Sears profit falls, shares up on retail rally

By Karen Jacobs

ATLANTA (Reuters) - Sears Holdings Corp posted a quarterly profit that fell short of Wall Street expectations, but its shares rose more than 4 percent as investors bet easing oil prices would revive consumer spending.

The retailer controlled by hedge fund manager Edward Lampert said on Thursday its net income dropped 62 percent, driven partly by price markdowns to lure consumers in a weak U.S. economy.

The parent of Kmart and Sears, Roebuck stores said reduced markdowns and cost controls should lead to higher earnings in the second half of the year.

Sears Holdings has been rebuilding its management team, cutting expenses and introducing new merchandise in a bid to reverse a year-long earnings slump.

But analysts said the economy alone was not to blame for the latest disappointing results and questioned how much further the company could rely on existing strategies to turn its business around.

"Sales have been under pressure for so long, even before the retail environment became challenging," said Kim Picciola, a retail analyst with Morningstar.

"One of the concerns is that the company continues to lose market share and in that case, there's only so much it can do in terms of cost-cutting and realigning the organization," she added.

Sears Holdings' net income fell to $65 million, or 50 cents a share, for the quarter ended August 2, from $173 million, or $1.15 a share, a year earlier. The per-share profit decline was aided by a lower share count as Sears repurchased 5.6 million shares.

Excluding the positive impact of a reserve tied to an overturned jury verdict, profit came to 21 cents a share. Analysts on average had expected 33 cents a share, according to Reuters Estimates.

Revenue fell 4 percent to $11.8 billion.

SAME-STORE SALES

Sears Holdings faces competition from many chains, including Kohl's Corp in clothing, Wal-Mart Stores Inc in general merchandise, and Home Depot and Lowe's Cos in appliances and tools.

Sears' stock has fallen 11 percent since the start of the year, and would be even weaker if easing oil prices had not fueled a retail rally since July. But Sears has lagged many of its competitors, which have still managed to attract consumers with lower prices and preserve profits.

Total U.S. same-store sales, at outlets open for a year, fell 6.2 percent, with declines of 6.7 percent at Sears and 5.6 percent at Kmart. Same-store sales at both units have fallen for more than two years.

Housing-related products like appliances and tools led much of the sales weakness, but Sears noted stronger electronics sales.  Continued...