updated 12/6/2005 9:58:16 AM ET 2005-12-06T14:58:16

Sears Holdings Corp. posted a $58 million third-quarter profit Tuesday that topped Wall Street’s expectations but was down sharply from the combined showing a year ago of Kmart and Sears, Roebuck & Co., its two main components.

Comparable sales at both Sears and Kmart stores declined for the quarter, continuing a sales slump. But the company’s stock rose more than 5 percent in morning trading.

Net earnings for the three months ended Oct. 29 were $58 million, or 35 cents per share, down from $150 million, or 93 cents, for Sears and Kmart combined a year ago. Kmart acquired Sears, Roebuck and Co. earlier this year for $12.3 billion and renamed the enlarged retailer Sears Holdings.

Analysts surveyed by Thomson Financial had expected the Hoffman Estates, Ill.-based company to earn 28 cents per share.

Adjusting for the effects of the merger and excluding certain items such as large 2004 gains on the sale of assets, the company said its earnings would have improved to $426 million from $396 million a year earlier.

Revenue was $12.2 billion, well below the $12.9 billion estimated by analysts. That compared with a combined $12.8 billion for the two companies in the same period a year ago.

“While we have made some progress in our operating performance, we need to continue making the changes necessary to drive even more significant improvement,” Chairman Edward Lampert, who eschews the traditional conference calls with analysts and investors, said in a letter to shareholders.

Lampert, who engineered the acquisitions of Kmart and then Sears, dismissed continuing criticism by “so-called experts” and “vocal doubters” about the company’s retail struggles.

“I am pleased with the progress we are making at Sears Holdings,” he said. “We are hiring great people, creating a winning culture and focusing relentlessly on profitability. ... We will continue to get better, which also entails recognizing the mistakes we make and correcting them.”

The company announced a shakeup of its merchandising divisions a day earlier and said its apparel chief, Gwen Manto, has left the company, replaced by Peter Whitsett, who had been Kmart merchandising officer. Lampert called the apparel results in Sears stores disappointing and said changes will be made by spring to adjust to customer preferences.

He also strongly endorsed the company’s Lands’ End unit, which some experts had said could be sold, calling it a world-class brand that is being embraced by customers in early results from its new format inside Sears stores.

Sears had restructuring charges of $59 million in the quarter, including $53 million from the layoff of 1,200 employees at Sears Canada and $6 million for continuing employee-related costs related to the integration of Kmart and Sears.

Sears owns approximately 2,300 full-line and 1,200 specialty retail stores in the United States and owns 54 percent of Sears Canada Inc., a 370-store operation in that country. The company said Monday it intends to spend $720 million to acquire the remaining 46 percent of Sears Canada.

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