Sears' Stock Hits 20-Year Low Amid Credit Worries

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Sears, Roebuck and Co.'s stock sank to its lowest price in two decades as an analyst downgraded the company's shares yesterday.

Sears fell as low as $19.71, its lowest level since the stock hit $18.12 during August 1982, according to Reuters. It closed at $22.70 Tuesday.

Sears has lost nearly $700 million in market value during the sell-off, which continued a share slump that started Nov. 7 as Sears reported a 10 percent drop in October same-store sales as measured from stores open at least a year.

Goldman Sachs analyst George Strachan cut his rating on the company to "underperform" from "in-line," saying it may have to increase the money it puts aside to cover bad customer debts in its credit card business. The credit card business accounts for approximately two-thirds of the company's profits.

Reuters reported that Strachan said in a research note that on a 12-month lagged basis, Sears MasterCard chargeoffs reached 13 percent in the third quarter, slightly below subprime issuers' metric of 16.7 percent.

Roz Bryant, a retail industry analyst at Morningstar, cited Strachan's downgrade for yesterday's stock drop, stating that in addition to the credit card business, "there is concern about what kind of customer Sears wants to target for its apparel business," she told Reuters.

She also cited a concern revolving around "the declining demand facing Sears hard goods business" as its appliance sales continue to be weaker. Bryant added that investors could also be viewing the company's business strategy as less effective in helping restore earnings and sales growth soon.

Of the credit card business, Bryant told Reuters, "there is concern about management's ability to continue to run that business."

A credit ratings agency last week cut Sears notes covering $808 million of securities backed by credit card receivables after other ratings agencies placed their Sears credit ratings under review due to worries regarding bad customer credit card debts, Reuters reported.

Customer debt worries forced Sears, which reported a 28 percent drop in third-quarter profit last month, to set aside additional funds to cover customers unable to pay their credit card bills.

Sears spokesperson Peggy Palter told DM News that the credit card portfolio is profitable.

"I can assure you that we have the right retail strategy in place and we're still waiting for some elements to roll in, including Lands' End," she said. "We feel that we have a good quality portfolio on the credit side. Credit is a profitable business for us."

Sears purchased Lands' End six months ago for $1.9 billion. It was announced yesterday that Lands' End's "best selling catalog items" will be available in more than 180 Sears stores in 10 markets by Dec. 1. The markets include Atlanta, Boston, Chicago, Hartford, CT, Los Angeles, Madison, WI, New York, Philadelphia, Raleigh-Durham, NC, and San Francisco. Sears' shoppers also can buy the full assortment of Lands' End merchandise by contacting Lands' End customer service representatives through an in-store catalog and phone kiosk. The full rollout to remaining Sears stores is set to continue through fall 2003.


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