Sears Holdings, the US retail giant, today reported a 99 per cent fall in third-quarter profits on weak sales at its Sears and Kmart department stores and continuing investment losses under chairman Eddie Lampert. Its stock plummeted.

It was the worst quarter since Mr Lampert formed the company by combining Sears and Kmart in March 2005 and far below Wall Street’s expectations. The figures again raised doubts over Mr Lampert’s strategy for reviving the two faded chains.

Shares in Sears tumbled $16.09, or 13.8 per cent, to $100.25 in morning trading. The stock is down by nearly half from its peak of $195.18 in April.

The company said net income fell to $2 million, or a penny per share, from $196 million, or $1.27 per share, a year ago when results were padded by $64 million in investment gains.

Sales for the three months to November 3 slipped 3 per cent to $11.5 billion, from $11.9 billion a year earlier.

Aylwin Lewis, the Sears Holdings chief executive and president, said: “We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments.

"We have much on which to improve and are working hard to do so.”

Morgan Stanley analyst Gregory Melich called the numbers “worse than even we thought”.

Like-for-like sales fell 4.2 per cent for the quarter at Sears stores and 5 per cent at Kmart.

Sears blamed the weaker sales on increased competition, less consumer spending because of the weak housing market and growing credit concerns and unseasonably warm weather, which hurt sales of apparel and other seasonal merchandise.

Investment income had initially carried the company to higher profits under Mr Lampert but that trend has long stopped, leaving it with no buffer for weak sales.

Sears had $30 million in interest and investment losses for the quarter, pushing its losses for the year in that category to $112 million.

Cash and cash equivalents declined to $1.5 billion at the end of the quarter, down from $2.1 billion a year ago and $4 billion on February 3. Gross margin declined 90 basis points to 27.4 per cent, hurt by markdowns taken to clear seasonal merchandise and higher inventory levels due to lower sales.

Sears, which has 3,800 stores, also warned it expects difficult economic conditions to persist in the near-term, with sales and gross margin likely continuing to be pressured through the rest of the year.

For the first three quarters, profits were $394 million, or $2.66 per share, down from $670 million, or $4.29 per share, a year earlier.

Revenue declined 3 per cent to $35.5 billion from $36.7 billion.

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