority interest 434 273 59.0%
Income taxes (148) (98) 51.0%
Minority interest 32 1 -
Income before cumulative effect
of accounting change 318 176 80.7%
Cumulative effect of change in
accounting for goodwill (208) - -
NET INCOME $110 $176
EARNINGS PER COMMON SHARE
Basic
Earnings per share before
cumulative
effect of a change in
accounting principle $0.99 $0.53 86.8%
Cumulative effect of
change in
accounting for goodwill $(0.65) $- -
Earning per share $0.34 $0.53 -35.8%
Diluted
Earnings per share before
cumulative
effect of a change in
accounting principle $0.98 $0.53 84.9%
Cumulative effect of
change in
accounting for goodwill $(0.64) $- -
Earning per share $0.34 $0.53 -35.8%
Average common and dilutive
common
equivalent shares outstanding 324.0 333.5
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
(millions)
December
March 30, March 31, 29,
2002 2001 2001
Assets
Current Assets
Cash and cash equivalents $949 $510 $1,064
Retained interest in transferred
credit card receivables - 3,863 -
Credit card receivables 28,509 15,331 29,321
Less allowance for
uncollectible accounts 1,162 601 1,166
Ner credit card receivables 27,347 14,730 28,155
Other receivables 619 459 658
Merchandise inventories 5,249 6,019 4,912
Prepaid expenses and deferred
charges 629 623 458
Deferred income taxes 994 981 858
Total current assets 35,787 27,185 36,105
Property and equipment, net 6,629 6,499 6,824
Deferred income taxes 433 255 415
Other assets 754 967 973
Total assets $43,603 $34,906 $44,317
Liabilities
Current liabilities
Short-term borrowings $3,485 $3,412 $3,557
Current portion of long-term
debt and capitalized lease
obligations 4,414 2,313 3,157
Accounts payable and other
liabilities 6,492 6,311 7,176
Unearned revenues 1,165 1,079 1,136
Other taxes 427 446 558
Total current liabilities 15,983 13,561 15,584
Long-term debt and capitalized
lease obligations 18,084 11,623 18,921
Postretirement benefits 1,690 1,913 1,732
Minority interest and other
liabilities 2,036 1,362 1,961
Total liabilities 37,793 28,459 38,198
Commitments and Contingent
Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,505 3,528 3,500
Retained earnings 7,449 7,079 7,413
Treasury stock - at cost (4,587) (3,862) (4,223)
Deferred ESOP expense (54) (85) (63)
Accumulated other comprehensive
loss (826) (536) (831)
Total shareholders' equity 5,810 6,447 6,119
Total liabilities and
shareholders' equity $43,603 $34,906 $44,317
Total common shares
outstanding 314.8 329.8 320.4
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended March 30, 2002 and March 31, 2001
Excluding Non-Comparable Items and Securitization Income
Retail & Related Services Credit & Financial Products
2002 2001 2002 2001
Total Revenues $6,768 $6,806 $1,318 $1,300
Costs and expenses
Cost of sales,
buying and
occupancy 5,005 5,153 - -
Selling and
administrative 1,512 1,530 228 194
Provision for
uncollectible
accounts - - 371 334
Depreciation and
amortization 168 176 5 5
Interest (4) 3 271 402
Special charges
and impairments - - - -
Total
costs and
expenses 6,681 6,862 875 935
Operating income $87 $(56) $443 $365
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended March 30, 2002 and March 31, 2001
Corporate & Other Sears Canada
2002 2001 2002 2001
Total Revenues $58 $84 $893 $942
Costs and expenses
Cost of sales, buying and
occupancy 21 37 600 646
Selling and administrative 94 100 227 246
Provision for uncollectible
accounts - - 10 10
Depreciation and amortization 12 14 25 20
Interest - - 25 30
Special charges and impairments - - - -
Total costs and expenses 127 151 887 952
Operating income $(69) $(67) $6 $(10)
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended March 30, 2002 and March 31, 2001
Total
2002 2001
Total Revenues $9,037 $9,132
Costs and expenses
Cost of sales, buying and
occupancy 5,626 5,836
Selling and administrative 2,061 2,070
Provision for uncollectible
accounts 381 344
Depreciation and amortization 210 215
Interest 292 435
Special charges and impairments - -
Total costs and expenses 8,570 8,900
Operating income $467 $232
Net Income before cumulative effect
of change in accounting $300 $150
Cumulative effect of change in
accounting $- $-
Net Income $300 $150
EPS - Diluted $0.93 $0.45
Average shares o/s 324.0 333.5
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended March 30, 2002 and March 31, 2001
Reconciling Items
Securitization Impact Non-comparable items
2002 2001 2002 2001
Total Revenues $- $(275) $- $-
Costs and expenses
Cost of sales, buying and
occupancy - - - -
Selling and administrative - (39) - -
Provision for uncollectible
accounts - (153) - -
Depreciation and amortization - - - -
Interest - (123) - -
Special charges and impairments - - 111 -
Total costs and expenses - (315) 111 -
Operating income $- $40 $(111) $-
Net Income before cumulative
effect of change in accounting $- $26 $18 $-
Cumulative effect of change in
accounting $- $- $(208) $-
Net Income $- $26 $(190) $-
EPS - Diluted $- $0.08 $(0.59) $-
Average shares o/s 324.0 333.5 324.0 333.5
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended March 30, 2002 and March 31, 2001
Consolidated GAAP
2002 2001
Total Revenues $9,037 $8,857
Costs and expenses
Cost of sales, buying and
occupancy 5,626 5,836
Selling and administrative 2,061 2,031
Provision for uncollectible
accounts 381 191
Depreciation and amortization 210 215
Interest 292 312
Special charges and impairments 111 -
Total costs and expenses 8,681 8,585
Operating income $356 $272
Net Income before cumulative effect
of change in accounting $318 $176
Cumulative effect of change in
accounting $(208) $-
Net Income $110 $176
EPS - Diluted $0.34 $0.53
Average shares o/s 324.0 333.5
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
AND STORE COUNT
(millions)
Average Balance Ending Balance
For the 13 Weeks ended
March 30, 2002 and
March 31, March 30, March 31,
2001
2002 2001 2002 2001
Sears Card credit card receivables 21,639 25,036 20,728 24,320
Sears Gold MasterCard credit card
receivables 5,647 1,304 6,279 1,379
Managed domestic credit card
receivables $27,286 $26,340 $27,007 $25,699
For the 13 Weeks ended
March 30, 2002 and March 31, 2001
Domestic managed credit card
receivables- 2002 2001
Net interest margin:
Portfolio yield 18.64% 19.13%
Effective financing rate 3.95% 6.06%
Net interest margin 14.69% 13.07%
Domestic managed net charge-off rate 5.43% 5.07%
2002 2001
Mar. Dec. Sep. Jun. Mar.
30, 29, 29, 30, 31,
2002 2001 2001 2001 2001
Domestic managed credit card
receivables-
Delinquency rate 7.31% 7.58% 7.41% 7.26% 7.50%
Allowance for uncollectible
accounts $1,115 $1,115 $1,089 $1,089 $567
Allowance % of domestic on-book
credit
card receivables 4.13% 4.04% 4.15% 4.19% 4.14%
March 30, March 31,
2002 2001
Domestic
inventories -LIFO $4,688 $5,328
-FIFO $5,290 $5,906
For the 13 Weeks Ended
March 30, 2002 and March 31, 2001
Pretax LIFO charge $12 $12
December 29, March 30,
Domestic retail stores: 2001 Opened Closed 2002
Full-line stores 867 11 (8) 870
Specialty formats 1,318 8 (27) 1,299
Total 2,185 19 (35) 2,169
Gross square feet 148.5 2.0 (1.1) 149.4
SOURCE: Sears, Roebuck and Co.
Contact: Peggy A. Palter of Sears, Roebuck and Co., +1-847-286-8361
Website: http://www.sears.com/