Improved sales at Kmart helped Sears Holdings in the fourth quarter. (AP File) By Sandra M. Jones | Sears Holdings Corp. posted its best quarterly profit in three years, fueled by improved sales at Kmart and year-earlier write downs. The owner of Sears and Kmart says it earned $430 million, or $3.74 per share, during the fourth quarter. That’s up from a profit of $190 million, or $1.55 per share, during the same period last year. Sears hasn’t had such a strong quarter since the fourth quarter of 2006, when it earned $820 million. A 1.7 percent increase in Kmart same-store sales marks the second consecutive quarter of improved performance at the discount chain. Kmart sales rose as cash-strapped shoppers bought more toys and home goods. It also reflects a sales boost from assuming footwear operations from a third party in January 2009. . See also • Read chairman Edward Lampert’s annual letter • Macy’s profit up despite falling sales

In contrast, same store sales at Sears stores in the U.S. fell 6.1 percent, driven by declines in its core home appliance business along with a fall off in lawn and garden and home electronics sales.
 
“I recognize that our financial results, while substantially improved from 2008, remain well below where we would like them to be,” said Sears Chairman Edward Lampert in his annual letter to shareholders.
 
Lampert, the majority shareholder in Hoffman Estates-based Sears, has no investor relations department and rarely speaks publicly, making his yearly letter one of the few times he puts forth his point of view.
 
The 13-page letter highlighted Sears online business, one of its bright spots and discussed pension reform, a steady thorn in Lampert’s side, given Sears’ large pension expense. It also  took the credit agencies to task once again for not giving Sears a higher rating and advocated for less government regulation as a way to create jobs.
 
Lampert also praised Amazon and eBay for their prowess and suggested that online merchants have an unfair advantage because they don’t have to collect sales tax — a debate the retail industry has been having for years.
 
Under Lampert’s aegis, Sears has dramatically cut back spending on maintaining and improving its stores. But, the hedge fund manager outlined areas he sees worth investment that he believes “will yield to long-term growth and attractive returns.” They include the online business, home services, the marquee Kenmore and Craftsman and Lands’ End brands, as well as the smaller format Hometown, or dealer, stores and outlet stores.
 
Sears closed 27 stores in the fourth quarter and 62 stores for the full fiscal year.
 
“Most of those stores have underperformed for some time and, despite focused efforts  to improve them, we felt that we could no longer afford to wait for those stores to turn around,” Lampert said in the letter. “With expiring leases, we have been able to reduce our money-losing stores while at the same time generating cash from the liquidation of inventory.”
 
Excluding one-time items, the company’s fourth-quarter profit amounted to $3.69 per share. Revenue for the three months that ended Jan. 30 dipped less than 1 percent to $13.25 billion.
 
Analysts surveyed by Thomson Reuters expected the merchant to earn $3.54 per share on revenue of $12.90 billion.

Those estimates typically exclude one-time items.
 
Cash at year end increased to $1.7 billion from $1.3 billion.
 
Credit Suisse analyst Gary Balter said in a Tuesday report that in spite of the improved quarterly performance, rivals Home Depot and Lowe’s — which have been spending money to improve their stores, are still gaining share from Sears.
 
“If one were to read Mr. Lampert’s letter accompanying Sears’ earnings release this morning, one would sense a tone of victory throughout the letter,” Balter said in the report. “While we will resist the temptation to compare it to the U.S. hockey team declaring a similar victory despite only winning a preliminary round game, we would just say that both may be overconfident.

“The road for Sears from here is quite different than the road we believe Home Depot, Lowe’s and other cheaper (stocks) will take over the next few years,” he said.

Sears had an easy comparison with the year-ago quarter when $336 million in charges related to asset impairments and costs associated with stores closings and severance cut into profit. Operating income was $749 million in the quarter ended Jan. 30 compared to $325 million for the year-ago quarter.

Sears Holdings operated 3,921 stores as of Jan. 30 up from 3,918 a year ago.
 
The number of Kmart stores fell to 1,327 from 1,368 and full-line Sears stores shrunk to 908 from 929, while the number of specialty Sears, or small format, stores have risen to 1,284 from 1,233.
 
– The Associated Press contributed to this report