Return Engagement
By Patricia Sellers FORTUNE editor-at-large and David Stires FORTUNE writer

(FORTUNE Magazine) - Still Looking Smart

When we profiled Eddie Lampert as "The Best Investor of His Generation" (Feb. 20), we noted that retail purists were skeptical about the hedge fund manager's dismissal of sales growth as a critical metric at Sears Holdings (Research), which he chairs. But in March, when the company reported earnings above expectations, the stock popped 18% in two days. Even as same-store sales dropped 12% at Sears-branded outlets (while rising 1% at Kmart-branded stores), profits for the merged retailers jumped by $247 million. Lampert explained in a letter to shareholders, "No longer are we carrying excessive inventories, spending excessive amounts on marketing, and scheduling excessive labor dollars all in the pursuit of a given level of sales." -- Patricia Sellers

More Taxing Times

H&R Block (Research) just filed an extension on its woes. A year ago we argued that CEO Mark Ernst was struggling in his quest to turn the nation's largest tax preparer into a "year-round financial partner," offering mortgages, IRAs, and investment products ("Taxing Times at H&R Block," March 21, 2005). In 2006 things are worse. The troubles kicked off in February with Block's admission that it goofed on its own taxes. As a result of the error, the company says it owes $32 million in back taxes. Then in March, New York attorney general Eliot Spitzer sued Block, accusing it of fraudulently marketing retirement savings accounts to customers. The lawsuit accuses the firm of failing to properly disclose high fees associated with the accounts and seeks at least $250 million in damages. Ernst declined to talk to FORTUNE about the firm's latest woes. In company statements, he's said that Block denies Spitzer's charges and "will fight vigorously" to defend itself. -- David Stires Top of page

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