Sears Deep-Sixes Cosmetics Business

Sears Roebuck & Co., moving to shift its business strategy for full-line stores, said it will exit its skin-care and color cosmetics business, including the proprietary Circle of Beauty brand, and will take a charge in the second quarter related to the move.

As a result of the retailer’s full-line store repositioning, Sears said Tuesday that it reached an agreement with Avon Products Inc. not to proceed with the launch of Avon’s new retail brand, beComing, in 125 Sears stores this fall.

“As work on improving the performance of full-line stores progresses,it has become clear that a broad cosmetics business no longer fits with our financial and strategic objectives for Sears full-line stores,” Alan J. Lacy,Sears’ chairman and chief executive, said in a prepared statement.

Sears, Hoffman Estates, Ill., expects to book a charge of $53 million,after taxes, as a result of the exit from the skin-care and cosmetics business. In April, the company announced it would make a one-time noncash charge of about $520 million against second-quarter earnings for an accounting change.

Analysts currently expect Sears to post earnings, excluding items, of 92 cents a share, according to Thomson Financial/First Call.

Sears said it will continue to offer selected fragrances, bath and body products and candles, with an emphasis on gift and seasonal items. Those products are offered in most full-line Sears stores. The retailers’ Circle of Beauty brand products are currently sold in 450 full-line stores.

Sears will compensate Avon for its strategy shift, the companies said.

Terms weren’t disclosed, but Avon said it is receiving a payment Tuesday and anticipates no change in the outlook for its aggregate earnings for 2001-2002 as a result of the cancelled launch with Sears.

“We are disappointed that Sears has made a change in its approach at this late stage and won’t be part of the beComing venture,” said Andrea Jung, Avon’s CEO. “At the same time, we appreciate the fact that they informed us of their intentions before any Avon Centers had been installed or any product had been shipped to Sears stores.”

Avon said financial results for the second quarter and full year are on track as a result of its core direct-selling business. Analysts surveyed by First Call expect Avon to post earnings of 57 cents a share for the second quarter and $2.09 a share for the year.

The New York-based makeup and skin-care products company plans to release second quarter financial results July 19.

Avon previously announced plans to unveil beComing in about 200 J.C.Penney Co. and Sears stores in September, using the
“store-within-a-store” concept, called Avon Centers, that focus on women’s lifestyle needs.

Avon said its product launch in 75 J.C. Penney’s stores is proceeding as planned and it is exploring adding other retail partners to the beComing venture in the U.S. and internationally.

Copyright (c) 2001 Dow Jones & Company, Inc.