These acknowledgements come as sales fell for the retailer, yetprofits spiked during the quarter, which ended July 29. Same-storesales fell 3.8% year over year for the company, with the domesticSears division dropping 6.3% and Kmart falling 0.6%. Total revenuesdropped by $400 million, to $12.8 billion.

Executives note that sales at both divisions fell due toincreased competition and lower transaction volumes. Homefurnishings and lawn and garden took the biggest hits at Sears,though sales dropped among all categories. Kmart showed improvementin apparel, general merchandise, pharmacy and food, though homegoods were on the decline.

Operating income for the retailer came in at $517 million forthe quarter, up from $324 million during the same year-ago period.Kmart pulled in $92 million, Sears made $77 million, and thecompany was also helped by a one-time gain due to the settlement ofVisa/MasterCard antitrust litigation and overall reducedexpenses.