The Softer Side of Sears: Credit Card Debt

Quarterly profits fell 28% at Sears, Roebuck and Co. (NYSE:S), which owns apparel catalog Lands’ End, and the Hoffman Estates, IL-based retail behemoth warned that annual results would not meet targets because of growing losses from credit card debt.

Sears said it added $222 million to its provision for uncollectable credit card accounts. Industry professionals say the company relies on its credit business for the bulk of its profits. Earlier this month, Sears warned that third-quarter profits would fall below expectations due to a weakening of its credit card business.

For the third quarter ended Sept. 28, Sears posted net profit of $189 million, down 28% from $262 million last year. The net profit results reflect a $222 million charge for uncollectable accounts.

In a company release, Sears says that revenue in retail and retail-related businesses fell 0.7%, to $7.26 billion. Sales increases in its Lands’ End catalog, its product repair services, dealer stores and hardware stores were more than offset by revenue declines in its 870 full-line stores. The company does not break out sales and profits for Lands’ End.

Meanwhile, Sears Canada posted operating income of $8 million, compared with an operating loss of $4 million in last year’s third quarter. The $12 million profit improvement is related to gross margin expansion partially offset by decreased revenues. Sears Canada revenue decreased 5%, to $954 million in the third quarter of 2002, in part due to a 1% decline in the value of the Canadian dollar relative to the U.S. dollar.

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