Nov. 29 (Bloomberg) -- Sears Holdings Corp. dropped the most in more than four years in New York trading after reporting profit that missed estimates by the widest margin since Chairman Edward Lampert bought the department-store company in 2005.

Sears fell 11 percent today after the Hoffman Estates, Illinois-based retailer reported a 99 percent plunge in net income for the third quarter through Nov. 3, to $2 million, or 1 cent a share. Analysts were expecting 53 cents.

``We are very disappointed in our performance,'' Aylwin Lewis, chief executive officer, said in a statement.

It was the largest profit fall since Lampert merged Sears Roebuck & Co. and Kmart Holding Corp. in March 2005, and the first consecutive quarterly earnings decline. Today's results may put more pressure on Lampert to sell stores or brands and hasten acquisitions and share buybacks.

``We cannot blame our results entirely on the retail and macro-economic environments,'' said Lewis. ``We have much on which to improve.''

Sears declined $12.25 to $104.09 at 4 p.m. in Nasdaq Stock Market composite trading for the biggest drop since April 2003, when the stock began trading before Kmart emerged from bankruptcy. The shares have fallen 38 percent this year.

Both the Sears and Kmart chains face increased competition from smaller department stores J.C. Penney Co. and Kohl's Corp., home-improvement merchants and larger discounters Wal-Mart Stores Inc. and Target Corp.

Craftsman Tools

Lampert has added Lands' End clothing to Sears stores and Craftsman tools at Kmart, boosted technology investments and introduced advertising campaigns this year for both chains. He told shareholders at the company's annual meeting in May that fixing retail was ``a priority.'' Some analysts say he's underinvested in the stores for too long.

A year earlier, profit was $196 million, or $1.27 a share, Sears said today in the statement. Sales fell 3.3 percent to $11.5 billion.

The average profit estimate of seven analysts surveyed by Bloomberg was 53 cents. Last year's earnings included an investment gain of $64 million, 42 cents a share.

Sears reported a $30 million pretax gain on interest and investments income. The retailer didn't break out investment income, and spokesman Chris Brathwaite said additional information would be in a quarterly filing with regulators tomorrow.

`Horrible Quarter'

``It was a horrible quarter,'' said Scott Rothbort, president of Lakeview Asset Management in Millburn, New Jersey, which holds Sears shares.

Sales at U.S. Sears stores open at least a year fell 4.2 percent, while they dropped 5 percent at Kmart. Total domestic same-store sales slumped 4.6 percent. Such sales have declined every period since Sears and Kmart combined.

Retailers have cut prices to lure customers besieged by higher food, housing and energy costs, with J.C. Penney, Target, Kohl's and Home Depot Inc. among those reporting lower quarterly earnings.

Even before consumers pulled back spending, Sears was losing ground to competitors. Sears shares have held appeal for some investors because of cash, totaling $1.48 billion at the end of the third quarter, and property, not because of the retailer's operations.

`Destination Retailer'

``I don't see how they can make themselves into a destination retailer where people want to go,'' David Keuler, an analyst at Mason Street Advisors in Milwaukee, said Nov. 26. ``Everybody else keeps getting better and they seem for the most part to stand still.''

Mason Street has more than $70 billion in assets including Sears stock. It holds Sears shares only in index funds and not in its actively managed portfolios.

Sears cited unusually warm weather, a weak housing market and increased competition for the drop in sales. Clothing and lawn and garden goods posted ``notable declines,'' Sears said.

Gross margin, or the profit left after subtracting the cost of goods sold, narrowed to 27.4 percent of sales from 28.3 percent, as the company marked down more merchandise and sales faltered.

Sears said it didn't expect ``any significant near-term improvement in the overall retail environment'' for the rest of the year.

Stock Appeal

``I suppose he can sell assets, but until he starts running Sears as a retailer, or gets someone who can, I don't know what the appeal of the stock would be for a retail investor,'' Keuler said today in an e-mail.

Last month, activist investor William Ackman said he bought 5 million Sears shares, fueling speculation he'd pressure the retailer to sell stores. Ackman thwarted Lampert's December 2005 move to buy the 46 percent of Sears Canada Inc. the parent company didn't already own.

Through his Pershing Square Capital Management LP, Ackman has pushed the boards of McDonald's Corp. and human-resources manager Ceridian Corp. to sell assets and cut spending.

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

Last Updated: November 29, 2007 16:13 EST