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Sears Shares Fall as Profit Fails to Meet Expectations

October 08, 2002|From Bloomberg News

Sears, Roebuck & Co. shares fell 14% on Monday, the biggest drop in 15 years, after the largest department store chain said third-quarter profit would be less than forecast because more credit card customers are having trouble paying their bills.

At the same time, Chief Executive Alan Lacy said he dismissed Kevin Keleghan, head of the credit card unit, because he "lost confidence in his personal credibility."

Sears said it increased reserves for uncollectable credit card accounts by about 10% in the third quarter and expected to raise them more in the current quarter.

The company has become increasingly reliant on profit from the credit card unit as sales have dropped in the last 12 months. Sears customers typically charge large purchases such as Kenmore appliances. The card unit generated nearly two-thirds of Sears' overall profit in the second quarter.

Sears said third-quarter profit would be 80 cents to 82 cents a share, compared with 80 cents a year earlier. Analysts surveyed by Thomson First Call forecast 86 cents. Sears said it still expected to meet its full-year target of $5.15 a share.

Lacy said Keleghan's departure, announced Friday, "has nothing to do with the business performance." Lacy declined to comment further on the firing. Keleghan didn't return calls.

Sears shares fell $5.39 to $32.25 in New York Stock Exchange trading. The stock is down 32% this year.

Shares of banks and other credit card lenders have dropped in the last week amid concern that the weak economy will hurt profit.

Sears, which in past years has been penalized for its high-pressure tactics in collecting from bankrupt credit card holders, was fined $60 million and paid $498 million in 1999 for settlements related to credit card disputes.

Keleghan was named president of the credit unit in 1999, after working for Sears in risk management and card products. He joined Sears in 1996 from General Electric Co.'s finance business.

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