Sears, Roebuck and Co., Hoffman Estates, IL, yesterday reported third-quarter net income of $189 million, a 26 percent decrease from the previous year's third-quarter earnings, reflecting a $222 million increase in the domestic provision for uncollectible accounts.
Also, retail and related services operating income plummeted to $42 million from $82 million in the prior year.
Revenue in the third quarter totaled $7.26 billion, or 0.7 percent below last year's third-quarter revenue of $7.31 billion, the company said. Sales increases in direct-to-customer resulting from the company's acquisition of Lands' End, product repair services, dealer stores and hardware stores were more than offset by revenue declines in the full-line stores.
Credit and Financial Products' operating income totaled $284 million, down 28 percent from the prior year, the company said.
Third-quarter domestic Credit and Financial Products revenue rose 4 percent from a year ago to $1.4 billion. Credit receivables at the end of the quarter grew 11.5 percent over the prior year to $29.3 billion.
The domestic provision for uncollectible accounts increased $222 million over the prior-year period due to a $189 million increase to the allowance for uncollectible accounts. The allowance increase reflects receivables growth, recent increases in charge-off trends and a cautious economic outlook for the rest of the year. The net charge-off rate for the quarter decreased to 5.55 percent from 5.62 percent last year.
Year-over-year delinquencies fell from 7.41 percent to 7.24 percent.
“It's time to scale back growth assumptions for Sears' credit business,” Roz Bryant, retail analyst with Morningstar, was quoted by Reuters, which also reported that the company relies on its credit business for the bulk of its profit.
The news agency also reported that chairman/CEO Alan Lacy said he fired the company's risk manager Wednesday. He said the credit business was sound and profitable and that the problems stemmed from mistakes made in projecting bad debt provisions.
The Associated Press reported that Lacy said the credit business remains “highly profitable” and that the company expects to complete the year with 15 percent profit growth.
