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March / April '99

Atlanta Responds!

On April 20 with nine N.A.R.S.E. officers and directors attending (one from Phoenix!), an enthusiastic crowd of over 200 Atlanta retirees listened to dynamic remarks from keynote speaker Clif Hooks. Clif talked about what's happening at Sears, what has happened to retirees, and what we can do about it. Master of ceremonies Claude Irison then turned the microphone over to Bill Barker who discussed the Sears Annual Shareholders Meeting, then to the wildly spirited George O'Hare who shared some details planned for the meeting, and, finally, to Mel Schultz who presented an overview of the next "straight talk" communication.

Retiree Ken Winkler and club president Bobby Jones and his team worked so hard to do so much for us. We thank them up for their hospitality, their efforts, and the attitudes and fellowship of the members of our retiree family. They were wonderful. Let me give you but one example; Willie Williams who retired as a catalog order entry supervisor with over 47 years of Sears service will be at the shareholders meeting. See you there. 

Credit Drives Sears First Quarter Profits

Gregory Crawford
Reuters News Service

CHICAGO April 22 - Sears, Roebuck and Co. (NYSE:S - news), the second largest retailer in the United States, reported better-than- expected first quarter earnings Thursday as the company's credit business continued to improve, offsetting a slowdown in store sales.

Sears earned $146 million or 38 cents per share in the quarter ended April 3, on revenues of $9.01 billion.

A year ago, the Hoffman Estates, Ill.-based company earned $133 million or 34 cents per share, including a 6 cents per share accounting gain. Revenues in the 1998 first quarter totaled $9.23 billion.

Analysts surveyed by First Call Corp. expected the retailer to report earnings per share of 34 cents.

Sears said its earnings improvement was mainly due to improved performance of its credit business, which benefited from a lower provision for uncollectable accounts, a result of continuing favorable trends in portfolio quality.

``The domestic retail business continued to be very sluggish,'' said retail industry analyst Richard Church at Salmon Smith Barney. ``Therefore they had to rely more on the turnaround in the credit business.''

Credit revenues fell 6.6 percent in the period to $1.13 billion from $1.21 billion a year ago, but the company took a provision for uncollectable debt of only $291 million, compared with $394 million in last year's first quarter.

Church said he was confident that the momentum Sears has engineered in its credit business would continue but said credit can only drive profits for so long before weak sales hurt the bottom line.

Revenues from the company's retail and services units slipped 1.4 percent in the first quarter to $7.91 billion from $8.02 billion a year ago. Same-store sales rose 1.9 percent in the first quarter, compared with a 4.9 percent increase in the 1998 period.

Same-store sales were lower by 2.8 percent from lost sales related to the company's sale of its Homelife furniture stores and Western Auto auto parts stores.

``In retail, sales of durable goods continued at their strong pace, led by major home appliances and electronics in our full-line stores,'' Sears Chairman and Chief Executive Officer Arthur Martinez said in a statement.

He said sales of washers, dryers, refrigerators, big screen televisions and camcorders were strong.

``In softgoods, sales were led by women's specialty and children's apparel, jewelry, cosmetics and fragrances,'' Martinez said.

Stephen Latz, who follows Sears for A.G. Edwards, said he was not too concerned with the weak sales because the first quarter is typically soft.

``I do think they've got to drive more traffic into the stores,'' he said. ``The truth of the matter is, as far as the market is concerned, until Sears shows a little bit better profits on the retail side, the stock's not going to react.''

Sears operates 847 full-line stores and more than 2,100 specialty stores. The company's stock closed down 9/16 at 43 3/16 on the New York Stock Exchange. 

Lots of Words -- Very
Little Said

Orlando Speech Summary

April 22 - Clif Hooks, Pete McMahon, Rafe Viton, Ben Cubito, and Tim Stearns paid to hear Arthur Martinez's remarks pompously titled "transforming an American icon" at the "Retail Smarter in 99" symposium put on at the University of Florida.

The impressions garnered from Arthur's remarks are these: He is a highly skilled speaker who did not talk about his "transforming" subject. If anything, a sense of still wondering how to make the transformation permeated his remarks. This sense is supported by company performance statistics. There was little substance in his words. Arthur raised the subject of "stall points" and noted that every retailer has them. Although the expansion of womens’ was covered, an audience looking for crisp strategic directions had to walk away disappointed.

The "stall points" comment is interesting because of the difference between Sears and competitors like Home Depot, Target, Wal-Mart, etc.. They define "stall points" as times when breakneck growth slows to just solid or slow growth. Apparently, “stall points” at Sears last for years and are characterized by flat sales, profit decreases, a shrinking customer base, and long term growth frustrated by the erosion of assets sold.

There were 12 very high-priced Sears executives at the symposium listening to Arthur (2 Hoffman Estates Vice Presidents, one store general manager, one Hoffman Estates director, two Hoffman Estates managers, two region staff, two district general managers, two district staff). Considering their food, lodging, travel, symposium costs, a private jet (Arthur’s of course) and time away from the business that counts, the company probably spent $50,000 to have Sears people listen to very little for 40 minutes. By the way, Home Depot had two people attending. Here’s a thought; avoid 50 of these events a year and fund retiree life insurance benefits.  

Sears is Facing the Harder Side of Life

Chicago Sun-Times

CHICAGO, April 22 - Mayor Daley and executives from such companies as Baxter, Coca-Cola, BP Amoco and Ameritech have been to the University of Illinois in recent months to talk about managing their businesses. Thursday, it was Sears, Roebuck and Co.'s turn. "Competitive strategies" was the class, and there was Gary Bosak, Sears vice president of transformation initiatives, to talk about the cultural changes at Sears. "Where we are today isn't very far away from where we were in 1993," he told more than 100 students. Right now, he said, there's a "lot of wringing of hands" to fix what was, until last year, a textbook example of a corporate turnaround. But last year, Sears reported an 11.7 percent drop in new income and flat revenues. The retailer got "lazy" last year, and as a result "we're a face in the crowd again," Bosak said. "We have to reinvent ourselves one more time." Time is of the essence, he acknowledged, because if Sears has stalled in robust times, what happens in the next economic cycle? "The slightest downturn is going to create a world of activity we don't want to face," Bosak said. Sears appears to be face to face with two of the business absolutes, Bosak told the students: It's never over and it ain't easy.

Apparently, Mr. Bosak must also be in charge of corporate slogans. (Editor's Note)

Sears Quarterly Results In

Reuters Story - April 19, 1999

CHICAGO, April 19 (Reuters) - Shoppers were not especially kind to Sears, Roebuck and Co. in the first quarter, but the department store chain is still expected to meet first quarter profit expectations because of a strong credit business, analysts said Monday.

The second largest U.S. retailer is expected to report profits for the first quarter on Thursday. Analysts surveyed by First Call Corp. expect the Hoffman Estates, Ill., company to earn 34 cents per share compared with 28 cents last year.

Domestic same-store sales at Sears rose 2.6 percent in January, 0.8 percent in February and 2.1 percent in March, below gains recorded in the first three months of 1998 and well short of the increases seen this year at some rival retailers, most notably discounters and specialty apparel shops.

"What you'll see is very strong results from the credit operation offsetting weaker results in domestic merchandise," said Prudential Securities analyst Wayne Hood. "They had disappointing sales in January and February."

Sears' credit business has been improving over the last year or so after the company took heavy provisions for uncollectable debts.

The company took steps to tighten both collection measures and new credit procedures and in March named a new chief financial officer to replace Alan Lacy, who had been doubling as the company's top financial executive and head of its credit business.

At the time, analysts said the credit operations would continue to improve once Lacy was able to focus all of his attention on that business.

"I'll be looking to what they do in credit to see how that's progressed," said analyst Alan Mak at Argus Research.

He said he doubted the company would surprise investors with its quarterly results.

In late Monday afternoon trading on the New York Stock Exchange, Sears shares were off 6.25 cents at $42.375.  

U.S. Retailers Post Solid March Sales

CHICAGO, April 8 (Reuters) - U.S. retailers on Thursday reported solid sales for March, helped by an Easter holiday that fell one week earlier than last year and by continued strength in the domestic economy.

Sears Florida Settles Auto Battery Dispute

Reuters Story - April 6, 1999

HOFFMAN ESTATES, Ill., April 6 (Reuters) - Sears, Roebuck and Co. said Tuesday it agreed to pay $985,000 to the state of Florida to close a two-year-old investigation into claims the second largest U.S. retailer sold used automotive batteries.

Sears said in a statement the agreement with the Florida Attorney General's office would close the investigation into the purchase, distribution and sale of automotive batteries supplied by Exide Corp.

“Street Smart”

Smart Money Magazine, April 1, 1999

Lukewarm apparel sales, credit card woes and competition from discount retailers have hit Sears shares hard. Can it crawl out of the mark down band?

It's a brand name powerhouse...Asma Usmani, Edward Jones

YES Sears is dropping slow selling products and adding sought-after brands like Maytag and Benetton. Sales for the merchandise group will pick up. YES After a $475 million charge to cover delinquencies, it's credit card users are now a much better risk. Plus Sears has improved its payment collection system which is boosting credit card revenue. YES At $40 a share, it's just 11 times earnings estimates for 1999 and offers a yield of 2.4 percent. Companies this well known don't get much cheaper.

Earnings aren't going up...Patrick McCormack, Alex Brown

NO Merchandise sales will continue to be flat because the company competes against specialty retailers, like Old Navy for apparel and Lowes for home improvement. NO The percentage of customers using the Sears card has dropped, partly because of its near loan shark interest-rate of 21 percent, which many customers are unwilling to pay. NO Value doesn't mean much when the earnings don't improve. The last four years have offered ideal retail conditions, yet Sears earnings have been treading water since 1996.

Jeff Carigliano

Sears CEO Earnings Down 1.3 % .... Bonus Reduced to $980,088 ... Earned Less in 1998  ... How Awful!

CHICAGO, March 26 (Reuters) - Arthur Martinez, chairman and chief executive officer of Sears, Roebuck and Co., received a bonus last year but his overall compensation declined from 1997.

The proxy statement filed by the second largest retailer in the United States showed that Martinez earned $1.15 million in salary and another $980,088 in bonus in 1998, compared with $1.125 million and no bonus in 1997.

But in 1997, Martinez took home $511,974 in other annual compensation, which included, among other things, interest on deferred compensation.

Last year, his other annual compensation was $245,987.

In addition, Martinez received a long term incentive payment (LTIP) of $771,093 in 1997 but no payment last year.

Martinez's overall cash compensation in 1998 was down about 1.3 percent to $2.38 million from $2.41 million in 1997.

In 1998, Martinez received options to buy 137,515 common shares of Sears at $47.10. The options expire on Feb. 2, 2008. 

Author Arthur

Susan Chandler
Chicago Tribune, March 20, 1999

Fans of Sears, Roebuck and Co. Chief Executive Arthur Martinez won't be reading his book anytime soon. "The Hard Road to the Softer Side of Sears," was originally scheduled to be published last fall by Times Books, a subsidiary of Bertelsmann's Random House. Now, it's not going to come out until the year 2000 or later.

First, the book was delayed because the U.S. attorney in Boston hadn't finished an investigation of Sears' illegal collection of credit card debt from bankrupt Sears customers. However, that issue was resolved when Sears pleaded guilty to a single felony fraud count and agreed to pay a $60 million fine in February.

Now, the book is on the back burner because Martinez is more interested in fixing Sears' sagging retail business than writing a final chapter, said Sears spokesman Ron Culp.

"He's got other priorities right now. He won't be able to put in the time and effort until he gets the company where he wants it to be," Culp said.   

$154 Million Settlement By Sears in Credit Suit

Susan Chandler
Chicago Tribune, March 11, 1999

Sears, Roebuck and Co. has agreed to pay $154.5 million in cash and merchandise coupons to settle another class-action lawsuit related to its Sears credit card unit.

If approved by a federal judge in Chicago, the settlement will end litigation over higher interest rates Sears charged some customers when it created a company-owned bank in Arizona and uniformly applied a 21 percent interest rate to all outstanding credit card balances.

When Sears began moving accounts to its new bank in 1994, the retailer said that it would continue to apply lower interest rates in some states to balances that were racked up before the national bank was created.

But in 1997, Sears began charging a uniform 21 percent on all balances. Sears said it was fully within its rights to do so and told customers about the change.

Company officials acknowledged, however, that some customers may not have understood what was going on.

As part of the settlement, Sears admitted no wrongdoing.

"This settlement has been reached in order to avoid costly and time-consuming litigation," said Alan J. Lacy, president of Sears Credit.

"It also will assure our customers that we value their continued business and want them to be satisfied with Sears in all respects."

Here's how the payments will break down:

Sears will pay $36 million in cash and provide $36 million in merchandise coupons to 3 million customers who paid higher interest costs because of the rate change.

In addition, the retailer will provide merchandise coupons worth $118.5 million to a group of 11 million customers that includes the 3 million. Each of the 11 million customers will receive a merchandise coupon worth $7.50.   

Sears Settles Lawsuit for
$72 Million

Associated Press, March 10, 1999

Sears, Roebuck and Co. has agreed settle a class-action lawsuit, by paying millions of dollars in cash and coupons to 11 million of its credit card holders.

The disagreement began when balances on credit cards were transferred to one of its subsidiaries, the Sears National Bank, Sears said Tuesday. The new bank increased the credit card's annual percentage rate.

Card holders said that was unfair. They claimed Sears had made a commitment to not increase the APR. But Sears said it didn't do anything wrong and that card holders didn't understand the company's information on the terms of the change in credit.

Under the settlement, which still must be approved in U.S. District Court, Sears will pay $72 million in cash and coupons to about 3 million customers -- or about $23.80 each.

The combined amount of cash and coupons is 50 percent of the estimated incremental APR class members have paid and are expected to pay as a result in the change in credit terms, the company said.

The agreement also calls for Sears to send coupons worth $7.50 to all 11 million class members and to pay about $3 million for consumer counseling, protection and education, the company said.

Sears, based in the Chicago suburb of Hoffman Estates, has 845 full-line department stores and more than 2,000 off-the-mall stores nation.  

February Retail Sales Track Ahead of Estimates

William Borden

NEW YORK, March 4 (Reuters) - Discount stores paved the way for better-than-expected sales at retailers in February, company figures showed on Thursday, as a healthy economy kept people shopping.

``People have jobs and people are spending. It's just an excellent macro(economic) environment for retail sales,'' Fahnestock & Co. analyst William Armstrong said.

``The numbers have been very good for February,'' Alan Mak, analyst at Argus Research said.

Stores posting good sales figures included Gap Inc.(NYSE:GPS - news), Wal-Mart Stores Inc.(NYSE:WMT - news), and Dayton Hudson Corp.'s(NYSE:DH - news) Target division, Mak said.

Wal-Mart and Dayton Hudson ``are very well-oiled machines at this point,'' Mak said.

Gap's sales at stores open more than a year increased 12 percent on top of a 14 percent increase last February and total sales increased 32 percent to $548 million.

Wal-Mart's same-store sales increased 10.3 percent in February, while Dayton Hudson's increased 8.3 percent including a 9.7 percent rise at Target.

The BT Alex. Brown Same-Store 100 Index increased 6.9 percent in February. Last February, the index showed a 6.1 percent increase.

The Standard & Poor's retail stock index rose 1.13 percent, or 9.88 points to 886.42.

When surveying the market for retail stocks, Armstrong said he has been looking at the small and mid-cap retailers, which have been trading at moderate multiples relative to their growth rates.

Many of the big cap retailers are expensive, Armstrong said, noting that they are trading at huge premiums to their growth rates.

``No portfolio manager has ever been fired for owning Gap, Wal-Mart or Home Depot. Those are quality names, but they are very expensive,'' Armstrong said.

Claire's Stores Inc.(NYSE:CLE - news) shares reached a 52-week high of $25.50, up $1.375, after it reported a 12 percent increase in same-store sales.

Dayton Hudson shares rose 3.45 percent, or $2.1875, to $65.5625.

Saks Inc.(NYSE:SKS - news) shares fell $3.125 to $32.875 after it reported flat same-store sales in February.

Major retailers reporting February same-store sales included: -- Sears, Roebuck and Co.(NYSE:S - news), up 0.8 percent. -- J.C. Penney Co Inc.(NYSE:JCP - news), down 0.4 percent. -- Macy's and Bloomingdales parent Federated Department

Stores Inc.(NYSE:FD - news), up 1.0 percent. -- Limited Inc.(NYSE:LTD - news), up 13 percent -- Best Buy Co.(NYSE:BBY - news), up 10.8 percent -- Dillards Inc.(NYSE:DDS - news), up 2 percent

-- AnnTaylor Stores Corp.(NYSE:ANN - news), up 21.4 percent -- CostCo Cos. Inc.(Nasdaq:COST - news), up 10 percent.  

Sears Names as Chief Financial Officer Day, Who Helped Revive Safeway Inc.

Scott Kilman
Wall Street Journal, Mar 5, 1999

Julian C. Day may be unusually qualified to be the next Chief Financial Officer at perpetually struggling Sears, Roebuck and Co. He knows how to play through pain.

The 46 yr. old British born and educated corporate turnround specialist broke his shoulders playing rugby as a younger man and toughed it out.

Mr. Day, who also runs half marathons and surfs, was named yesterday after a months long search to the Sears posts of Executive Vice President and Chief Financial Officer, effective March 22.

Mr. Day who couldn't be reached for comment at his San Diego residence, became a hot property for executive recruiters last June after he left Safeway, where as Executive Vice President and chief financial officer he was key to the super- market giant’s recent recovery.

During Mr. Day’s five-year stint at Safeway he re-financed debt and slashed bloated back office costs by, among other things, installing a streamlined data-processing system.

"Calling Julian Day just a chief financial officer is like calling a Bentley just a car." Said Mark Husson, a supermarket analyst at Merrill Lynch, and himself a Briton.

Sears stock shone yesterday in broadly higher markets, jumping $3.125, or 7.7 percent, to $43.75 in New York Stock Exchange composite trading.

The appointment at Sears fills a vacancy created last August when Gary L. Crittendon left for Monsanto Co. after a two-year stand with the company, making him part of an exodus of top talent from the old line retailer in 1998.

Sears is struggling because the turnaround engineered by Chief Executive Officer Arthur Martinez a couple years ago is losing steam despite the strong U. S. economy. Sears is still being undercut by discounters and outclassed by traditional department stores. It's big credit card business, too, has problems; competition from Visa and MasterCard issuers for Sears best customers, and a higher level of loan losses from lower income borrowers.

Sears said yesterday that its domestic store sales totaled $1.89 billion in February down 4.6 percent from February 1998.

Mr. Day came to Safeway, Pleasanton, California, in 1992 through his work as a consultant to Kohlberg Kravis Roberts and Co., the New York investment firm that helped take Safeway private in 1986, and continued to be a big holder after Safeway went public again in 1990. Mr. Day had fixed a Chicago commercial printing company in which KKR had invested.

Kevin Hanrahan, vice chairman of Crist Partners LTD., a Chicago executive recruiting firm, said Mr. Day left Safeway on friendly terms because there was little chance he would get the top job there anytime soon. Mr. Day is three years younger then Stephen A.Berg, Safeway Chief Executive Officer.

At Sears, Mr. Day will be one of four Executive Vice Presidents and report to Mr. Martinez, who is 58. A Sears spokesperson said the company doesn't have a designated successor.

Jim Drury, vice chairman of Spencer Stuart, the executive recruitment firm used by Sears, said Mr. Day studied classical Japanese literature in college. Mr. Day’s first business foray was in aquaculture, or fish farming, before he became a management consultant at McKinsey and Co. in London.

Alan Lacy, president of Sears credit card business, acted as interim chief financial officer during the executive search.

An irreverent Chicago retiree reacted to the Wall Street Journal article announcing Julian Day as the chief financial officer of Sears. Day’s qualifications as reported by the Journal and as perceived by the Retiree follow:

Wall Street...British turnaround specialist who broke his shoulder playing rugby.
Retiree... Arthur’s turnaround is broken.

Wall Street... Mr. Day also runs half Marathon's.
Retiree... Sears is on a full speed downhill Marathon.

Wall Street... Mr. Day is a surfer.
Retiree... Arthur is good at making waves.

Wall Street...Mr. Day’s formal education was the study of classical Japanese literature.
Retiree... this may be the perfect education for the study of the "softer side of Sears".

Wall Street...his first business foray was in aquaculture, or fish farming before becoming a consultant.
Retiree.... right on -- Sears is underwater and the strategy smells fishy.

Wall Street...Mr. Day’s claim to fame is re-financing debt and installing a streamlined data processing system at Safeway.
Retiree... Deja vu on both issues at Sears. Good going Arthur, the last financial man transferred to Hoffman Estates was given the responsibility to fix sales.

Wall Street...Mr. Day’s British supermarket analyst friend calls him a Bentley.
Retiree... from his resume, I would call him a Land Rover.

Wall Street...pre-Safeway, Mr. Day he was a consultant.
Retiree... he will feel right at home with Arthur’s gang of consultants at Hoffman Estates.

Wall Street...Mr. Day fixed a Chicago printing company.
Retiree...might this indicate Sears will revive the big book?

Wall Street...Mr. Day left Safeway because the Chief Executive Officer was only three years older than Mr. Day. Therefore, he would not be in line for the big chair.
Retiree...Arthur is 13 years older than Mr. Day. Did Arthur promise Mr. Day the chair when he bales out? If he is Arthur’s heir apparant, hopefully his green card is renewable and he does not have a disdain for retirees.

Retiree- considering the "revolving door" ... any wagers on Mr. Day's tenure at Sears?

AARP Comes Through for NARSE Big Time!

The AARP Foundation has sent a very substantial check to our attorneys in support of Sears retirees and the legal position taken against Sears on the loss of our life insurance benefit.

AARP Foundation Director, Anne Harvey, said in her letter “AARP has taken the position that employees should be considered vested in retiree welfare benefits as they are in private pensions. AARP believes that an employer’s promises to its retirees should not be broken.”

Ms. Harvey went on to say “We applaud your recent victory for class certification, and hope to continue to assist the retirees throughout this litigation ........... We are confident that the retirees will regain these benefits which are important to so many of them.”

Bravo to Ms. Harvey and her Foundation and AARP! Their support, their commitment to our future, and their words mean so much. We thank them. It would be so appropriate if Sears retirees, as individuals, took a minute to express their thanks to AARP at the AARP Foundation at 601 E Street, NW Washington, DC 20049. Let’s do it.