updated 9/8/2005 9:58:20 AM ET 2005-09-08T13:58:20

Sears Holdings Corp., the No. 3 U.S. retailer, named Aylwin Lewis to replace Alan Lacy as chief executive on Thursday and reported a $161 million profit from its first full quarter following Kmart Holding Corp.’s acquisition of Sears, Roebuck & Co.

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The second-quarter results reflected continuing sales declines at both chains and fell well short of Wall Street’s expectations. The company’s stock dropped after the news.

Chairman Edward Lampert named Lewis, the former head of Kmart and of Sears’ retail business, to take over as CEO and president of the Hoffman Estates, Ill.-based company effective Sept. 30. He will have responsibility for the company’s 3,900 stores as well as home services, finance, legal, supply chain, information technology and human resources.

Lacy headed Sears, Roebuck & Co. from 2000 until its March acquisition by Kmart and was CEO under Lampert for the past six months. He will continue to serve as vice chairman and a director, and as a member of the office of the chairman.

“Alan, Aylwin and I believe these changes will achieve greater clarity in our operating management and align this corporate structure with our vision of Sears Holdings,” Lampert said in a statement. “Our goal is to build one company with multiple ways of connecting with our customers, including our various store formats, online offerings, service relationships, and credit products.”

During his tenure, Lacy overhauled the layout and inventory of Sears’ full-line stores, bought the Lands’ End specialty catalog and sold the credit division to Citigroup. But he was unable to stem Sears’ long-term sales slump.

Sears’ second-quarter net income grew to $161 million, or 98 cents per share, from $154 million, or $1.54 per share, a year ago. The latest period includes $42 million of restructuring costs related to the merger.

Analysts polled by Thomson Financial were expecting earnings of $1.36 per share.

Total revenue rose to $13.19 billion from $4.8 billion last year, due primarily to the addition of Sears Roebuck revenue of $8.6 billion. Kmart revenue decreased due to a reduction in the number of stores and a decline of 0.3 percent at stores open at least a year, also known as same-store sales.

Sears Roebuck domestic sales declined 3 percent for the quarter, with same-store sales down 7.4 percent despite strong home appliance sales. The company attributed the drop to efforts to improve gross margin by reducing reliance on promotional events and reducing inventory levels to lower costs.

Despite the drop in Kmart’s same-store sales, the company said the decline has lessened and several businesses, including apparel, had positive same-store sales during the quarter.

Sears Holdings said about 20 Sears and Kmart stores and facilities located in Louisiana and Mississippi were damaged by Hurricane Katrina. The company expects the majority of any losses to be covered by insurance.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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