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) --



sent shock waves through the retail sector after posting an unexpected loss in the second-quarter.

The news sent shares of the department-store operator plunging 12% to $65.24 early in Thursday's session, as investors lost any hope of Sears riding out its momentum of the first quarter into the second half of the year.

While there have been murmurs of a housing market recovery, its not being felt at Sears. The company saw the most weakness in sales of Craftsman tools and Kenmore appliances.

Sears: Down not Out

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Sears has attempted to combat the declines in furniture and home appliances and weakness in apparel by rolling-out new promotions and adding new merchandise categories.

The company is now offering, for starters, a purchase-protection program on home appliances to help consumers who lose their jobs. The free program covers payments on appliance purchases of more than $399 made on a Sears' card.

On the merchandizing front, Sears is relaunching two maternity-clothes collections this fall and testing toys in 20 of its locations.

The company is also hoping to gain an edge over rivals like


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this holiday season by getting shoppers to start saving for Christmas presents now. Sears is bringing back an old-fashion Christmas club account that allows shoppers to put aside money on a regular basis now through Nov. 14. If activated before Oct. 31, cardholders can earn a 3% reward, up to a maximum of $100.

But it doesn't look like any of these initiatives will help the department store.

For the quarter, Sears recorded a loss of $94 million, or 79 cents a share, compared with a profit of $65 million, or 50 cents a share, in the year-ago period.

Even excluding the cost of closing stores and other items, the company still lost of 17 cents a share, drastically missing analysts' expectations of a profit of 35 cents.

Revenue dropped 10% to $10.55 billion, while total same-store sales sank 8.6%. Breaking its business down by division, comparable sales fell 12.5% at Sears' department stores and 3.9% at its Kmart chain.

Sears decided to shutter 28 stores during the quarter as it continues to cut costs and manage inventory and other expenses.

In constrast to Sears, which offered no forecast, rivals Macy's, J.C. Penney and


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all upped their full-year outlooks.

--Reported by Jeanine Poggi in New York.

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