Sears Reports First-Quarter 2001 Net Income Of $176 Million
Sears, Roebuck and Co. (NYSE: S) reported first-quarter 2001 net income of $176 million or $0.53 per share, compared with 2000 first-quarter net income of $235 million or $0.65 per share, a decrease of 18.5 percent on a per share basis. Revenues for the quarter were $8.86 billion compared with $8.93 billion in the first quarter of last year.
"In the first quarter, the credit business performed in line with expectations, reflecting continued strong portfolio quality," said Chairman and Chief Executive Officer Alan J. Lacy. "However, this was another difficult quarter for the retail industry. Our domestic and Canadian retail businesses performed below the company's expectations, with comparable store sales declines in both domestic and Canadian stores. In addition, pressure on margins and higher Canadian expenses also contributed to lower earnings."
Retail and Related Services
Retail and Related Services revenues for the first quarter of 2001 of $6.81 billion were slightly below last year's first quarter revenues of $6.83 billion. Sales increases at The Great Indoors, Sears online business, and hardware stores were offset by declines in full-line stores, commercial sales and automotive stores. "The slowing economy and colder than anticipated weather had an impact on both our hardlines and softlines businesses, as well as our specialty formats," said Lacy. "In hardlines, we experienced strong growth in electronics, home appliances and sporting goods, offset by significant decreases in lawn and garden sales. In softlines, sales increases in home fashions and fine jewelry were offset by lower than anticipated results among the other softlines categories."
Retail and Related Services gross margin rate declined by 70 basis points to 24.3%, reflecting increased promotional markdowns particularly in softlines as well as a balance of sale shift to hardlines products. Selling and administrative spending increased by 1.9 percent versus last year's quarter partly due to investments in The Great Indoors. As a percent of revenue, selling and administrative expenses were 50 basis points higher than last year's first quarter.
Retail and Related Services posted an operating loss of $56 million as compared with operating income of $21 million in the prior year period. The $77 million decline is primarily due to lower than anticipated revenues and pressures on margins and expenses as well as investment in The Great Indoors.
Credit and Financial Products
First-quarter domestic credit and financial products revenues declined 7.6 percent from a year ago, to $1.03 billion. This decline is primarily due to a $1.7 billion reduction in average on-book owned credit card receivables. Revenues on the managed portfolio also declined. While average and ending managed credit card receivable balances were slightly higher than last year, overall portfolio yield declined.
Lower operating expenses and a lower provision for uncollectible accounts largely offset the revenue decline. The continued strength of the receivables portfolio is reflected in the $54 million reduction in net charge-offs and related provision expense for on-book receivables. The net charge-off rate for the managed portfolio declined to 5.07% from 5.69% a year ago. Interest expense and funding rate were relatively flat with last year's quarter.
The domestic allowance for uncollectible accounts decreased to $567 million from $649 million at year-end 2000. The $82 million decrease is related to $2.0 billion of receivables transferred to the securitization Master Trust in the first quarter of 2001. Apart from the effect related to the $2.0 billion securitization, the allowance is unchanged from year-end 2000. As previously announced, the company will record a one-time non-cash pretax charge of approximately $520 million in the second quarter to re- establish an allowance for uncollectible accounts related to approximately $12 billion of previously securitized receivables.
Reported operating income from credit and financial products declined by $9 million or 2.2 percent. First-quarter 2001 operating income includes $40 million of securitization income or 8 cents per share as compared with $19 million or 3 cents per share in the first quarter of 2000.
Sears Canada
Sears Canada revenue increased 2.6 percent to $942 million in the first quarter of 2001. The increase primarily reflects new store openings in 2000, as comparable store sales declined by 0.6%. This comparison with last year's quarter was also adversely affected by a nearly 5 percent decline in the value of the Canadian dollar relative to the U.S. dollar.
The segment reported an operating loss of $10 million, a $28 million decline from last year's quarter. The decline is primarily due to higher selling and administrative spending to support stores opened in 2000, particularly the Eatons banner stores. These increases were partly offset by the absence of spending on Eaton's integration.
Corporate and Other
Revenues from the home services businesses included in the Corporate and Other segment increased by almost 17 percent while profits improved by $6 million. Corporate headquarters spending was even with last year's quarter due to the company's ongoing focus on productivity. The company repurchased 4.3 million shares of Sears common stock during the quarter at a cost of $168 million.
Outlook
"The trends seen in the first quarter are likely to continue through the second quarter," said Lacy. "We are projecting a high-single to low-double digit percentage decline in second-quarter earnings per share excluding non- comparable items and securitization income. We are more optimistic about the second half and are forecasting full-year earnings per share to be in line with last year excluding noncomparable items and net securitization income."
Statements contained under the "Outlook" heading of this release are forward looking statements, based on assumptions about the future, which are subject to risks and uncertainties, such as competitive conditions in retail, changes in consumer confidence, changes in interest rates, delinquency and charge-off trends in the credit card receivables portfolio, the pace of development of new sites for The Great Indoors, consumer acceptance and use of the Sears Gold MasterCard, 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. The company believes its forward looking statements are reasonable but cautions that actual results could differ materially. The company intends these forward looking statements to speak only at the time of this release and does not undertake to revise or confirm them as more information becomes available.
Sears, Roebuck and Co. is a leading U.S. retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion. The company serves families across the country through approximately 860 full-line department stores, approximately 2,100 specialized retail locations, and a variety of online offerings accessible through the company's Web site, sears.com. Sears, Roebuck and Co. is the majority owner of Sears Canada Inc.
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
For the 13 Weeks Ended
March 31, 2001 and April 1, 2000
(millions, except earnings per share) 2001 2000 % Change
Revenues
Merchandise sales and services $7,754 $7,738 0.2%
Credit and financial products
revenues 1,103 1,187 -7.1%
Total revenues 8,857 8,925 -0.8%
Costs and expenses
Cost of sales, buying and occupancy 5,836 5,783 0.9%
Selling and administrative 2,031 1,989 2.1%
Depreciation and amortization 215 212 1.4%
Provision for uncollectible accounts 191 245 -22.0%
Interest 312 316 -1.3%
Total costs and expenses 8,585 8,545 0.5%
Operating income 272 380 -28.4%
Other income, net 1 1 -
Income before income taxes and
minority interest 273 381 -28.3%
Income taxes (98) (140) -30.0%
Minority interest 1 (6) -
Net income $176 $235 -25.1%
Earnings per share:
Basic $0.53 $0.65 -18.5%
Diluted $0.53 $0.65 -18.5%
Average common and dilutive common
equivalent shares outstanding 333.5 360.0
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
(millions)
March 31, April 1, Dec. 30,
2001 2000 2000
Assets
Current Assets
Cash and cash equivalents $510 $449 $842
Retained interest in
transferred credit card
receivables 3,863 3,036 3,105
Credit card receivables,
net 14,730 17,049 17,317
Other receivables 459 299 506
Merchandise inventories 6,019 5,738 5,618
Prepaid expenses and
deferred charges 623 553 486
Deferred income taxes 981 716 920
Total current assets 27,185 27,840 28,794
Property and equipment, net 6,499 6,361 6,653
Deferred income taxes 255 302 174
Other assets 967 1,463 1,278
Total assets $34,906 $35,966 $36,899
Liabilities
Current liabilities
Short-term borrowings $3,412 $3,027 $4,280
Current portion of long-
term debt and capitalized
leases 2,313 2,444 2,560
Accounts payable and other
liabilities 6,311 6,443 7,336
Unearned revenues 1,079 1,007 1,058
Other taxes 446 420 562
Total current liabilities 13,561 13,341 15,796
Long-term debt and
capitalized leases 11,623 12,614 11,020
Postretirement benefits 1,913 2,135 1,951
Minority interest and other
liabilities 1,362 1,362 1,363
Total liabilities 28,459 29,452 30,130
Commitments and Contingent
Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par
value 3,528 3,549 3,538
Retained income 7,079 6,105 6,979
Treasury stock - at cost (3,862) (3,053) (3,726)
Deferred ESOP expense (85) (126) (96)
Accumulated other
comprehensive loss (536) (284) (249)
Total shareholders'
equity 6,447 6,514 6,769
Total liabilities and
shareholders' equity $34,906 $35,966 $36,899
Total common shares
outstanding 329.8 352.6 333.2
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
For the 13 Weeks Ended
March 31, 2001 and April 1, 2000
Retail and Related Services Corporate and Other
(millions, except number
of stores) 2001 2000 % Change 2001 2000 % Change
Total Revenues $6,806 $6,826 -0.3% $84 $72 16.7%
Costs and expenses
Cost of sales, buying
and occupancy 5,153 5,121 0.6% 37 33 12.1%
Selling and
administrative 1,530 1,502 1.9% 100 100 0.0%
Depreciation and
amortization 176 179 -1.7% 14 12 16.7%
Interest 3 3 0.0% - - -
Total costs and
expenses 6,862 6,805 0.8% 151 145 4.1%
Operating income $(56) $21 - $(67) $(73) 8.2%
Credit and Financial
Products Sears Canada
(millions) 2001 2000 % Change 2001 2000 % Change
Total Revenues $1,025 $1,109 -7.6% $942 $918 2.6%
Costs and expenses
Cost of sales, buying
and occupancy - - - 646 629 2.7%
Selling and
administrative 155 170 -8.8% 246 217 13.4%
Depreciation and
amortization 5 4 25.0% 20 17 17.6%
Provision for
uncollectible
accounts 181 235 -23.0% 10 10 0.0%
Interest 279 286 -2.4% 30 27 11.1%
Total costs and
expenses 620 695 -10.8% 952 900 5.8%
Operating income $405 $414 -2.2% $(10) $18 -
March 31, April 1,
2001 2000
Domestic inventories -LIFO $5,328 $5,102
-FIFO $5,906 $5,710
For the 13 Weeks Ended
March 31, 2001 and April 1, 2000
Pretax LIFO charge $12 $12
December 30, March 31,
Domestic retail
stores: 2000 Opened Closed 2001
Full-line stores 863 1 (4) 860
Specialty formats 2,158 6 (37) 2,127
Total 3,021 7 (41) 2,987
Gross square feet 147.3 0.1 (1.4) 146.0
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES
(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
March 31, 2001 and April 1, 2000
2001 2000
Average domestic credit card
receivables:
Managed credit card
receivables $26,340 $26,094
Securitized balances sold (7,816) (6,443)
Retained interest in
transferred
credit card receivables (3,638) (3,106)
Owned credit card
receivables $14,886 $16,545
March 31, April 1,
2001 2000
Ending domestic credit card
receivables:
Managed credit card
receivables $25,699 $25,451
Securitized balances sold (8,143) (6,301)
Retained interest in
transferred
credit card receivables (3,863) (3,036)
Other receivables 95 107
Owned credit card
receivables $13,788 $16,221
For the 13 Weeks ended
March 31, 2001 and April 1, 2000
Domestic managed credit card
receivables- 2001 2000
Net interest margin:
Portfolio yield 19.13% 20.29%
Effective financing rate 6.06% 5.93%
Net interest margin 13.07% 14.36%
Domestic managed net charge-
off rate 5.07% 5.69%
2001 2000
Mar. 31, Dec. 30, Sep. 30, July 1, Apr. 1,
2001 2000 2000 2000 2000
Domestic managed credit card
receivables-
Delinquency rate 7.50% 7.56% 7.47% 7.15% 7.20%
Allowance for uncollectible
accounts $567 $649 $624 $725 $725
Allowance % of domestic
owned credit card receivables 4.14% 4.03% 4.18% 4.46% 4.48%
SEARS, ROEBUCK AND CO.
SECURITIZATION ACCOUNTING
QUARTERLY IMPACT INCLUDED IN REPORTED RESULTS
Note: Adding numbers shown below to reported results eliminates the impact
of securitization accounting included in the previously reported results.
(millions)
Qtr 1 Qtr 2 Qtr 3 Qtr 4
Quarter ended March 31, 2001 2001 2001 2001 2001 2001 YTD
Total revenues $275 $- $- $- $275
Selling and administrative 39 0 0 0 39
Provision for uncollectible
accounts 153 0 0 0 153
Interest 123 0 0 0 123
Total costs and expenses 315 0 0 0 315
Operating income (40) 0 0 0 (40)
Net income $(26) $- $- $- $(26)
EPS - Diluted
Reported $(0.08) $- $- $- (0.08)
Excluding non-comp items $(0.08) $- $- $- (0.08)
shares o/s 333.5 - - - 333.5
Year Ended December 30, 2000 Qtr 1 Qtr 2 Qtr 3 Qtr 4
2000 2000 2000 2000 2000 YTD
Total revenues $252 $212 $255 $250 $969
Selling and administrative 32 32 34 37 135
Provision for uncollectible
accounts 136 115 137 134 522
Interest 103 102 110 125 440
Total costs and expenses 271 249 281 296 1,097
Operating income (19) (37) (26) (46) (128)
Net income $(12) $(23) $(17) $(30) $(82)
EPS - Diluted
Reported $(0.03) $(0.06) $(0.05) $(0.09) $(0.24)
Excluding non-comp items $(0.03) $(0.06) $(0.05) $(0.09) $(0.24)
shares o/s 360.0 348.4 341.8 334.9 346.3
SOURCE: Sears, Roebuck & Co.
Contact: Janice R. Drummond of Sears, 847-286-8316
Website: http://www.sears.com/