Sears Roebuck

(S) - Get Report

topped Wall Street earnings expectations when it released its quarterly results Thursday, but an aggressive share buyback plan -- rather than a solid performance from its businesses -- was the main growth engine.

The Hoffman Estates, Ill.-based company, the nation's second-largest retailer after

Wal-Mart

(WMT) - Get Report

and in dire need of a turnaround, said fourth-quarter net income was $639 million, or $1.91 a share, compared with $740 million, or $1.98 a share, in the same period last year. Those figures exclude charges of $197 million, or 59 cents a share, associated with closing 89 stores and 2,400 job cuts announced in early January in the wake of a dismal holiday shopping season.

Analysts polled by

First Call/Thomson Financial

expected the company to earn $1.87 a share. Revenue for the quarter was $12.4 billion, compared with $12.1 billion a year ago.

However, the company's share repurchase plan, which removes some shares from circulation and thus boosts the amount of earnings per share, made a significant contribution to earnings per share. "The results benefited greatly from stock buybacks," Alan Lacy, Sears' chairman and chief executive, told analysts in a conference call. "But operationally, we fell short of expectations. The holidays were a disappointment."

About 14 cents a share was due to the share buyback program, which pulled 10% of the company's shares from the marketplace.

Too Many

"Given that we are overstored -- there's too many stores in this country -- where do you put your money?" said Karen Sack, an analyst at

Standard & Poor's Equity Group

. "It's OK, but over the long term you want to see a growth strategy." (Sack is neutral on Sears stock, and her firm doesn't do underwriting.)

Much of Sears' growth plans center around its home furnishing chain, The Great Indoors. It plans to boost its capital expenditure program in 2001 to $1.4 billion from $1.1 billion, mainly to open 10 new such stores.

"If the question is, 'Are they buying back shares in lieu of growing the business?' " said Mark Picard, an analyst at

Lazard Freres

, "I would say that they are doing both simultaneously." (Picard rates Sears stock an outperform, and his firm hasn't done underwriting for the retailer.)

The company said it would continue to buy back shares in 2001.

Sears is among the trio of venerable, old-school American retail names -- the two others being

Kmart

(KM)

and

J.C. Penney

(JCP) - Get Report

-- that have fallen from favor among shoppers and investors. All three have lost a considerable amount of market share to

Kohl's

(KSS) - Get Report

, which has gained a reputation for being more fashion savvy than its rivals. Kohl's also has attracted legions of investors, and its stock trades at nosebleed levels -- more than 72 times trailing earnings -- while Sears'

price-to-earnings ratio is less than 8.

Charge It

Concerns about the company's credit business and a jump in appliance inventories weighed on analysts' minds during the conference call Thursday morning. Revenue from its credit business declined 5%, or about $15 million, in the quarter, reflecting lower Sears Card balances, but was partially offset by growth in revenue from its Sears Gold MasterCard.

While delinquencies recently had been in decline, the fourth quarter saw them remain flat from the prior quarter. But the company said it's comfortable with the quality of its credit assets. "At the moment, we're seeing a leveling off of trends," says Lacy. "We don't see negative trends."

On the inventory side, the company had stockpiled $5.5 billion worth of goods at the end of the fourth quarter, up 8% from a year ago. The buildup was mainly in appliances and tools, while apparel inventories were modest.

The company gave investors guidance for 2001, saying that a slowing economy will create challenges, particularly in the first half. It said earnings per share should rise in the high single- to low double-digits on a percentage basis for the year, in line with analysts' expectations, according to First Call.