Two of the nation's largest retailers -- Sears Roebuck & Co. and J.C. Penney -- today reported huge declines in first quarter profits. Both companies blamed the drop on consumer confusion created by federal credit controls.
Sears, the nation's largest retailer, reported a 60 percent drop in profits while Penney, the fourth largest retailer, reported a drop of 58.9 percent.
Sears Chairman Edward R. Telling told stockholders at their annual meeting here that consumers were "confused" by federal credit policies. "I don't think that confusion had to exist," he said.
Telling said Sears did nothing to limit the use of credit cards, but noted that credit purchases declined sharply after the Federal Reserve Board announced plans to discourage consumer borrowing.
"People thought they could buy a refrigerator and be an excellent citizen if they bought it on closed-end credit, but if you designed to clothe your children and did it on open-end credit you were evil," Teller told a news conference after the meeting.
In San Francisco, Penney Chairman Donald V. Seibert told his company's annual stockholders meeting a similar story. Seibert said the first quarter sales reflected the state of the economy. In addition, he said, "consumer confusion and apprehension also followed the announcement in March of the Federal Reserve's program of credit controls."
Sears' first-quarter earnings were $59 million (19 cents per share) compared with $150 million (47 cents per share) in the first quarter of 1979. Penney earnings for the first quarter were $14.5 million (21 cents per share) compared with $35.3 million (51 cents per share) for the first quarter last year.
Telling said high interest rates cost Sears $100 million more this year than last year and had "a major impact on profits." Reporting the separate details of its credit card business for the first time, Telling said Sears lost $12 million on credit transactions during the quarter because the company had to pay more to borrow money than it charged customers on their accounts.
Seibert told a news conference after the stockholders' meeting he expected a better profit performance later in the year, but that the company does not look for a general recovery in consumer spending until the first or second quarter of 1981.
Sales of Sears' U.S. stores totaled $3.5 billion for the three months ended April 30, up only $50 millin from a year ago, and the company lost $7 million on retail operations, compared with a $47 million profit last year.
Profits also were down because the company had to pay $11 million in customs duties on imported television sets that was not properly paid when the sets were brought into the country.
Sears' Allstate Insurance companies turned in a $110 million profit for the quarter, up from $89 million a year ago. Allstate Chairman Archie Boe said, however, that Allstate's customers could expect about a 10 percent increase in car insurance premiums this year because of increasing costs.
Telling said Sears' board might have to reconsider its dividend policy if earnings continue to fall short of the payout level. But he noted the first quarter is traditionally the least profitable for retailers and said he expected the rest of the year to be better.
Telling said Sears' economists now are predicting a serious recession that will continue at least until the first quarter of 1981. Sears' fortunes are closely tied to the prosperity of the auto and home building businesses, company executives said. New home purchases traditionally lead to other expenditures for appliances and household items that account for much of Sears' business.
"Sears sales have suffered in markets where car manufacturers and their suppliers are dominant," Telling said. "The company's midwestern territory has been substantially affected by plant closing and layoffs in the automotive industry."
The retail giant's strategy for coping with the recession was outline by Edward A. Brennan, who last month became president of the chain with responsibility for its merchandising operations.
Brennan said Sears has lowered prices of its cheapest lines of merchandise so they "are now highly competitve with discounters," (discount department stores).
Brennan said Sears is giving increased emphasis to lower priced merchandise to pull customers into its stores. Sears' cash registers rang up 700 million separate transactions last year, but that was slightly fewer than the year before, Brennan said.
Telling said high energy costs also are causing trouble for Sears because "consumers are making fewer trips to the store than in previous years. Even though they buy more each trip it is still to be determined whether current merchandising approaches can produce the same sales volume we had before high gasoline prices."
The gloomy report on Sears' profits and predictions drew little reaction from the 1,000 or so shareholders who attended the annual meeting at Kansas City's Crown Center.
The representatives of several religious groups criticized the company for continuing to sell products made by the J. P. Stevens Co., the target of a boycott by union and church groups. Telling said Sears was not about to get involved in the dispute.
Another major retailer, G. C. Murphy, reported absolutely flat earnings for the first quarter. Murphy reported net income of $1.4 million (36 cents per share) for the quarter, exactly the same as the first quarter of 1979.
F. W. Woolworth Co. reported an increase of more than 200 percent in first quarter earnings, but most of the increase was the result of a $200 million tax refund from Great Britain. Woolworth reported worldwide net income of $25.8 million (84 cents per share) compared with $8.8 million (27 cents per share) in the first quarter of 1979.