Sears, Roebuck & Co., the nation's largest retailer, yesterday reported profit declines of 10.4 percent for 1985 and almost 2 percent for the fourth quarter.

Most of the retreat was attributed to flat retail sales in "the most competitive environment in retailing history," said Chairman and Chief Executive Edward A. Brennan.

Also yesterday, Pennzoil Co. reported a fourth-quarter loss and a drop in its 1985 net income, PepsiCo Inc. posted a slight drop in fourth-quarter net income and increased full-year earnings compared with 1984, and Greyhound Corp. said net income was lower for the quarter and for the year.

Sears recorded fourth-quarter profits of $552.3 million ($1.50 a share) compared with $563.1 million ($1.54) in the comparable period a year earlier. Revenue increased to $12.07 billion from $11.37 billion.

For the full year, profits declined to $1.30 billion ($3.53) from $1.45 billion ($4.01), and revenue advanced to $40.72 billion from $38.83 billion.

The company's merchandise group reported unchanged fourth-quarter revenue at $8.18 billion, but a decline in profits from $446.5 million to $384.5 million. Annually, revenue was only slightly better, $26.55 billion in 1985 compared with $26.51 billion the year before. Profits for the year were $765.7 million, down from $905.2 million in 1984.

The Sears Allstate insurance group's profits also declined for the year, from $660.7 million in 1984 to $604.8 million in 1985, which the company said was "one of the worst storm-loss years in history."

Earnings improved for the company's financial services and real estate divisions. Dean Witter Financial Services Group earned $13.1 million in 1985 compared with a $32.7 million loss a year earlier, and the Coldwell Banker Real East Group earned $86.1 million, up from $75.8 million. Pennzoil Co. reported a loss of $41.1 million ($1.12 a share) for the fourth quarter of 1985, compared with a similar loss of $49.4 million ($1.16) for the comparable period of 1984.

Quarterly earnings from continuing operations were $33.9 million (69 cents a share). But continuing weakness in the metals market prompted the company to increase by $75 million its provision for loss in connection with the disposition of its discontinued metals operation.

The 1984 fourth-quarter results included an initial write-off of the Houston company's base metal operations.

Net income for 1985 was $113.2 million ($2.20 a share) down from $130.5 million ($2.23) for 1984. PepsiCo Inc., the nation's second-largest soft drink maker, said that its fourth-quarter net income edged down 0.3 percent from a year ago on a 10 percent gain in sales. For the full year, net income more than doubled. However, 1984 results were depressed by a one-time restructuring charge of $156 million.

Fourth-quarter net income fell to $89.3 million ($1 a share) from $89.6 million (95 cents) in the same period of 1984. The most recent quarter included a $15.7 million loss from discontinued operations as operating income rose 23 percent to $105 million. Sales rose to $2.42 billion from $2.196 billion.

In all of 1985, net income rose to $543.7 million ($5.83) from $212.5 million ($2.25) in 1984 on an 8 percent increase in sales to $8.057 billion from $7.45 billion. Greyhound Corp.'s fourth-quarter net income was $34.8 million (73 cents a share) compared with $36.6 million (75 cents) for the same period last year. For the year, net income was $120.1 million ($2.48) compared with $125 million ($2.56) a year ago. Earnings for 1985 were charged with a previously announced special provision for losses of $19.5 million (41 cents) by Greyhound Leasing & Financial Corp.

Consolidated revenue for 1985 was $2.5 billion compared with $2.2 billion for 1984. That reflected the acquisition of the Consumer Products Division of Purex Industries on March 1. Combined revenue, which include revenue of the unconsolidated Financial Group, rose to $3.3 billion from $2.8 billion in 1984.