Sears March Comparable Sales Decline 5.3 Percent; Expects First Quarter EPS Of Approximately $0.53
Sears Updates Segment Reporting; Adopts New Accounting Standard Resulting In One-Time Non-Cash Charge Of $520 Million In Second Quarter
Sears, Roebuck and Co. (NYSE: S) announced total domestic store revenues for the five weeks ending April 7, 2001 were $2.56 billion. Comparable domestic store revenues decreased 5.3 percent. Total domestic store revenues decreased 5.1 percent compared with $2.7 billion for the five weeks ending April 8, 2000.
"March retail sales fell below expectations, with the slowing economy and colder than anticipated weather having an impact on both our hardlines and softlines businesses," said Chairman and Chief Executive Officer Alan J. Lacy. "Weather-related seasonal apparel and lawn and garden merchandise accounted for over one-third of the comparable store sales decline. Among the better performing businesses was Home Appliances, which continues to gain market share. The Great Indoors format and sporting goods businesses also performed well."
Sears, Roebuck and Co.
5 Weeks 9 Weeks
2001 Domestic Store Revenues $2,563,400,000 4,530,800,000
2000 Domestic Store Revenues 2,701,000,000 4,697,600,000
Percent Change (5.1)% (3.6)%
Comparable Domestic Stores Percent Change (5.3)% (3.9)%
Preliminary Earnings Announcement
The company anticipates that earnings per share for the first fiscal quarter of 2001, ended March 31, will be approximately $0.53, versus $0.65 in the first quarter of last year.
In the first quarter, the credit business performed in line with expectations, reflecting continued strong portfolio quality. However, operating income from the credit business for the first quarter will be slightly below last year, mainly due to lower revenues. The domestic retail business did not meet the company's expectations in the first quarter due to sales and margin shortfalls resulting from the slowing economy and cooler than expected spring weather in much of the country.
Sears Revises Segment Reporting
FASB Statement No. 131 prescribes accounting guidance for segment reporting and requires that a company's externally reported segments be consistent with its internal management structure. Consequently, effective for the first quarter of 2001, Sears is modifying its externally reported segments to reflect the company's integrated retail and related services strategy and to align externally reported business segments with changes that have occurred in the company's internal structure over the past several months. The company's four new segments are as follows:
- Retail and Related Services -- This segment consists of merchandise
sales and related services, including service contracts, delivery and
product installation and repair services. It covers all Sears selling
channels, including specialty and full-line stores as well as direct-to-
customer operations which includes online, catalogs and clubs and
services.
- Credit and Financial Products -- This segment includes Sears domestic
credit business and the company's related financial product offerings.
- Sears Canada -- Formerly named the International segment, this segment
continues to include the results of the company's majority-owned
Canadian subsidiary.
- Corporate and other -- This segment is composed of home office expenses,
holding company items and certain home improvement services businesses,
including Sears Termite and Pest Control.
First quarter 2001 results, scheduled to be announced April 19, will reflect the revised segment reporting structure. Financial data for 2000 and 1999 has been restated to reflect the new segment structure and is included with this news release. The changes in segment reporting do not affect consolidated operating income or net income.
Sears Adopts New Accounting Standard Resulting In One-Time Charge
In the second quarter of 2001, Sears will adopt FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes new conditions for securitization transactions to be accounted for as sales of receivables. Under the provisions of FASB Statement No. 140, which went into effect in April, the company's securitization transactions will be accounted for as secured borrowings. Under the previous accounting standards, the company's securitizations were accounted for as sales of receivables.
"The company's application of FASB Statement No. 140 will make our financial reporting significantly less complex, while preserving flexibility in accessing the asset-backed securities market," said Sears Senior Vice President and Chief Financial Officer Jeffrey N. Boyer. "This accounting will also provide uniform accounting treatment for all Sears credit card assets and related revenues and expenses."
In addition, the company's prior securitization transactions will not meet the grandfathering provisions of FASB Statement No. 140. Therefore, effective in the second quarter of 2001, previously securitized credit card receivables will be accounted for as on-book receivables. As a result, the company will consolidate approximately $8 billion of off-balance sheet credit card receivables as well as recognize $8 billion of related debt. In addition, approximately $4 billion of assets will be reclassified to credit card receivables from retained interest in transferred credit card receivables. Future securitization activity will be accounted for as secured borrowings.
A one-time, non-cash pre-tax charge of approximately $520 million will be recorded in the second quarter of 2001. This charge represents the establishment of an allowance for uncollectible accounts related to the $12 billion of receivable balances previously off-balance sheet or accounted for as securities and classified on the balance sheet as retained interest in transferred credit card receivables.
FASB Statement No. 140 must be applied prospectively beginning April 1. Therefore, prior period financial statements prepared under generally accepted accounting principles will continue to reflect securitization activity as receivable sales through the first quarter of 2001. In the first quarter of 2001, net securitization income will be $0.08 per share as compared with $0.03 per share in last year's quarter. Prior to the adoption of FASB Statement No. 140, securitization activity had been forecasted to add approximately $0.24 to 2001 full-year earnings per share, comparable to the amount of net securitization income recorded in 2000. To facilitate inter- period comparisons of the company's financial performance, this news release includes a schedule detailing securitization activity recorded in the company's 2000 and 1999 income statements.
Webcast Conference Call
Sears will webcast a conference call today, April 12, to further discuss the company's changes in securitization accounting and its segment reporting revisions. The call and webcast will begin at 11:30 a.m. EDT/10:30 a.m. CDT.
The webcast and related presentation materials will be accessible on Sears Web site, sears.com, under "About Sears" on the lower left-hand column of the sears.com home page. The replay will be archived for one week on the "About Sears" section of sears.com.
Software necessary to listen to the webcast, Media Player or Real Player, can be downloaded from the webcast site. Downloading the software may take up to 22 minutes with a 56K speed modem.
Forward-Looking Statements
This release contains projections regarding first quarter performance and the effect of the adoption of FASB Statement No. 140, which are "forward- looking statements." Such projections are based on preliminary estimates regarding first quarter costs and expenses, and assumptions about normal quarter-end accounting and valuation adjustments, the timing and frequency of the company's securitization transactions for the balance of 2001, and similar uncertainties. While the company believes its forecasts and assumptions are reasonable, it cautions that actual results could differ materially. The company intends the forward-looking statements in this release to speak only as of the time of this release and does not undertake to update or revise these projections as more information becomes available.
About Sears
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.
RESTATED SEGMENT INFORMATION TO REFLECT REVISED SEGMENT REPORTING
STRUCTURE
DOES NOT REFLECT CHANGES IN SECURITIZATION ACCOUNTING
(millions)
First Quarter Second Quarter
2000 1999 2000 1999
Total Revenues:
Retail and Related Services $6,826 $6,664 $7,892 $7,589
Credit and Financial Products 1,109 1,103 1,070 1,015
Corporate and Other 72 77 93 102
Canada Operations 918 775 990 903
Total revenues $8,925 $8,619 $10,045 $9,609
Operating income as reported:
Retail and Related Services $21 $(27) $225 $224
Credit and Financial Products 414 323 426 342
Corporate and Other (73) (68) (58) (47)
Canada Operations 18 17 30 45
Total operating income $380 $245 $623 $564
Operating income excluding non-
comparable items:
Retail and Related Services $21 $(27) $225 $224
Credit and Financial Products 414 323 426 342
Corporate and Other (73) (68) (58) (47)
Canada Operations 18 17 30 45
Total operating income $380 $245 $623 $564
Third Quarter Fourth Quarter Full Year
2000 1999 2000 1999 2000 1999
Total Revenues:
Retail and Related
Services $7,471 $7,124 $9,835 $9,609 $32,024 $30,986
Credit and Financial
Products 1,042 1,023 1,057 1,105 4,278 4,246
Corporate and Other 94 97 94 82 353 358
Canada Operations 986 924 1,388 1,292 4,282 3,894
Total revenues $9,593 $9,168 $12,374 $12,088 $40,937 $39,484
Operating income as
reported:
Retail and Related
Services $69 $65 $475 $768 $790 $1,030
Credit and Financial
Products 415 340 386 447 1,641 1,452
Corporate and Other (62) (61) (173) (111) (366) (287)
Canada Operations 21 39 53 117 122 218
Total operating
income $443 $383 $741 $1,221 $2,187 $2,413
Operating income
excluding non-
comparable items:
Retail and Related
Services $69 $90 $625 $768 $940 $1,055
Credit and Financial
Products 415 340 386 447 1,641 1,452
Corporate and Other (62) (40) (58) (111) (251) (266)
Canada Operations 21 39 53 117 122 218
Total operating
income $443 $429 $1,006 $1,221 $2,452 $2,459
SEARS, ROEBUCK AND CO.
SECURITIZATION ACCOUNTING
QUARTERLY IMPACT INCLUDED IN PREVIOUSLY REPORTED RESULTS
NOTE: Adding the 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 Full
Year Ended December 30, 2000 2000 2000 2000 2000 Year
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
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Full
Year Ended January 1, 2000 1999 1999 1999 1999 Year
Total revenues $307 $308 $270 $236 $1,121
Selling and administrative 33 32 31 33 129
Provision for uncollectible
accounts 193 182 158 126 659
Interest 106 106 102 105 419
Total costs and expenses 332 320 291 264 1,207
Operating income (25) (12) (21) (28) (86)
Net income $(16) $(8) $(13) $(17) $(54)
EPS - Diluted
Reported $(0.04) $(0.02) $(0.04) $(0.05) $(0.14)
Excluding non-comp items $(0.04) $(0.02) $(0.04) $(0.05) $(0.14)
shares o/s 385.1 383.6 381.5 373.9 381.0
SOURCE: Sears, Roebuck & Co.
Contact: Janice R. Drummond of Sears, Roebuck & Co., 847-286-8316
Website: