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beat earnings expectations for the fourth quarter and offered disappointing guidance for the first quarter. But perhaps the biggest surprise for investors was that the company is changing its accounting, and that will make prior-year comparisons almost undecipherable.

The company plans to change how it accounts for its pension and post-retirement medical plans so that it recognizes gains and losses in those plans immediately, rather than amortizing them over time. Sears also plans to narrow the number of business segments for which it breaks out revenue and operating income from four to two, effectively rolling proceeds from its credit marketing relationship with



into the results of its retail operations.

While the changes may reflect the company's current operations, they also likely will muddy its results for investors.

The pension accounting change "will tend to obscure comparative results," said Gimme Credit research director Carol Levenson. "Their changing the segment reporting throws another spanner into the works, but presumably the company will file restated historical segment data along with its



On a conference call with analysts, Sears officials acknowledged that year-over-year comparisons would be difficult to make in 2004. But they promised to clarify the company's results on a quarterly basis.

The change in the way the company accounts for pensions "will increase transparency and make our pension plan easier to understand," company CFO Glenn Richter said on the call.

Whether frustrated by the accounting changes or the company's disappointing guidance, investors frowned on the stock on Thursday. In recent trading, the company's shares were down $1.54, or 3.3%, to $44.27.

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In the fourth quarter, Sears earned $2.75 billion, or $10.84 a share, on $12.25 billion in total revenue. In the same quarter a year earlier, the retailer earned $848 million, or $2.67 a share, on $12.52 billion in revenue.

But both periods benefited from the sale of assets. One-time gains and charges added $3.43 billion in pretax income to the company's results in the fourth quarter of 2003, and $265 million in the year-ago period. Excluding those windfalls, Sears would have earned $2.24 a share in the just-completed quarter, up from $2.11 in the year-ago period.

The pro forma results bested analysts estimates by a long shot. Wall Streeters surveyed by Thomson One Analytics had projected that Sears would earn $2.02 a share.

But the company's outlook for 2004 wasn't nearly as promising. Sears expects to earn $3.60 to $3.80 a share, excluding the impact of the change in its pension accounting. For the first quarter, again excluding the accounting change, the company expects to lose 9 cents to 14 cents a share.

Wall Street was looking for much better results. In the first quarter, analysts had forecast that Sears would earn 20 cents a share on $7.75 billion in revenue. For the full year, analysts were calling for $4.36 in earnings on $37.13 billion in revenue.

Sears expects to take a one-time, after-tax charge of $840 million in the first quarter related to its accounting change.

The company plans to move from a defined-benefit pension plan to a defined-contribution 401(k) plan for its current employees, company officials said. Sears also plans to discontinue a post-retirement medical benefit for employees younger than 40 years old.

The changes justify the accounting switch, Richter said.

"While our current (accounting) method is appropriate under

generally accepted accounting principles, it's no longer representative" of the company's pension practices, he said.

Meanwhile, the change in how many business segments the company breaks out reflects Sears' current operations, Richter said. Last year, the company sold off its credit card operations to Citigroup. Although it will receive payments from Citigroup for marketing its cards, the company will no longer receive the primary revenue from those cards.

Sears previously reported four business segments: its domestic retail operations, its credit operations, its Canadian operations and its corporate operations. Going forward, the company plans to report only two segments: domestic and Canadian operations. The company will include revenue from Citigroup and its corporate results along with that from its domestic operations.

Companies don't have to disclose operating segment results if they amount to less than 10% of their overall revenue, said Mike Lofing, a senior research analyst at proxy advisor Glass Lewis. Not breaking out the revenues from Citigroup would thus make sense, he said.

"But you would hope they would disclose it in some fashion," Lofing said.

Meanwhile, collapsing the company's corporate segment into its domestic operations segment is an "aggressive" accounting move, he said. "The corporate segment is going to vary in overhead."