Aug. 28 (Bloomberg) -- Sears Holdings Corp., the biggest U.S. department-store company, reported second-quarter profit fell 62 percent and said earnings in the second half of the year may rise.

Inventory reductions will help profit excluding some costs climb even as sales are ``pressured'' and the U.S. economic slump persists, Sears said today in a statement. The shares rose 4.2 percent in Nasdaq trading.

``The guidance is completely unbelievable,'' Bill Dreher, director and senior retail analyst at Deutsche Bank Securities Inc., said today in a telephone interview. He questioned how the company will cut expenses enough to achieve its forecast ``without further impairing the already dismal customer shopping experience.'' Dreher recommends investors sell the shares.

Sales at stores open at least a year declined, as they have every quarter since Chairman Edward Lampert combined the Sears and Kmart chains in 2005. Lampert ousted Chief Executive Officer Aylwin Lewis earlier this year and has yet to find a permanent replacement to revive revenue as consumers spend more on gasoline and milk and less on clothing and appliances.

Net income decreased to $65 million, or 50 cents a share, from $173 million, or $1.15 a share, a year earlier, Sears said. Excluding a gain, Sears earned 21 cents, trailing analysts' estimates by 15 cents.

Sears rose $3.64 to $90.62 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have declined 35 percent in the past 12 months, compared with a 31 percent drop by Macy's Inc. and a 29 percent retreat by the Standard & Poor's 500 Department Store Index.

Lampert's Strategy

Lampert began reorganizing the company in January into five areas including online sales and brands.

Last week Sears named Stu Reed, a former executive at Motorola Inc. to head home services and Guenther Trieb from Procter & Gamble Co. to oversee its Craftsman, Kenmore and DieHard brands. Richard Gerstein was appointed to replace Chief Marketing Officer Maureen McGuire, who is leaving the company for personal reasons.

Earnings before interest, taxes, depreciation and amortization will rise in the second half of the year compared with a year earlier as inventory declines, interim CEO W. Bruce Johnson said in the statement. For the year, Ebitda ``is comparable to, but no longer exceeds, last year's Ebitda.'' The company had forecast a rise from 2007.

Second-quarter revenue fell to $11.8 billion from $12.3 billion, Sears said. Domestic same-store sales dropped 6.2 percent during the quarter, declining 5.6 percent at Kmart stores and 6.7 percent at Sears locations.

Profit Gain

Profit included a gain of 29 cents because of the overturning of jury verdict related to Sears, Roebuck & Co. bonds.

Six analysts surveyed by Bloomberg estimated average profit of 36 cents a share. Four predicted sales of $11.7 billion.

Gross margin, or the percentage of goods left after subtracting the cost of goods sold, narrowed to 26.5 from 27.7 a year earlier as the company marked down more goods in the face of ``intense competition.''

Department stores have suffered as consumers cut back on clothing and home goods while contending with higher costs. Nordstrom Inc., Kohl's Corp. and J.C. Penney Co. each have reported profit declines in the first half of the year.

The cost of living rose 5.6 percent in the year through July, the biggest surge in 17 years, the Labor Department said on Aug. 14. The U.S. Energy Department said yesterday that gasoline prices may average $3.82 a gallon next year from a projected $3.65 this year.

Earnings at other retailers have suffered as well, as consumers curb spending. Williams-Sonoma Inc., the biggest U.S. gourmet-cookware chain, reported today second-quarter profit fell after the company cut prices to lure customers.

Royal Ahold NV, the Dutch owner of the U.S. Stop & Shop chain, reported profit that trailed analysts' estimates after reducing prices and incurring higher expenses to remodel U.S. stores.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: August 28, 2008 16:08 EDT