Sears annual meeting touts improved results, new plans - Sears, Roebuck and Co

Discount Store News, June 6, 1994

CHICAGO - Sears continues to add brands to its assortment as part of its revitalization, with the focus now on the home fashion area.

The retailers; sharply improved fortunes enabled chairman Edward Brennan to deliver an upbeat report at the annual meeting where the atmosphere was a marked change from past confrontational gatherings.

At the meeting, attended by only 350 people and completed in just 90 minutes, Brennan said the retailer's accomplishments put it "at the right place at the right time on the |value' equation.

"We're in the best position of any retailer or insurance company to deliver that value to our customers," he said.

Sears' $4 billion, five-year capital program to expand and renovate stores and reach its core customer - typically a middle-income woman 25 to 54 years-old and her family - is on schedule. This year the plan calls fro renovating more than 150 full line stores in malls and opening more than 220 free-standing specialty stores.

The mall store revamping includes adding cosmetics departments, with about 100 due each year over the next three years. Sears re-entered the cosmetics business last year with 22 sections.

The new free-standing specialty stores include 27 hardware units, 30 Homelife furniture stores, 125 appliance and lawn & garden units owned by independent dealers in rural areas once served by catalog stores, and 40 Western Auto, NTW and Tire American units.

Separately, Sears will continue to develop specialty catalogers, either on its own or with third parties. These mini-books replace the Big Book catalog phased out last year as a key element in the revitalization of the Sears Merchandising group.

That effort, engineered by the group's head, Arthur Martinez, included closing 113 stores, cutting unprofitable lines and sharply cutting back the number of workers.

The home fashion remake now underway should result in brands accounting for 60% of the mix. The retailer envisions adding about a dozen more national lines in other departments during the next two years.

The results of last year's revitalization drive, Brennan said, was net income for the group of more than $750 million - "substantially above our plan" - compared to a loss from continuing operations in the prior year of $1.5 billion. "Same-store sales increased 9.1%, a larger increase than those reported by Wal-Mart, JCPenney, The May Co., Kmart and Dayton Hudson," he added.

Reducing merchandising expenses remains a priority. The ratio for core merchandising operations declined to 25.4% in 1993 from 26.6% a year earlier. Sears' sales momentum "continued in the first quarter, with strong revenue gains across all lines, same-store sales up 13% and profits more than double last year," he added.

Shareholder support for Sears' management was evident.

Stockholders overwhelmingly defeated a proposal by dissident shareholders to spin off Allstate Corp., the insurance subsidiary that is 80% owned by Sears. In the past, Sears divested its Dean Witter and Coldwell Banker divisions, closed its catalog operation and sold a 20% stake in Allstate in response to stockholder and institution investor who pressed the retailer to boost profits.

That restructuring raised more than $4 billion, with more than $3 billion used to pay down corporate debt. The remainder was used to improve the capital position of Allstate and dean Witter (prior to its pin-off).

The divestitures reduced Sears' total debt, including securitization, from $52 billion to $23 billion. Most of the debt supports receivables fro Sears' charge cad, so the retailer is "virtually debtfree," Brennan said. "Importantly, our debt-to-equity ratio was cut almost in half, a key competitive advantage in growing our ore businesses successfully."

Revenues of the home group composed of the Brand Central home improvement and furniture businesses increased by 11.5% he noted. Sears' hard line business was so strong that apparel's share of sales grew only 2% to 29%, much less than the retailer's planned 40% share.

The trouble auto business "was simplified" to focus on tires, batteries and related services. Sears intends to remain N. 1 in tires and batteries and become the leader in shocks, brakes and front-end service.