Sears, Roebuck & Co. is limping into its proposed merger with Kmart.
The department-store giant reported an 86% drop in fourth-quarter earnings Thursday after shedding its profitable credit card unit a year earlier, its results now solely dependent on sagging retail sales.
The $378-million quarterly profit, which outpaced Wall Street's estimates as a result of reduced costs, ended a year of lower sales that Chief Executive Alan Lacy acknowledged was another "disappointing financial performance."
Executives of the Hoffman Estates, Ill.-based company voiced confidence for improvement as a result of the impending merger with Kmart Holding Corp.
They expect the deal to close in early March, creating the nation's third-largest retailer with $55 billion in annual revenue.
Analysts were less certain.
"Sears' poor fourth-quarter and full-year results provide further evidence of the difficulties that a combined Kmart-Sears will face in effectively competing long term with the likes of Wal-Mart and Target," Morningstar Inc. analyst Anthony Chukumba wrote in a note to investors.
Net income for the last three months of 2004 was $378 million, or $1.76 a share, down 86% from the record $2.7 billion, or $10.84, a year earlier. Analysts interviewed by Thomson First Call estimated earnings at $1.66 a share.
Revenue declined 4.6% to $11.1 billion, with comparable-store sales flat in the quarter after a decline in December.
Lacy blamed several factors for the company's poor showing: disruptions from the continuing overhaul of Sears' 870 department stores, weak seasonal transitions, tough competition and misgauged inventory levels.
Lacy said Sears Holdings, the planned name of the merged company, intended to convert several hundred Kmart stores to Sears over the next three years. He said it would be the largest expansion of Sears stores in the company's 119-year history.
Sears shares rose 18 cents to $50.08 on the New York Stock Exchange -- up about 11% since the Kmart merger was announced Nov. 17.