Sears' Earnings Rise, as Do Credit Concerns

Sears, Roebuck & Co.S bested earnings forecasts for its fiscal fourth quarter on Thursday, but its credit card portfolio is still a cause for concern.

The giant retailer posted a net profit of $848 million, or $2.67 per share, on $12.5 billion in sales. Excluding a one-time investment gain, the company posted a net profit of $669 million, or $2.11 per share.

Wall Street analysts surveyed by Thomson Financial/First Call had expected Sears to post earnings of $1.91 per share on $11.9 billion in sales. For the year-ago quarter, the company earned $494 million, or $1.53 per share, on $12.2 billion in revenue; excluding noncomparable items, the company earned $657 million, or $2.20 per share.

"Overall, we're very pleased with our fourth-quarter and full-year results," said CEO Alan Lacy on a conference call with investors.

Sears' strong results were partially offset by continuing problems with its credit card operations. The Hoffman Estates, Ill.-based retailer fell far short of earnings expectations in the third quarter as a result of increasing its provision for uncollected accounts by $222 million. Sears ratcheted up its provision again in the fourth quarter, increasing the amount set aside to $576 million, $161 million more than in the fourth quarter of 2001.

Sears' average credit card receivables for its U.S. operations increased from an average of $26.8 billion in the fourth quarter last year to $29.7 billion in the just-completed quarter. At the end of the quarter, the company's credit card receivables stood at $30.8 billion vs. $27.6 billion at the end of 2001.

The concern for investors is that Sears tends to have a sizable number of subprime borrowers, meaning that they have a history of defaulting on loans. The delinquency rate for Sears-issued credit cards edged upward in the quarter to 7.69% of receivables from 7.24% in the same quarter last year. Meanwhile, Sears' charge-off rate for bad credit card debt increased to 5.4% of receivables from 5.23% in the year-ago period.