Sales put Sears in better position

Ending a six-month slump, Sears, Roebuck and Co. bounced back in October to handily beat Wall Street's estimates and boost its stock price by 5 percent.

While Sears pleasantly surprised analysts Thursday, Wal-Mart Stores Inc. fell short of expectations as higher energy prices and sluggish job and wage growth made budget-conscious consumers wary about spending.

Sears' sales increased 1.9 percent for the month, easily beating projections of a 0.4 percent decline, according to a survey of 10 analysts by research firm Retail Metrics.

The Hoffman Estates-based retailer showed better results with such big-ticket goods as appliances and electronics.

"October sales met our expectations for improved performance," Chief Executive Alan Lacy said in a statement.

He needed the good news.

The last time the nation's biggest department store chain posted a monthly sales increase was March. Sears is on pace for its fourth straight year of shrinking sales, with revenues down 2.1 percent year-to-date. Its stock price has tumbled 17 percent from earlier in the year.

Last month, Sears reported a third-quarter loss of $61 million, blamed on everything from record fuel prices to heavy apparel markdowns. It also warned that 2004 profits would fall short of forecasts.

The twin surprises drove down Sears' stock price and prompted a credit rating agency to downgrade Sears' debt to a notch above junk.

October's improved performance gives Lacy--now in his fourth year as CEO--a breather, said one retail observer.

"Any positive number is good for Sears and therefore good for its commander in chief," said Retail Forecasting President Kurt Barnard. He had characterized Sears' third-quarter results as "awful" and had said Lacy was "on the spot."

Clothing, however, remains a nagging problem. While sales of children's clothing rose slightly in October, total apparel sales fell 1 percent to 3 percent.

Appliance sales, on the other hand, climbed 7 percent to 9 percent, thanks to sales of new products such as the Kenmore Elite refrigerator with a water filtration system and the Kenmore Turbo Zone dishwasher, which is touted to clean even the crustiest dishes without pre-soaking.

Sears has taken several other steps to protect and increase its leading appliance market share in the face of rapid growth by Lowe's Cos. and Home Depot Inc. It has started, for example, selling appliances in 88 of its 163 hardware stores. On Thursday, Sears announced plans to buy appliance supplier Westar Contract Kitchen & Bath, which sells to the building and remodeling industry in Arizona and Nevada. It is Sears' second such deal this year.

Its stock price closed Thursday at $37.18, up $1.78, on the New York Stock Exchange.

Still, other retail observers regard Sears' October numbers as little more than a blip on the radar screen.

"You simply can't turn the Titanic overnight, and Sears has charted a course that has pulled it downward for a long time," said New York retail consultant Howard Davidowitz. "The board has a responsibility to the shareholders, and the stock has performed terribly. A simple question here is, `What is the board doing?'"

Another retail consultant also believes that Lacy is on borrowed time.

"It takes a trend, and one month isn't a trend," said Sid Doolittle, retail consultant with Chicago's McMillan/Doolittle. "Sears had a small increase, and it was up against lousy numbers from last year. Some other retailers showing increases in October were up against tough numbers."

In October 2003, Sears' sales fell 2.7 percent.

The recent tweaking of Sears' electronics department, however, appears to have paid off in October. Its sales were up 1 percent to 3 percent. Sales at Sears' independently owned dealer stores rose 4 percent to 6 percent. Results at its Great Indoors home improvement chain were up 10 percent to 13 percent.

Elsewhere in retail, Wal-Mart had a 2.8 percent increase in sales at stores open at least a year. Analysts surveyed by Thomson First Call expected a 3 percent gain. Nonetheless, its stock price rose 3 percent to close Thursday at $56.26.

"The low-end consumer continues to be hurt on two fronts--jobs and wage growth and higher energy prices," said Ken Perkins, an analyst at RetailMetrics LLC, a research firm in Cambridge, Mass.

Target Corp., the other dominant discounter, had a strong month. It reported a 6 percent gain; analysts expected a 5.6 percent gain.

Other retailers surpassing expectations included Federated Department Stores and Neiman Marcus Group.

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