Sears profits sink; shares plummet 11%

Eddie Lampert’s sore lack of shopkeeping savvy is showing again.

Sears Holdings — which is controlled by the reclusive Connecticut hedge-fund tycoon — posted a 38 percent drop in first-quarter profit yesterday on a slight revenue decline, as steep markdowns on appliances squeezed margins.

Shares of the Chicago-based owner of the Sears and Kmart chains plunged 11 percent to $88.70, making it yesterday’s worst performer in the Standard & Poor’s 500 index in a day when stocks fell steeply amid the European debt crisis.

Shoppers flocked to Sears stores this spring to capitalize on government-subsidized discounts on energy-efficient refrigerators, ovens and washer/dryers, helping nudge the chain’s comparable sales figures 1.2 percent higher — their first quarterly increase in several years.

Nevertheless, customers hauled off the appliances without shopping elsewhere in the stores. Sales of higher-margin tools, electronics, home furnishings and clothing continued to deteriorate.

“Not being able to show improvement when the [economy] is going in their favor should be taken as a worrisome sign,” said Gary Balter, an analyst with Credit Suisse.

Balter partly blames Sears’ woes on Lampert’s stubborn refusal to spend money on remodeling stores and hiring more store staff, which continues to send customers fleeing to rival chains.

Lampert, meanwhile, has consistently portrayed himself as an industry maverick, questioning competitors’ traditional strategy of regularly upgrading their chains. Insisting that cash can be deployed more effectively, Lampert has told investors his penny-pinching strategy will pay off in the long term.

In the meantime, Sears’ rivals appear to be benefiting, as government rebates, favorable spring weather and improving consumer confidence helped fuel increased sales and profits at competitors like Lowe’s and Home Depot.

Sears yesterday reported $16 million in net income as revenue dipped to $10.05 billion from $10.06 billion a year earlier.