BY SANDRA GUY BUSINESS REPORTER
Sears, Roebuck and Co. on Wednesday played down its shift of $191 million in costs related to an accounting change to the second quarter from the first after discussions with regulators. But an analyst who tracks Sears' cash flow is warning that the Hoffman Estates-based retailer is still maintaining too low a reserve for uncollectable credit-card accounts even as the company has posted two straight quarters of negative cash flow.
Sears' accounting change increases reported first-quarter results by 59 cents a share to 34 cents, and lowers second-quarter net income to 71 cents, according to amended filings with the U.S. Securities and Exchange Commission.
The move won't affect the earnings estimate for the year, spokeswoman Peggy Palter said. Sears first announced the cost in July, when the company said it changed the way it accounts for the allowance of uncollectible credit-card accounts, to be more conservative.
The decision to record the expense in the second quarter instead of the first came as a result of a "regular review" with the SEC, Palter said.
Sears has boosted its earnings expectations twice this year, and now expects 2002 profit to rise to $5.15 a share from $4.22 last year.
But Michael Markowski, director of research for StockDiagnostics.com, said Wednesday that Sears is risking uncollectible credit-card debt as the economy sours.
He noted that Sears reported $1.3 billion in revenue in the most recent quarter from financial products and services, consisting mostly of its Sears and Sears Gold MasterCard credit cards. But the same product line burned up $1.16 billion in operating cash in order to cover the credit-card receivables--the money shoppers owe when they use Sears credit cards, Markowski said. Sears spokeswoman Palter countered that the quality of Sears' credit-card portfolio is excellent, in particular its $8.5 billion in Gold Mastercard receivables.
"We don't think there is any credibility to (Markowski's) assessment," she said.
Also Wednesday, Sears said Cendant Corp.'s Avis Rent A Car System will run Sears' licensed rental-car business, pushing out Budget Rent a Car.
Sears Car Rental locations will be converted to Avis operations, and customers will be able to use their Sears credit card to rent from Avis, Sears said.
As many as 45 Avis locations are expected to open at Sears facilities by the end of January, with at least 100 more to follow over the next three to five years, Sears said.
Sears shares fell $1.16, or 2.89 percent, to $39.01 in New York Stock Exchange composite trading. They have declined 18 percent this year.
Contributing: Bloomberg News