Sears Reports Record Second Quarter 2002 Earnings

EPS $1.31 vs. Prior Year Comparable EPS of $0.96 Revises Guidance Upward for the Year Announces Accounting Change

Sears, Roebuck and Co. (NYSE: S) today reported record second quarter 2002 net income of $420 million, or $1.31 per share, a 36 percent per share increase over the prior year comparable second quarter of $0.96 per share. The increase is due to the continuing performance improvements in the company's retail and credit businesses.

"Profits for the quarter showed solid increases across all segments," said Chairman and Chief Executive Officer Alan J. Lacy. "Margin rate improvements continue to benefit the retail businesses, while Credit and Financial Products results were driven by the growth of the Sears Gold MasterCard product and a favorable interest rate environment."

"First half earnings exceeded our expectations," said Lacy. "As a result, we now expect 2002 full year comparable earnings per share to be approximately $5.15, a 22 percent increase over the prior year amount of $4.22." This outlook takes into account the negative impact on sales from the re- positioning and restructuring initiatives. Previous expectation was for full year comparable earnings per share to increase approximately 17 percent.

Second quarter 2001 was affected by three non-comparable items, which consisted of a charge related to the adoption of a new accounting standard for receivables securitzations, a charge relating to HomeLife Corporation and a charge related to the exit of the skin care and color cosmetics business. These items resulted in a total pre-tax charge of $809 million, or $1.56 per share.

Reported second quarter 2002 net income was $420 million or $1.31 per share, compared with a net loss of $197 million, or ($0.60) per share, in the second quarter of 2001.

Retail and Related Services

Retail and Related Services operating income, excluding non-comparable items, increased $87 million to $300 million from $213 million in the prior year. "Our Retail and Related Services segment continues to show improvement in profitability. These results demonstrate the benefits of our focus on gross margin rate expansion, expense control, and inventory management," said Lacy.

Revenues for the second quarter of 2002 were $7.7 billion or 0.8 percent below last year's second quarter revenues of $7.8 billion. Sales increases by product repair services, dealer stores, direct to customer and commercial sales were more than offset by declines in revenue in the full-line stores. Sales declined in softlines as a result of lower apparel sales and exits from the custom window treatment and installed floor covering businesses, partially offset by increased hardline sales.

Retail and Related Services gross margin rate improved by 30 basis points to 27.2 percent. Full-line hardlines and softlines businesses, and nearly all other retail formats, contributed to the margin improvement.

Selling and administrative spending was 3.6 percent lower than second quarter 2001 due to expense decreases in full-line stores, partially offset by higher investment in The Great Indoors. Selling and administrative expenses were 21.0 percent of sales compared with 21.6 percent last year.

Credit and Financial Products

Credit and Financial Products' operating income, excluding non-comparable items, increased by $67 million or 19.4 percent to $412 million as favorable funding costs and higher revenues offset higher provision and selling and administrative expenses.

Second quarter domestic Credit and Financial Products revenues increased 3.5 percent from a year ago to $1.3 billion, due primarily to higher average receivable balances. Credit receivables at the end of the second quarter grew 8.8 percent over the prior year to $28.2 billion.

Funding costs declined by $118 million or 32.3 percent from last year's quarter due to a favorable interest rate environment.

The domestic provision for uncollectible accounts, on a comparable basis, increased by $43 million or 12.3 percent over last year's period, partially due to receivables growth. The net charge-off rate for the quarter decreased to 5.32 percent from 5.42 percent last year primarily due to decreased customer bankruptcy filings.

Year-over-year delinquencies decreased 39 basis points from 7.26 percent to 6.87 percent, indicating stable portfolio quality. The domestic allowance for uncollectible accounts of $1.4 billion is 5.10 percent of ending credit receivables compared with 5.24 percent at the end of last quarter. These amounts reflect the change in accounting policy discussed below.

Sears Canada

Sears Canada's operating income of $23 million compares with operating income of $11 million in last year's second quarter. The $12 million profit improvement is primarily related to gross margin rate expansion partially offset by decreased revenues. Sears Canada revenue decreased 0.5 percent to $1.0 billion in the second quarter of 2002, in part due to a 1.0 percent decline in the value of the Canadian dollar relative to the U.S. dollar.

Corporate and Other

Segment operating loss for the quarter of $69 million was essentially flat with last year's operating loss of $71 million. Revenues from the home improvement services businesses included in the Corporate and Other segment decreased by 17.9 percent to $92 million primarily due to the sale of the Sears Termite and Pest Control business in the last half of 2001.

Change in Accounting Method

The company announced a change in its accounting for the allowance for uncollectible accounts in the credit business. Sears historical allowance methodology provided for uncollectible principal and accrued finance charges on past due accounts. Sears has changed its allowance methodology to include current balances and accrued credit card fees in the methodology. The company believes that this change in its methodology moves it appropriately to a more conservative position in regard to its allowance for uncollectible accounts. As a result of the accounting change, the company recorded a cumulative effect, non-cash charge of $191 million as of the beginning of the fiscal 2002 year. The change did not impact second quarter 2002 results.

Forward-Looking Statements

This release contains guidance on 2002 comparable earnings per share, which is a forward-looking statement based on assumptions about the future that are subject to risks and uncertainties, such as competitive conditions in retail; changes in consumer confidence and spending; changes in interest rates; delinquency and charge-off trends in the credit card receivables portfolio; continued consumer acceptance of the Sears Gold MasterCard Program; the successful execution of and customer reactions to Sears' Full-line store strategy and other performance improvement initiatives; Sears' ability to integrate and operate Lands' End successfully; anticipated cash flow; general economic conditions and normal business uncertainty. In addition, Sears typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. While the company believes its forecasts and assumptions are reasonable, it cautions that actual results may differ materially. The company intends these forward-looking statements to speak only as of the time of this presentation and does not undertake to update or revise them as more information becomes available.

About Sears

Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2001, the company's annual revenue was more than $41 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web site, http://www.sears.com/ . In June 2002, Sears acquired Lands' End, a direct merchant of traditionally styled, classic Lands' End clothing offered to customers around the world through regular mailings of its specialty catalogs and online at http://www.landsend.com/. The company makes available by phone a recorded message on sales performance of its domestic stores. The message is updated weekly and can be heard by calling (847) 286-6111.

  SEARS, ROEBUCK AND CO.
  CONSOLIDATED INCOME


                            For the 13 Weeks Ended   For the 26 Weeks Ended
                                June 29, 2002             June 29, 2002
                              and June 30, 2001         and June 30, 2001
  (millions, except earnings
   per common share)        2002    2001  % Change   2002    2001   % Change

     REVENUES
      Merchandise sales
       and services        $8,753  $8,834   -0.9%  $16,400  $16,588   -1.1%
      Credit and financial
       products revenues    1,389   1,349    3.0%    2,779    2,452   13.3%
         Total revenues    10,142  10,183   -0.4%   19,179   19,040    0.7%

     COSTS AND EXPENSES
      Cost of sales,
       buying and
       occupancy            6,342   6,439   -1.5%   11,968   12,275   -2.5%
      Selling and
       administrative       2,236   2,256   -0.9%    4,297    4,287    0.2%
      Provision for
       uncollectible
       accounts               401     361   11.1%      782      552   41.7%
      Provision for
       previously
       securitized
       receivables              -     522 -100.0%        -      522 -100.0%
      Depreciation and
       amortization           221     225   -1.8%      431      440   -2.0%
      Interest                276     404  -31.7%      568      716  -20.7%
      Special charges and
       impairments              -     287        -     111      287  -61.3%
          Total costs
           and expenses     9,476  10,494   -9.7%   18,157   19,079   -4.8%

     Operating income (loss)  666    (311)       -   1,022      (39)       -
     Other income, net         10       7        -      88        8        -

     Income (loss) before
      income taxes and
      minority interest       676    (304)       -   1,110      (31)       -

     Income taxes            (249)    112        -    (397)      14        -

     Minority interest         (7)     (5)       -      25       (4)       -

     Income (loss) before
      cumulative effect of
      accounting changes      420    (197)       -     738      (21)       -

     Cumulative effect of
      change in accounting
      for allowance
      for uncollectible
      accounts                -       -          -    (191)     -          -
     Cumulative effect of
      change in accounting
      for goodwill            -       -          -    (208)     -          -

     NET INCOME (LOSS)       $420   $(197)       -    $339     $(21)       -

     EARNINGS PER COMMON
      SHARE

      Basic
         Earnings (loss)
          per share before
          cumulative
          effect of a
          changes in
          accounting
          principle         $1.33  $(0.60)       -   $2.33   $(0.06)       -

         Cumulative effect
          of changes in
          accounting         $-      $-          -  $(1.26)    $-          -

           Earnings (loss)
            per share       $1.33  $(0.60)       -   $1.07   $(0.06)       -


      Diluted
         Earnings (loss)
          per share before
          cumulative
          effect of a
          changes in
          accounting
          principle         $1.31  $(0.60)       -   $2.29   $(0.06)       -

         Cumulative effect
          of changes in
          accounting         $-      $-          -  $(1.24)    $-          -

           Earnings (loss)
            per share       $1.31  $(0.60)       -   $1.05   $(0.06)       -


     Average common and
      dilutive common
      equivalent shares
      outstanding           321.1   326.6            322.5    329.2



  SEARS, ROEBUCK AND CO.
  CONSOLIDATED BALANCE SHEET

  (millions)

                                          June 29,    June 30,  December 29,
                                            2002        2001       2001
      Assets
        Current Assets
          Cash and cash equivalents        $1,019        $476      $1,064
          Credit card receivables          29,812      27,615      29,321
            Less allowance for
             uncollectible accounts         1,485       1,129       1,166
            Net credit card receivables    28,327      26,486      28,155
          Other receivables                   635         628         658
          Merchandise inventories           5,396       5,596       4,912
          Prepaid expenses and deferred
           charges                            617         585         458
          Deferred income taxes             1,010       1,170         858
            Total current assets           37,004      34,941      36,105

        Property and equipment, net         6,797       6,604       6,824
        Deferred income taxes                 365         232         415
        Other assets                        2,578         990         973
            Total assets                  $46,744     $42,767     $44,317

      Liabilities
        Current liabilities
          Short-term borrowings            $3,981      $3,326      $3,557
          Current portion of long-term
           debt and capitalized lease
           obligations                      4,325       3,243       3,157
          Accounts payable and other
           liabilities                      6,831       6,488       7,176
          Unearned revenues                 1,180       1,131       1,136
          Other taxes                         471         475         558
            Total current liabilities      16,788      14,663      15,584

        Long-term debt and capitalized
         lease obligations                 20,348      18,870      18,921
        Postretirement benefits             1,645       1,867       1,732
        Minority interest and other
         liabilities                        1,868       1,334       1,961
            Total liabilities              40,649      36,734      38,198

      Commitments and Contingent
       Liabilities

      Shareholders' Equity
        Common shares                         323         323         323
        Capital in excess of par value      3,516       3,523       3,500
        Retained earnings                   7,605       6,806       7,413
        Treasury stock - at cost           (4,506)     (4,071)     (4,223)
        Deferred ESOP expense                 (48)        (77)        (63)
        Accumulated other comprehensive
         loss                                (795)       (471)       (831)
            Total shareholders' equity      6,095       6,033       6,119
            Total liabilities and
             shareholders' equity         $46,744     $42,767     $44,317

            Total common shares
             outstanding                    316.8       324.3       320.4


  SEARS, ROEBUCK AND CO.

  Segment Income Statements

  (millions)

  For the 13 Weeks Ended June 29, 2002 and June 30, 2001

            Excluding Non-Comparable Items and Securitization

                                                               Credit &
                           Retail & Related Services      Financial Products
                               2002          2001         2002         2001

  Merchandise sales and
   services                   $7,699        $7,760                       $-
  Credit and financial
   products revenues               -             -       1,321        1,276

  Total Revenues               7,699         7,760       1,321        1,276

  Costs and expenses
     Cost of sales,
      buying and
      occupancy                5,602         5,674           -            -
     Selling and
      administrative           1,616         1,677         264          212
     Provision for
      uncollectible
      accounts                     -             -         393          350
     Provision for
      previously
      securitized
      receivables                  -             -           -            -
     Depreciation and
      amortization               176           185           5            4
     Interest                      5            11         247          365
     Special charges and
      impairments                  -             -           -            -
            Total costs
             and
             expenses          7,399         7,547         909          931

  Operating income
   (loss)                       $300          $213        $412         $345

  Net Income (loss)
   before cumulative
   effect of changes in
   accounting

  Cumulative effect of
   changes in accounting

  Net Income (loss)

  EPS - Diluted

     Average shares o/s


         Excluding Non-Comparable Items and Securitization Income

                                       Corporate & Other     Sears Canada
                                        2002      2001      2002       2001

  Merchandise sales and services         $92      $112      $962       $962
  Credit and financial products
   revenues                                -         -        68         73

  Total Revenues                          92       112     1,030      1,035

  Costs and expenses
      Cost of sales, buying and
       occupancy                          35        46       705        719
      Selling and administrative         110       122       246        245
      Provision for uncollectible
       accounts                            -         -         8         11
      Provision for previously
       securitized receivables             -         -         -          -
      Depreciation and amortization       16        15        24         21
      Interest                             -         -        24         28
      Special charges and
       impairments                         -         -         -          -
            Total costs and expenses     161       183     1,007      1,024

  Operating income (loss)               $(69)     $(71)      $23        $11

  Net Income (loss) before
   cumulative effect of changes in
   accounting

  Cumulative effect of changes in
   accounting

  Net Income (loss)

  EPS - Diluted

     Average shares o/s


                            Reconciling Items

                                                          Securitization
                                             Total            Impact

                                         2002      2001     2002     2001

  Merchandise sales and services        $8,753    $8,834      $-       $-
  Credit and financial products
   revenues                              1,389     1,349       -        -

  Total Revenues                        10,142    10,183       -        -

  Costs and expenses
     Cost of sales, buying and
      occupancy                          6,342     6,439       -        -
     Selling and administrative          2,236     2,256       -        -
     Provision for uncollectible
      accounts                             401       361       -        -
     Provision for previously
      securitized receivables                          -                -
     Depreciation and amortization         221       225       -        -
     Interest                              276       404       -        -
     Special charges and impairments         -         -       -        -
            Total costs and expenses     9,476     9,685       -        -

  Operating income (loss)                 $666      $498      $-       $-

  Net Income (loss) before cumulative
   effect of changes in accounting        $420      $316      $-       $-

  Cumulative effect of changes in
   accounting                               $-        $-      $-       $-

  Net Income (loss)                       $420      $316      $-       $-

  EPS - Diluted                          $1.31     $0.96    $-       $-

     Average shares o/s


                               Reconciling Items

                                    Non-comparable items   Consolidated GAAP
                                       2002       2001      2002       2001

  Merchandise sales and services         $-         $-    $8,753     $8,834
  Credit and financial products
   revenues                               -          -     1,389      1,349

  Total Revenues                          -          -    10,142     10,183

  Costs and expenses
     Cost of sales, buying and
      occupancy                           -          -     6,342      6,439
     Selling and administrative           -          -     2,236      2,256
     Provision for uncollectible
      accounts                            -          -       401        361
     Provision for previously
      securitized receivables             -        522         -        522
     Depreciation and amortization        -          -       221        225
     Interest                             -          -       276        404
     Special charges and
      impairments                         -        287         -        287
            Total costs and
             expenses                     -        809     9,476     10,494

  Operating income (loss)                $-      $(809)     $666      $(311)

  Net Income (loss) before
   cumulative effect of changes in
   accounting                            $-      $(513)     $420      $(197)

  Cumulative effect of changes in
   accounting                            $-         $-        $-         $-

  Net Income (loss)                      $-      $(513)     $420      $(197)

  EPS - Diluted                          $-     $(1.56)    $1.31     $(0.60)

     Average shares o/s                                    321.1      326.6


  For the 26 Weeks Ended June 29, 2002 and June 30, 2001

                                                        Credit & Financial
                            Retail & Related Services         Products
                                2002          2001        2002        2001

  Merchandise sales and
   services                    $14,467       $14,566         $-          $-
  Credit and financial
   products revenues                 -             -      2,639       2,576

  Total Revenues                14,467        14,566      2,639       2,576

  Costs and expenses
     Cost of sales, buying
      and occupancy             10,607        10,827          -           -
     Selling and
      administrative             3,128         3,207        492         406
     Provision for
      uncollectible
      accounts                       -             -        764         684
     Provision for
      previously
      securitized
      receivables                    -             -          -           -
     Depreciation and
      amortization                 344           361         10           9
     Interest                        1            14        518         767
     Special charges and
      impairments                    -             -          -           -
            Total costs
             and expenses       14,080        14,409      1,784       1,866

  Operating income (loss)         $387          $157       $855        $710

  Net Income (loss) before
   cumulative effect of
   changes in accounting

  Cumulative effect of
   changes in accounting

  Net Income (loss)

  EPS - Diluted

     Average shares o/s

        Excluding Non-Comparable Items and Securitization Income

                                      Corporate & Other     Sears Canada
                                        2002      2001     2002       2001

  Merchandise sales and services        $150      $196    $1,783     $1,826
  Credit and financial products
   revenues                                -         -       140        151

  Total Revenues                         150       196     1,923      1,977

  Costs and expenses
     Cost of sales, buying and
      occupancy                           56        83     1,305      1,365
     Selling and administrative          204       222       473        491
     Provision for uncollectible
      accounts                             -         -        18         21
     Provision for previously
      securitized receivables              -         -         -          -
     Depreciation and amortization        28        29        49         41
     Interest                              -         -        49         58
     Special charges and impairments       -         -         -          -
            Total costs and expenses     288       334     1,894      1,976

  Operating income (loss)              $(138)    $(138)      $29         $1

  Net Income (loss) before
   cumulative effect of changes in
   accounting

  Cumulative effect of changes in
   accounting

  Net Income (loss)

  EPS - Diluted

     Average shares o/s

                                                            Total
                                                   2002               2001

  Merchandise sales and services                 $16,400            $16,588
  Credit and financial products
   revenues                                        2,779              2,727

  Total Revenues                                  19,179             19,315

  Costs and expenses
      Cost of sales, buying and
       occupancy                                  11,968             12,275
      Selling and administrative                   4,297              4,326
      Provision for uncollectible
       accounts                                      782                705
      Provision for previously
       securitized receivables                                            -
      Depreciation and amortization                  431                440
      Interest                                       568                839
      Special charges and impairments                  -                  -
            Total costs and expenses              18,046             18,585

  Operating income (loss)                         $1,133               $730

  Net Income (loss) before cumulative
   effect of changes in accounting                  $720               $466

  Cumulative effect of changes in
   accounting                                         $-                 $-

  Net Income (loss)                                 $720               $466

  EPS - Diluted                                    $2.23              $1.41

     Average shares o/s

                            Reconciling Items

                                 Securitization Impact  Non-comparable items

                                    2002       2001       2002        2001

  Merchandise sales and
   services                           $-         $-          $-          $-
  Credit and financial products
   revenues                            -       (275)          -           -

  Total Revenues                       -       (275)          -           -

  Costs and expenses
     Cost of sales, buying and
      occupancy                        -          -           -           -
     Selling and administrative        -        (39)          -           -
     Provision for
      uncollectible accounts           -       (153)          -           -
     Provision for previously
      securitized receivables                     -           -         522
     Depreciation and
      amortization                     -          -           -           -
     Interest                          -       (123)          -           -
     Special charges and
      impairments                      -          -         111         287
            Total costs and
             expenses                  -       (315)        111         809

  Operating income (loss)             $-        $40       $(111)      $(809)

  Net Income (loss) before
   cumulative effect of changes
   in accounting                      $-        $26         $18       $(513)

  Cumulative effect of changes
   in accounting                      $-         $-       $(399)         $-

  Net Income (loss)                   $-        $26       $(381)      $(513)

  EPS - Diluted                       $-      $0.08      $(1.18)     $(1.55)

     Average shares o/s

                                                     Consolidated GAAP
                                                   2002               2001

  Merchandise sales and services                 $16,400            $16,588
  Credit and financial products
   revenues                                        2,779              2,452

  Total Revenues                                  19,179             19,040

  Costs and expenses
      Cost of sales, buying and
       occupancy                                  11,968             12,275
      Selling and administrative                   4,297              4,287
      Provision for uncollectible
       accounts                                      782                552
      Provision for previously
       securitized receivables                         -                522
      Depreciation and amortization                  431                440
      Interest                                       568                716
      Special charges and impairments                111                287
            Total costs and expenses              18,157             19,079

  Operating income (loss)                         $1,022               $(39)

  Net Income (loss) before cumulative
   effect of changes in accounting                  $738               $(21)

  Cumulative effect of changes in
   accounting                                      $(399)                $-

  Net Income (loss)                                 $339               $(21)

  EPS - Diluted                                    $1.05             $(0.06)

     Average shares o/s                            322.5              329.2


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
  AND STORE COUNT
  (millions)

                                            Average Balance
                             For the 13 Weeks ended   For the 26 Weeks ended
                                  June 29, 2002            June 29, 2002
                                and June 30, 2001        and June 30, 2001
                                2002         2001        2002         2001

  Sears Card credit card
   receivables                  20,125       23,962    20,904       24,525
  Sears Gold MasterCard
   credit card receivables       7,488        1,869     6,608        1,616
  Managed domestic credit
   card receivables            $27,613      $25,831   $27,512      $26,141


                             For the 13 Weeks ended   For the 26 Weeks ended
                                  June 29, 2002           June 29, 2002
                                and June 30, 2001       and June 30, 2001
  Domestic managed credit
   card receivables-             2002         2001      2002         2001
  Net interest margin:
  Portfolio yield               18.47%       19.12%    18.51%       19.09%
  Effective financing rate       3.55%        5.60%     3.74%        5.82%
  Net interest margin           14.92%       13.52%    14.77%       13.27%

  Domestic managed net
   charge-off rate               5.32%        5.42%     5.37%        5.23%

                                       2002                    2001
                               Jun. 29,     Mar. 30,  Dec. 29,     Sep. 29,
                                 2002         2002      2001         2001

  Domestic managed credit
   card receivables-
  Delinquency rate               6.87%        7.31%     7.58%        7.41%

  Allowance for uncollectible
   accounts                     $1,441       $1,415    $1,115       $1,089

  Allowance % of domestic on-
   book credit
       card receivables          5.10%        5.24%     4.04%        4.15%


                               June 29,     June 30,
                                 2002         2001

  Domestic
   inventories      -LIFO       $4,854       $4,944
                    -FIFO       $5,469       $5,534


                             For the 13 Weeks Ended   For the 26 Weeks Ended
                                  June 29, 2002             June 29, 2002
                                and June 30, 2001         and June 30, 2001

  Pretax LIFO charge             $12           $12          $24      $24


                              December 29,                         June 29,
  Domestic retail stores:          2001         Opened     Closed     2002

    Full-line stores                867            11         (8)      870
    Specialty formats             1,318            13        (36)    1,295
            Total                 2,185            24        (44)    2,165

    Gross square feet             148.5           2.3       (1.1)    149.7


                                                      Ending Balance

                                                  June 29,          June 30,
                                                    2002              2001

  Sears Card credit card receivables               19,718            23,633
  Sears Gold MasterCard credit card
   receivables                                      8,528             2,333
  Managed domestic credit card
   receivables                                    $28,246           $25,966


  Domestic managed credit card
   receivables-
  Net interest margin:
  Portfolio yield
  Effective financing rate
  Net interest margin

  Domestic managed net charge-off rate


                                               Jun. 30, 2001

  Domestic managed credit card
   receivables-
  Delinquency rate                                  7.26%

  Allowance for uncollectible accounts             $1,089

  Allowance % of domestic on-book
   credit
       card receivables                             4.19%





  Domestic
   inventories             -LIFO
                           -FIFO



  Pretax LIFO charge

  Domestic retail stores:
     Full-line stores
     Specialty formats
            Total

     Gross square feet

MAKE YOUR OPINION COUNT - Click Here
http://tbutton.prnewswire.com/prn/11690X14783366

SOURCE: Sears, Roebuck and Co.

CONTACT: Peggy A. Palter, +1-847-286-8361, or Investor Relations, Pam
White, +1-847-286-1468, both of Sears

Web site: http://www.sears.com/








©2018 Sears Brands, LLC