The head of leading US retail group Sears Holdings Corporation is refusing to entirely blame broader market conditions for a US$400m drop in revenues during the company's third quarter.

Sears president and CEO Aylwin Lewis admitted the company had "much on which to improve" after it reported net income for the three months ended 3 November of just $2m - down from $196m for the same period in 2006.

The company blamed the dramatic earnings fall on a $223m decline in gross margin, itself a reflection of sales declines and an overall decline in the gross margin rate.

Sears Domestic's comparable store sales were down 4.2% on the quarter, while Kmart registered a 5% drop. Both showed lower sales across most categories, but notably in apparel.

"We believe the overall comparable store sales results reflect increased competition, the negative impact of unfavourable economic conditions, such as a weak housing market and growing consumer credit concerns, as well as the unfavourable impact of unseasonably warm weather," the company said.

Total revenues were down $400m to $11.5bn for the quarter, while operating income plummeted $230m to $46m.

"We are very disappointed in our performance for the third quarter," admitted Lewis. "We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so."

The company added: "Given that we do not expect any significant near-term improvement in the overall retail environment, we believe that our sales and gross margin for the balance of fiscal 2007 will likely continue to be pressured by the above-noted unfavourable economic factors."