Nov. 29 (Bloomberg) -- Sears Holdings Corp., the largest U.S. department-store company by sales, reported quarterly profit that fell more than analysts estimated on lower revenue. The stock declined 9.7 percent in New York.

Net income dropped to $2 million, or 1 cent a share, for the third quarter through Nov. 3 from $196 million, or $1.27 a share, a year earlier, Hoffman Estates, Illinois-based Sears said today in a statement. Sales fell 3.3 percent to $11.5 billion.

The results marked the first consecutive quarterly profit drop since Chairman Edward Lampert merged Sears Roebuck & Co. and Kmart Holding Corp. in March 2005, while sales at stores open at least a year have declined every period over that time. Retailers are cutting prices to lure consumers besieged by higher food and energy costs.

``We are very disappointed in our performance,'' Aylwin Lewis, chief executive officer, said in the statement. ``We cannot blame our results entirely on the retail and macro- economic environments. We have much on which to improve.''

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

`Horrible Quarter'

``It was a horrible quarter,'' said Scott Rothbort, president of Lakeview Asset Management in Millburn, New Jersey, which holds Sears shares. ``They had to take a lot of markdowns to move that apparel.''

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.

Sears slumped $11.34 to $105 at 8:08 a.m. in New York. The stock was down 31 percent this year before today.

Sears in losing ground to other department-store companies such as J.C. Penney Co. and Kohl's Corp., analysts say. Sears shares have held appeal for some investors because of assets including cash, totaling $1.5 billion at the end of the third quarter, and property, not because of the retailer's operations.

``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 shares only in index funds and not in actively managed portfolios.

Weather, Housing, Competition

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.

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.

Lampert said in August 2006 that he's looking for Sears to acquire companies both in and out of retailing.

This week, Sears said it made a $269 million bid to buy Restoration Hardware, the Corte Madera, California, purveyor of furniture, fixtures and bedding. The offer of $6.75 a share topped its initial bid of $4 a share. Sears holds a 13.7 percent stake in the chain.

Earlier this month Catterton Partners agreed to buy Restoration for $267 million.

Restoration has lost money in three of the last four quarters. It said it would solicit higher offers until Dec. 13.

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

Last Updated: November 29, 2007 08:10 EST