Sears Reports 14 Percent Increase in 2000 Earnings Excluding Non-Comparable Items
Sears, Roebuck and Co. (NYSE: S) reported full-year net income for 2000 of $1.34 billion, or $3.88 per share, compared with $1.45 billion, or $3.81 per share in 1999. Excluding the effect of non-comparable items, net income would have been $1.54 billion, or $4.45 per share, compared with $1.48 billion or $3.89 per share for 1999. Excluding non-comparable items, earnings per share increased 14 percent over the prior year.
Fourth quarter 2000 net income was $442 million, or $1.32 per share, compared with 1999 fourth quarter net income of $740 million, or $1.98 per share, a decrease of 33 percent. Excluding non-comparable items, fourth quarter 2000 net income would have been $639 million or $1.91 per share versus $740 million or $1.98 per share in 1999. Excluding non-comparable items, fourth quarter earnings per share would have decreased 4 percent. The fourth quarter 2000 non-comparable items, which were announced previously, reduced net income by $197 million or $0.59 per share. The non-comparable items include a charge for store closures and an impairment charge related to Sears Termite and Pest Control.
The 4 percent decrease in quarterly earnings per share excluding non- comparable items reflects lower income in Sears retail and credit businesses partially offset by the company's share repurchase program, lower corporate expenses and higher services' income. The unfavorable retail and credit comparisons to last year's quarter are mostly attributable to an exceptionally strong quarter in 1999 as well as soft holiday season sales in 2000.
"We are pleased with the solid earnings per share growth for the year, particularly in light of the industry's difficult fourth quarter," said Chairman and Chief Executive Officer Alan J. Lacy. "However, our businesses delivered inconsistent results. Another strong year of operating income growth in our credit business was offset by a weak fourth quarter in our domestic retail businesses and lower earnings from our Canadian business."
Revenues
Revenues for the fourth quarter were $12.4 billion, compared with $12.1 billion for the same period a year ago. The domestic revenue increase was primarily due to improvement in the Sears Tire Group, Full-line stores and Dealer stores, partially offset by credit revenue declines. Domestic comparable sales grew by 0.9 percent. Sears Canada revenues increased more than 7 percent largely reflecting the additional stores acquired from Eatons in 1999.
"We experienced solid growth in hardlines led by sales increases in sporting goods, appliances, electronics, and lawn and garden," said Lacy. "The Great Indoors and Sears Tire Group stores enjoyed strong comparable store sales performance for the quarter. In softlines, strong performances in footwear and housewares, and solid increases in cosmetics and fragrances and fine jewelry were offset by soft apparel results."
Revenues in the services segment, which include both Sears Home Services and Sears Direct Response businesses, were $733 million in the quarter, an increase of 3.7 percent from a year ago primarily reflecting higher Home Services' sales. Fourth-quarter domestic credit revenues declined 5.0 percent from a year ago, to $1.01 billion. The credit revenue decline primarily reflects lower Sears Card balances partially offset by growth in Sears Gold MasterCard offered at introductory rates. Average and ending managed receivable balances are slightly higher than last year.
All revenue amounts reflect the application of SEC Staff Accounting Bulletin 101 (SAB 101), which affected the classification of revenue and related costs of licensed businesses. There was no effect on operating income related to the implementation of SAB 101.
Gross margin and selling and administrative costs
Consolidated gross margin as a percent of merchandise sales and services was 27.7 percent in the fourth quarter of 2000 compared with 28.8 percent in the comparable 1999 period. The decrease in the gross margin rate reflects increased promotional intensity in both the U.S. and Sears Canada as well as a lower LIFO credit in 2000 than 1999.
Selling and administrative expense as a percentage of total revenues was 20.0 percent in the fourth quarter of 2000 compared with 19.6 percent a year ago. Improved selling and administrative expense leverage in credit was more than offset by lower than planned holiday sales in retail and Eatons' re-launch costs. Corporate expenses were favorable primarily because of reductions in performance-based incentive expenses.
Provision for uncollectible accounts
In the fourth quarter of 2000, the consolidated provision for uncollectible accounts was $224 million, a 28 percent increase from $175 million in the fourth quarter of 1999. The domestic provision for uncollectible accounts increased by $38 million while Sears Canada's provision for uncollectible accounts increased by $11 million. Last year's quarter benefited from a $48 million reduction to the domestic allowance for uncollectible accounts reflecting substantial improvement in portfolio quality. Although the quality of the portfolio remains strong, the allowance was increased by $25 million to reflect growth in owned portfolio balances. The domestic allowance at the end of 2000 is $649 million or 4.03 percent of owned receivables.
2001 Outlook
"Given the slowing economic environment, 2001 will be a challenging year, particularly in the first half," said Lacy. "We are very focused on delivering solid profit growth for the year. Operating income is planned to deliver mid-single digit growth. Income growth combined with our share repurchase program should allow us to achieve high-single to low-double digit earnings per share growth."
Statements contained under the "2001 Outlook" heading of this release are forward looking and as such involve risks and uncertainties that could cause actual results to differ materially. The company's forward-looking statements are based on assumptions about many important factors, including competitive conditions in the retail industry; changes in consumer confidence and spending; the successful implementation and consumer acceptance of Sears Gold Mastercard program, direct-to-customer strategy, and other initiatives; the ability of the company to develop appropriate new sites for The Great Indoors; anticipated cashflow; economic conditions in the United States and Canada such as higher interest rates and unemployment; and normal business uncertainty. In addition, the company typically earns a disproportionate share of its operating income in the fourth quarter due to holiday buying patterns, which are difficult to forecast with certainty. While the company believes that its assumptions are reasonable, it cautions that it is impossible to predict the impact of such factors that could cause actual results to differ materially from predicted results. The company intends the forward-looking statements in this release to speak only at the time of this release and does not undertake to update or revise these projections 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 nearly $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, http://www.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
Dec. 30, 2000 and Jan. 1, 2000
(millions, except earnings per
share) 2000 1999* % Change
Revenues
Merchandise and services $11,296 $10,958 3.1%
Credit revenues 1,078 1,130 -4.6%
Total revenues 12,374 12,088 2.4%
Costs and expenses
Cost of sales, buying and
occupancy 8,168 7,799 4.7%
Selling and administrative 2,471 2,366 4.4%
Depreciation and
amortization 202 219 -7.8%
Provision for uncollectible
accounts 224 175 28.0%
Interest 317 313 1.3%
Restructuring charge 251 (5) -
Total costs and
expenses 11,633 10,867 7.0%
Operating income 741 1,221 -39.3%
Other income, net 29 5 -
Income before income taxes and
minority interest 770 1,226 -37.2%
Income taxes (300) (452) -33.6%
Minority interest (28) (34) -17.6%
Net income $442 $740 -40.3%
Earnings per share:
Basic $1.32 $1.98 -33.3%
Diluted $1.32 $1.98 -33.3%
Average common and dilutive
common
equivalent shares
outstanding 334.9 373.9
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
For the 52 Weeks Ended
Dec. 30, 2000 and Jan. 1, 2000
(millions, except earnings per
share) 2000 1999* % Change
Revenues
Merchandise and services $36,548 $35,141 4.0%
Credit revenues 4,389 4,343 1.1%
Total revenues 40,937 39,484 3.7%
Costs and expenses
Cost of sales, buying and
occupancy 26,899 25,627 5.0%
Selling and administrative 8,642 8,416 2.7%
Depreciation and
amortization 826 848 -2.6%
Provision for uncollectible
accounts 884 871 1.5%
Interest 1,248 1,268 -1.6%
Restructuring charge 251 41 -
Total costs and
expenses 38,750 37,071 4.5%
Operating income 2,187 2,413 -9.4%
Other income, net 36 6 -
Income before income taxes and
minority interest 2,223 2,419 -8.1%
Income taxes (831) (904) -8.1%
Minority interest (49) (62) -21.0%
Net income $1,343 $1,453 -7.6%
Earnings per share:
Basic $3.89 $3.83 1.6%
Diluted $3.88 $3.81 1.8%
Average common and dilutive
common
equivalent shares
outstanding 346.3 381.0
* 1999 and 2000 amounts have been restated to reflect licensed business
operations under SEC Staff Accounting Bulletin No. 101 (SAB 101).
The restatement reclassified amounts within the statement of income
but did not affect operating income or net income.
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
For the 13 Weeks Ended
Dec. 30, 2000 and Jan. 1, 2000
2000 1999 % Change
Total Revenues:
Retail $9,242 $9,025 2.4%
Services 733 707 3.7%
Credit 1,011 1,064 -5.0%
International 1,388 1,292 7.4%
Total revenues $12,374 $12,088 2.4%
Operating income as reported:
Retail 452 $719 -37.1%
Services (36) 73 -149.3%
Credit 357 421 -15.2%
Corporate (85) (109) -22.0%
International 53 117 -54.7%
Total operating income $741 $1,221 -39.3%
Operating income excluding
noncomparable items:
Retail 602 $719 -16.3%
Services 79 73 8.2%
Credit 357 421 -15.2%
Corporate (85) (109) -22.0%
International 53 117 -54.7%
Total operating income $1,006 $1,221 -17.6%
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
For the 52 Weeks Ended
Dec. 30, 2000 and Jan. 1, 2000
2000 1999 % Change
Total Revenues:
Retail $29,743 $28,706 3.6%
Services 2,798 2,799 0.0%
Credit 4,114 4,085 0.7%
International 4,282 3,894 10.0%
Total revenues $40,937 $39,484 3.7%
Operating income as reported:
Retail $689 $841 -18.1%
Services 208 329 -36.8%
Credit 1,522 1,347 13.0%
Corporate (354) (322) 9.9%
International 122 218 -44.0%
Total operating income $2,187 $2,413 -9.4%
Operating income excluding
noncomparable items:
Retail $839 $866 -3.1%
Services 323 329 -1.8%
Credit 1,522 1,347 13.0%
Corporate (354) (301) 17.6%
International 122 218 -44.0%
Total operating income $2,452 $2,459 -0.3%
Dec. 30, Jan. 1,
2000 2000
Domestic
inventories -LIFO $4,941 $4,516
-FIFO $5,507 $5,112
For the 13 Weeks Ended For the 52 Weeks Ended
Dec. 30, 2000 and Dec. 30, 2000 and
Jan. 1, 2000 Jan. 1, 2000
Pretax LIFO charge
(credit) $(59) $(103) $(29) $(73)
Jan. 1, Dec. 30,
Domestic retail stores: 2000 Opened Closed 2000
Full-line stores 858 11 (6) 863
Specialty formats 2,153 116 (111) 2,158
Total 3,011 127 (117) 3,021
Gross square feet 146.4 2.6 (1.7) 147.3
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - CREDIT SEGMENT
(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 For the 52 Weeks
Ended Ended
Dec. 30, 2000 and Dec. 30, 2000 and
Jan. 1, 2000 Jan. 1, 2000
2000 1999 2000 1999
Average domestic credit card
receivables:
Managed credit card receivables $26,262 $26,131 $25,830 $26,595
Securitized balances sold (7,442) (6,527) (6,779) (6,476)
Retained interest in transferred
credit card receivables (3,366) (3,143) (3,273) (3,707)
Owned credit card receivables $15,454 $16,461 $15,778 $16,412
Dec. 30, Jan. 1,
2000 2000
Ending domestic credit card
receivables:
Managed credit card receivables $27,001 $26,785
Securitized balances sold (7,834) (6,579)
Retained interest in transferred
credit card receivables (3,051) (3,175)
Other receivables 59 37
Owned credit card receivables $16,175 $17,068
For the 13 Weeks For the 52 Weeks
Ended Ended
Dec. 30, 2000 and Dec. 30, 2000 and
Jan. 1, 2000 Jan. 1, 2000
Domestic managed credit card
receivables- 2000 1999 2000 1999
Net interest margin:
Portfolio yield 19.22% 19.90% 19.68% 19.58%
Effective financing rate 6.11% 5.88% 5.96% 5.77%
Net interest margin 13.11% 14.02% 13.72% 13.81%
Domestic managed net charge-off
rate (A) 4.79% 5.20% 5.12% 6.44%
2000
Dec. 30, Sep. 30, July 1,
2000 2000 2000
Domestic managed credit card
receivables-
Delinquency rate 7.56% 7.47% 7.15%
Allowance for uncollectible accounts $649 $624 $725
Allowance % of domestic owned credit
card receivables 4.03% 4.18% 4.46%
2000 1999
Apr. 1, 2000 Jan. 1, 2000
Domestic managed credit card
receivables-
Delinquency rate 7.20% 7.58%
Allowance for uncollectible accounts $725 $725
Allowance % of domestic owned credit
card receivables 4.48% 4.26%
(A) The 1999 domestic managed net charge-off rate includes all of the
accounts in the domestic portfolio. Twelve percent of the
accounts were converted to the new Total Systems Services, Inc.
("TSYS") account processing system in October 1998, 38%
were converted in March 1999, and 50% were converted in April
1999. Balances are generally charged-off earlier under the
TSYS system than under the proprietary system. For a description
of the anticipated effects of the TSYS conversion, see Sears quarterly
report on Form 10-Q dated May 14, 1998.
SOURCE: Sears, Roebuck & Co.
Contact: Peggy A. Palter of Sears, 847-286-8361
Website: http://www.sears.com/