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Sucking Sound at Sears

Sears (NYSE: S  ) delivered a nasty surprise today, reporting quarterly profits down 83%. Although it cited sluggish demand in June, today's numbers hardly bode well for the department store retailer, which seems to be building up its own history of disappointment.

It's no secret that discounters saw a slowdown in consumer spending last month, including such big-time Sears rivals as Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) , though J.C. Penney (NYSE: JCP  ) seemed to buck the trend.

But it stands to reason that struggling Sears might have a tougher row to hoe despite some success in its limited and experimental "big box" response to the "superstore" concept. Overall, though, the retailer's popularity has been flagging for quite some time, despite many an initiative (some quite interesting, such as a reality TV show) meant to lure shoppers back. Even its once-mighty hardware and appliances departments face competition as formidable as Home Depot (NYSE: HD  ) , Lowe's (NYSE: LOW  ) , and Best Buy (NYSE: BBY  ) .

Meanwhile, apparel continues to be a sore spot for the retailer in spite of recent acquisitions of such higher-end brands as Land's End and Structure. Indeed, according to the company's conference call (transcript courtesy of Thomson StreetEvents), it now intends to tweak its inventory of Land's End apparel in stores, with some stores increasing the presence of the brand and some decreasing it, implying that the brand isn't effective across the board.

The company also still seems to be struggling with inventory, reminiscent of problems the company cited when it reported its last quarterly numbers in April.

Today, Sears reported net income of $53 million, or $0.24 per share, with revenues down 14%, at $8.78 billion. (The earnings included charges of $0.24 per share related to severance and depreciation.) It said it now sees 2004 earnings of $2.66 to $2.86 per share, a far cry from the previous consensus estimate of $3.63 per share.

Regardless of what may be big-picture trends that could snuff demand for discounters' goods, many of Sears' problems remain its very own. Investors punished the stock this morning, at one point drilling it down by 11%, though it has recovered somewhat in recent trading. Sears is currently trading at 12 times forward earnings, but it's hard to argue that that's a bargain when you consider its ongoing struggle to recreate itself.

Can Sears turn things around? Chat about the retailer on the Sears discussion board.

Alyce Lomax does not own shares of any companies mentioned.

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