Sears, the third largest retailer in the US and owner of Kmart, has reported a 99 per cent plunge in third quarter profits to just $2 million, blaming increased competition and weaker consumer spending.

The company said that the $2 million compares with $196 million in the same quarter last year and was earned on revenues down just $400 million to $11.5 billion.

While Sears said that both rival retailers and the "unseasonably warm weather" had impacted sales, it also cited "a weak housing market and growing consumer credit concerns" for the steep fall in profits.

Growing evidence that consumers are belt-tightening coincided with comments made by Ben Bernanke, the Federal Reserve chairman, who, while optimistic that people will continue to spend and therefore help stave off a recession, said individuals are likely to become more cautious.

Mr Bernanke also hinted that the Fed would be willing to cut interest rates again as the American central bank is “exceptionally alert and flexible” to stop a sharp slowdown in consumer spending which could kick-start a US recession.

Fed policymakers will meet on December 11, the last session of the year, to make a decision on interest rates.

At Sears clothing, which accounts for 30 per cent of its turnover, was hit hardest because competition forced heavy discounts to shift a backlog of garments. Price cutting on clothing will continue to put pressure on margins in the fourth quarter.

The company also saw poor sales of furniture, in particular outdoor goods, during the third quarter. Furniture and appliances accounts for 40 per cent of sales.

Aylwin Lewis, Sears Holdings' chief executive officer 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."

The company was formed in 2004 through an $11 billion merger between Sears Roebuck and Kmart, in a deal mastermined by former Goldman Sachs banker turned hedge fund billionaire investor, Edward Lambert.

Mr Lambert rescued Kmart from bankruptcy in 2002 before merging the group with Sears Roebuck to create America's third largest retailer behind Wal-Mart and Home Depot.

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