Sears Holdings Reports Fourth Quarter and Full Year 2006 Results

Sears Holdings Corporation ("Holdings" or the "Company") (NASDAQ: SHLD) today reported net income of $820 million, or $5.33 per diluted share, for the fourth quarter ended February 3, 2007, compared with net income of $648 million, or $4.03 per diluted share, for the fourth quarter ended January 28, 2006. For the fiscal year ended February 3, 2007, net income was $1.5 billion, or $9.57 per diluted share compared with net income of $858 million, or $5.59 per diluted share, for the fiscal year ended January 28, 2006. Net income for the year ended January 28, 2006 included an after-tax charge of $90 million, or $0.58 per diluted share, for the cumulative effect of a change in accounting. The Company follows a retail-based financial reporting calendar. Accordingly, the Company's fiscal 2006 fourth quarter and full-year results reflect the 14- and 53-week periods ended February 3, 2007, respectively, whereas fiscal 2005 contained 13- and 52-weeks for the fourth quarter and full year, respectively.

The Company's improved quarterly results reflect increased operating income at both Kmart and Sears Domestic, driven primarily by improved margin rate performance, most notably within apparel. The full year results also improved as compared to last year on the basis of strong second half margin performance within apparel, as well as improved expense management across all of the Company's segments: Kmart, Sears Domestic and Sears Canada. Earnings per diluted share for the quarter also benefited from lower average diluted shares outstanding during the current year quarter as compared with the fourth quarter of fiscal 2005.

"We are making progress as evidenced by our improved financial performance in fiscal 2006, but recognize we still have much work to do. Our improved apparel results are an indication of what can happen when we enhance our offerings and services to better meet customers' needs," said Aylwin Lewis, Sears Holdings' chief executive officer and president. He added, "We believe that actions taken in 2006 to put the right culture and infrastructure in place will provide opportunities for us to expand our successes in 2007 and help us realize our Company vision to improve the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships."

Significant Items

A number of items significantly impacted the Company's fiscal 2006 and fiscal 2005 diluted earnings per share. While these types of items periodically affect the Company's results, they vary significantly in amount from period to period, and had a disproportionate effect on the Company's results for the periods presented. Management considers the total impact of these items, along with reported results, when it reviews and evaluates the Company's financial performance. The impact of these items on diluted earnings per share is shown in the following table:

                               Quarters Ended       Fiscal Years Ended
                             February  January  February  January  January
                             3, 2007  28, 2006  3, 2007  28, 2006  28, 2006
                                                                    Pro
                                                                   forma(1)

  Earnings per diluted share  $5.33     $4.03     $9.57    $5.59    $4.85
  Less:
    Cumulative effect of
     change in accounting        --        --        --    (0.58)   (0.55)
    Total return swap
     income (loss)            (0.11)       --      0.29       --       --
    Income tax settlements     0.17        --      0.20       --       --
    Visa/MasterCard
     settlement                  --        --      0.14       --       --
    Legal reserve - AIG
     Annuity Insurance Co.,
     et al. v. Sears Roebuck  (0.29)       --     (0.29)      --       --
    Gain on sale of assets     0.20      0.05      0.32     0.16     0.15
    Restructuring charges        --     (0.02)    (0.09)   (0.35)   (0.33)
    Earnings per diluted
     share excluding the
     above items              $5.36     $4.00     $9.00    $6.36    $5.58

  (1) The reported results for fiscal 2005 include the full year results for
      Kmart, but Sears results are included only for the period subsequent
      to the March 24, 2005 Sears and Kmart merger. Therefore, to facilitate
      an understanding of the Company's trends and on-going performance, in
      addition to the reported results for fiscal 2005, the Company has
      presented pro forma results for fiscal 2005. These pro forma results
      adjust the reported amounts for fiscal 2005 to give effect to the
      Merger as if it had occurred at the beginning of fiscal 2004.


The four significant items impacting the fourth quarter of 2006 are: 1) a $27 million pre-tax loss ($17 million after-tax or $0.11 per diluted share) on the Company's total return swap investments; 2) pre-tax gains of $50 million ($31 million after-tax or $0.20 per diluted share) on sale of assets; 3) a tax benefit of $25 million (or $0.17 per diluted share) related to the resolution of certain income tax matters and 4) a pre-tax charge of approximately $74 million ($45 million after-tax or $0.29 per diluted share) related to an unfavorable verdict in connection with a pre-merger legal matter concerning Sears' redemption of certain bonds in 2004. As previously disclosed, a verdict was reached by a state court jury in Dallas, Texas on February 2, 2007 that will require the Company's subsidiary Sears Roebuck and Co. to pay a group of institutional bondholders approximately $74 million in a case relating to the 2004 redemption of certain bonds by Sears, Roebuck following the sale of its credit card business. The Company is filing post-trial motions seeking to overturn the verdict and, if necessary, will file an appeal. There can be no assurance that the Company will be successful in its efforts to challenge the verdict. The increase in the gain on asset sales is primarily due to the recognition of a $41 million pre-tax gain recorded in fiscal 2006 on the sale of the Company's former Kmart corporate headquarters in Troy, Michigan.

Fourth Quarter and Full Year Revenues and Comparable Store Sales

For the quarter, domestic comparable store sales declined 3.1% in the aggregate, with Sears Domestic comparable store sales declining 4.9% and Kmart comparable store sales declining 0.9%. For the year, domestic comparable store sales declined 3.7% in the aggregate, with Sears Domestic comparable store sales declining 6.1% and Kmart comparable store sales declining 0.6%. The comparable store sales declines at both Kmart and Sears Domestic reflect the impact of increased competition and lower transaction volumes. At Kmart, despite continued pressure from competitor expansion, comparable store sales declined only modestly for both the quarter and year. The decline at Kmart occurred across a number of categories, partially offset by increases within apparel and pharmacy. At Sears Domestic, comparable store sales declined for both the quarter and year across most categories and formats, partially offset by increases in women's apparel, reflecting what the Company believes are improved assortments in this business relative to last year. In 2005, Sears Domestic modified its apparel assortment to a more "fashion forward" offering, which was not successful and led to significant sales declines within Sears Domestic's apparel business during the second half of fiscal 2005. During the fourth quarter, the Company experienced a sales decline in its home appliance business as a result of the slower U.S. housing market and increased competition.

For the quarter, total revenues increased $0.2 billion to $16.3 billion for the 14 weeks ended February 3, 2007, as compared to total revenues of $16.1 billion for the 13 weeks ended January 28, 2006. The increase was primarily due the inclusion of an additional week of sales in the fourth quarter of fiscal 2006 (comprised of 14 weeks) as compared to the fourth quarter of fiscal 2005 (comprised of 13 weeks). Full year fiscal 2006 revenues were $53.0 billion as compared to $49.1 billion in fiscal 2005. The increase in fiscal 2006 was primarily due to the inclusion of Sears for the entire year in fiscal 2006 and, to a lesser degree, the inclusion of an additional week of sales in fiscal 2006. Fiscal 2006 revenues declined $1.3 billion, or 2.3%, to $53.0 billion, as compared to fiscal 2005 pro forma revenues of $54.3 billion. The decline versus pro forma revenues for fiscal 2005 primarily reflects lower comparable store sales and the impact of Kmart store closures, partially offset by the added week of sales recorded in fiscal 2006.

Operating Income

Operating income was $1.4 billion for the 14 weeks ended February 3, 2007, as compared to $1.5 billion for the 13 weeks ended January 28, 2006. The decrease in operating income reported for the quarter was due primarily to a $317 million pre-tax gain on the sale of the Sears Canada credit business in fiscal 2005. The gain had no impact on Holdings' net income as its entire impact was offset by increased minority interest expense. Excluding the $317 million pre-tax gain, fiscal 2005 fourth quarter operating income was $1.2 billion, with the increase in fiscal 2006 primarily reflecting improved margin performance within the domestic apparel business.

Operating income was $2.5 billion for fiscal year 2006, as compared to $2.1 billion for fiscal 2005. Excluding the gain on sale of the Sears Canada credit business in 2005, operating income was $1.8 billion, with the increase in fiscal 2006 primarily reflecting improved margin performance within the domestic apparel business and reduced expense across all business segments. Operating income in fiscal 2005 was negatively impacted by $111 million in restructuring charges at Sears Canada and Kmart as compared with $28 million in such charges at Kmart and Sears Canada in the current year.

Financial Position

The Company had cash and cash equivalents of $4.0 billion at February 3, 2007 (of which $3.3 billion was domestic and $0.7 billion was at Sears Canada) as compared to $4.4 billion at January 28, 2006. During the current quarter, cash and cash equivalents increased $1.9 billion from the $2.1 billion balance at the end of the third quarter, primarily reflecting operating cash flows generated from sales during the holiday selling season. For the year, the Company's significant uses of its domestic cash included $816 million for share repurchases, $474 million in capital expenditures, $318 million in pension contributions, $282 million to purchase additional interests in Sears Canada, and debt payments, net of new borrowings of $250 million. The Company's fiscal 2006 year-end domestic cash balance of $3.3 billion was below the Company's projected year-end balance largely as a result of higher than expected disbursements made relative to federal and state tax payments and lower than expected January sales.

Merchandise inventories at February 3, 2007 were approximately $9.9 billion, as compared to $9.1 billion as of January 28, 2006. The increase as compared to prior year end reflects a number of factors, including timing of inventory receipts ($200 million) primarily due to earlier receipt of spring goods and a higher level of in-transit import inventory, planned increases in certain basic fashion categories ($130 million), increased inventory in hardline categories ($120 million) to place Sears products (Craftsman and appliances) in Kmart stores and pursue incremental Home Decor/Furniture business, and approximately $140 million attributable to lower than expected sales levels. Additionally, at the end of fiscal 2005, the Company reduced inventory in Sears Domestic's apparel and home fashion businesses as the Company worked to improve merchandise assortments in these categories. The Company continues to review and assess its merchandise inventory levels in an ongoing effort to continuously improve overall returns. Merchandise payables were $3.3 billion at February 3, 2007, as compared to $3.5 billion as of January 28, 2006.

As the result of resolving certain tax matters during the fourth quarter of 2006 pertaining to pre-merger periods, the Company recorded approximately $188 million as a reduction to deferred tax liabilities with an offsetting credit recorded to goodwill. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," resolution of these matters result in a direct credit to merger-related goodwill.

Share Repurchase

During the fourth quarter of 2006, the Company repurchased approximately 0.1 million common shares under its share repurchase program at a total cost of $14 million, or an average price of $165 per share. For the full year, the Company repurchased 6 million common shares under its share repurchase program at a cost of $806 million, or an average price of $133 per share. As of February 3, 2007, the Company had remaining authorization to repurchase $604 million of common shares under its existing share repurchase program approved by the board of directors. The remaining shares may be purchased in the open market, through self-tender offers or through privately negotiated transactions. Timing will depend on prevailing market conditions, alternative uses of capital and other factors.

Interest and Investment Income

The following table sets forth the components of interest and investment income as reported on the Company's income statement. Amounts from prior periods have been reclassified to interest and investment income to conform to current period presentation. The Company previously reported interest income on cash and cash equivalents as a component of net interest expense, and reported other investment income as a component of other income.

                                     Quarters Ended     Fiscal Years Ended
  millions                          February  January   February  January
                                    3, 2007   28, 2006  3, 2007   28, 2006

  Interest and investment income
    Interest income on cash and
     cash equivalents                  $39       $34      $151       $85
    Total return swap income (loss)    (27)       --        74        --
    Other investment income              1         7        29        42
      Total                            $13       $41      $254      $127


The Company, from time to time, invests its surplus cash in various securities and financial instruments, including total return swaps, which are derivative contracts that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, the Company pays a floating rate of interest tied to LIBOR on the notional amount of the contract. The fair value of a total return swap is based on the quoted market price of the underlying position and changes in fair value of the total return swaps are recognized currently in earnings. During fiscal 2006, the Company entered into total return swaps and recognized $74 million of pre-tax investment income. At February 3, 2007, the total return swaps had an aggregate notional amount of $375 million and a fair value of $5 million. These investments are highly concentrated and involve substantial risks. Accordingly, the Company's financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments.

Adjusted EBITDA

For purposes of evaluating operating performance, the Company's management uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement computed as operating income appearing on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs, nonrecurring gains and restructuring charges. Adjusted EBITDA is used by management to evaluate the operating performance of the Company's businesses for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company's businesses.

While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

  -- EBITDA excludes the effects of financing and investing activities by
     eliminating the effects of interest and depreciation costs;
  -- Management considers gains/(losses) on the sale of assets to result
     from investing decisions rather than ongoing operations;
  -- Restructuring activities, while periodically affecting the Company's
     results, may vary significantly from period to period and have a
     disproportionate effect in a given period, which affects the
     comparability of results; and
  -- Adjusted EBITDA excludes a one-time gain resulting from the settlement
     of Visa/MasterCard litigation and vice chairman separation expenses,
     both of which were recorded in the second quarter of fiscal 2006, as
     well as the legal reserve recorded in connection with a pre-merger
     legal matter and merger transaction costs which result from
     extraordinary activities that are not part of normal operations.

  Adjusted EBITDA was determined as follows:

                                        Quarters Ended   Fiscal Years Ended
                                      February  January  February   January
                                       3, 2007  28, 2006  3, 2007   28, 2006
                                                                   Pro Forma

  Operating income per statement of
   income                               $1,399   $1,530   $2,523   $2,073
  Plus depreciation and amortization       299      282    1,142    1,108
  Less gain on sale of
   assets/businesses                       (50)    (331)     (82)    (357)
  Before excluded items                  1,648    1,481    3,583    2,824

  Vice Chairman separation expense          --       --        8       --
  Visa/MasterCard settlement                --       --      (36)      --
  Merger transaction costs                  --       --       --       34
  Legal reserve - AIG Annuity
   Insurance Co., et al. v.
   Sears Roebuck                            74       --       74       --
  Restructuring charges                      1        7       28      111
  Adjusted EBITDA as defined            $1,723   $1,488   $3,657   $2,969
  % to revenues                          10.6%     9.3%     6.9%     5.5%

  Adjusted EBITDA for the Company's domestic (United States operations) and
  Sears Canada operations is as follows:

                                Quarters Ended         Fiscal Years Ended
                              Adjusted    % To        Adjusted      % To
                               EBITDA     Revenues     EBITDA     Revenues
                            Feb-   Jan- Feb-   Jan-   Feb-  Jan-  Feb- Jan-
                           ruary   uary ruary  uary  ruary  uary ruary uary
                             3,     28,   3,    28,    3,    28,   3,   28,
                            2007   2006  2007  2006   2007  2006  2007 2006
                                                             Pro        Pro
                                                            Forma      Forma
  Domestic operations      $1,556 $1,303 10.6%  9.0% $3,248 $2,622 6.8% 5.3%
  Sears Canada                167    185 10.2% 11.4%    409    347 7.9% 6.8%
  Total Adjusted EBITDA    $1,723 $1,488 10.6%  9.3% $3,657 $2,969 6.9% 5.5%


  Annual Report on Form 10-K

The Company plans to file with the SEC its Annual Report on Form 10-K for the year ended February 3, 2007 on or before April 4, 2007

Forward-Looking Statements

Results are preliminary and unaudited. This press release contains forward-looking statements about the Company's expectations. Forward-looking statements are subject to risks and uncertainties that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to, statements about the expected benefits of the business combination of Sears and Kmart, the potential benefits of our investments and future financial and operating results. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Risks and uncertainties include the possibility that we fail to offer products and services that satisfy the desires of our customers, whose preferences may change in the future, or other factors outside the control of Holdings. Actual results may differ materially from those set forth in the forward-looking statements. The Company intends the forward- looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation's third largest broadline retailer with over $50 billion in annual revenues and approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The Company is the nation's largest provider of home services, with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at http://www.searsholdings.com/ .

                        Sears Holdings Corporation
                    Consolidated Statements of Income
                               (Unaudited)

    Amounts are Preliminary and
    Subject to Change            Quarters Ended      Fiscal Years Ended
                                    Reported          Reported     Pro forma
    millions, except per        February January  February January  January
     common share data             3,       28,      3,       28,      28,
                                  2007    2006(1)   2007    2006(1)  2006(1)
  REVENUES
    Merchandise sales and
     services                   $16,288  $16,044  $53,012  $48,911  $53,962
    Credit and financial
     products revenues              -         42      -        213      299
       Total revenues            16,288   16,086   53,012   49,124   54,261

  COSTS AND EXPENSES
    Cost of sales, buying and
     occupancy                   11,440   11,508   37,820   35,505   39,177
    Gross margin dollars          4,848    4,536   15,192   13,406   14,785
    Gross margin rate             29.8%    28.3%    28.7%    27.4%    27.4%

    Selling and administrative    3,199    3,090   11,581   10,808   12,149
    Selling and administrative
     expense as a percentage of
     total revenues               19.6%    19.2%    21.8%    22.0%    22.4%

    Depreciation and
     amortization                   299      282    1,142      932    1,108
    Gain on sales of assets         (50)     (14)     (82)     (39)     (40)
    Gain on sale of business        -       (317)     -       (317)    (317)
    Restructuring charges             1        7       28      111      111
        Total costs and
         expenses                14,889   14,556   50,489   47,000   52,188

  Operating income                1,399    1,530    2,523    2,124    2,073
  Interest and investment
   income                           (13)     (41)    (254)    (127)    (159)
  Interest expense                   82       88      337      323      378
  Other income                       (9)      (6)     (24)     (37)     (37)

  Income before income taxes,
   minority interest and
   cumulative effect of change
   in accounting principle        1,339    1,489    2,464    1,965    1,891
  Income taxes                      492      533      930      716      705
  Minority interest                  27      308       44      301      307

  Income before cumulative
   effect of change in
   accounting principle             820      648    1,490      948      879
  Cumulative effect of change
   in accounting principle
   (net of income tax benefit
   of $58)                          -        -        -        (90)     (90)
  NET INCOME                       $820     $648   $1,490     $858     $789

  EARNINGS PER COMMON SHARE
    Diluted earnings per share
     before cumulative effect
     of change in accounting
     principle                    $5.33    $4.03    $9.57    $6.17    $5.40
    Diluted earnings per share    $5.33    $4.03    $9.57    $5.59    $4.85

    Diluted weighted average
     common shares outstanding    153.9    160.7    155.7    153.6    162.6


  (1) Certain prior period amounts have been reclassified to conform to
      current year presentation



                        Sears Holdings Corporation
                  Condensed Consolidated Balance Sheets

  Amounts are Preliminary and Subject to Change

                                               Unaudited
  millions                                     February 3,       January 28,
                                                  2007              2006
  ASSETS
  Current assets
     Cash and cash equivalents                    $3,968            $4,440
     Receivables                                     848               811
     Merchandise inventories                       9,907             9,068
     Other current assets                            685               888
     Total current assets                         15,408            15,207

  Property and equipment, net                      9,151             9,823
  Goodwill                                         1,692             1,684
  Tradenames and other intangible assets           3,437             3,448
  Other assets                                       380               411
     TOTAL ASSETS                                $30,068           $30,573

  LIABILITIES
  Current liabilities
     Short-term borrowings and current
      portion of long-term debt                     $705              $748
     Merchandise payables                          3,312             3,458
     Unearned revenues                             1,073             1,047
     Other current liabilities                     4,924             5,097
     Total current liabilities                    10,014            10,350

  Long-term debt and capitalized lease
   obligations                                     2,850             3,268
  Pension and postretirement benefits              1,648             2,421
  Minority interest and other liabilities          2,842             2,923
     Total Liabilities                            17,354            18,962

     Total Shareholders' Equity                   12,714            11,611

     TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY                       $30,068           $30,573


  Total common shares outstanding                  153.8             159.8



                        Sears Holdings Corporation
                             Segment Results
                               (Unaudited)

  Amounts are Preliminary and Subject to Change

  2006  - Reported                         Quarter Ended February 3, 2007
  millions                                              Sears        Sears
                                           Kmart  Domestic  Canada  Holdings
  Merchandise sales and services revenue   $5,879   $8,776  $1,633  $16,288

  Cost of sales, buying and occupancy       4,335    5,964   1,141   11,440
  Gross margin dollars                      1,544    2,812     492    4,848
  Gross margin rate                         26.3%    32.0%   30.1%    29.8%

  Selling and administrative                1,005    1,869     325    3,199
  Selling and administrative expense as a
   percentage of total revenues             17.1%    21.3%   19.9%    19.6%
  Depreciation and amortization                22      240      37      299
  Gain on sales of assets                     (45)      (5)    -        (50)
  Restructuring charges                         1              -          1
  Total costs and expenses                  5,318    8,068   1,503   14,889
  Operating income                           $561     $708    $130   $1,399

  Number of:
    Kmart Stores                            1,388      -       -      1,388
    Full-Line Stores                          -        935     123    1,058
    Specialty Stores                          -      1,095     250    1,345
    Total Stores                            1,388    2,030     373    3,791


  2005  - Reported                         Quarter Ended January 28, 2006
  millions                                              Sears        Sears
                                           Kmart  Domestic  Canada  Holdings
  Merchandise sales and services           $5,740   $8,727  $1,577  $16,044
  Credit and financial products revenues      -        -        42       42
    Total revenues                          5,740    8,727   1,619   16,086

  Cost of sales, buying and occupancy       4,308    6,112   1,088   11,508
  Gross margin dollars                      1,432    2,615     489    4,536
  Gross margin rate                         24.9%    30.0%   31.0%    28.3%

  Selling and administrative                  954    1,790     346    3,090
  Selling and administrative expense as a
   percentage of total revenues             16.6%    20.5%   21.4%    19.2%
  Depreciation and amortization                14      228      40      282
  Loss (gain) on sales of assets              (15)       1     -        (14)
  Gain on sale of business                    -        -      (317)    (317)
  Restructuring charges                         3      -         4        7
  Total costs and expenses                  5,264    8,131   1,161   14,556
  Operating income                           $476     $596    $458   $1,530

  Number of:
    Kmart Stores                            1,416      -       -      1,416
    Full-Line Stores                          -        924     123    1,047
    Specialty Stores                          -      1,128     252    1,380
    Total Stores                            1,416    2,052     375    3,843


  2006  - Reported                       Fiscal Year Ended February 3, 2007
  millions                                              Sears        Sears
                                           Kmart  Domestic  Canada  Holdings
  Merchandise sales and services revenue  $18,647  $29,179  $5,186  $53,012

  Cost of sales, buying and occupancy      14,061   20,120   3,639   37,820
  Gross margin dollars                      4,586    9,059   1,547   15,192
  Gross margin rate                         24.6%    31.0%   29.8%    28.7%

  Selling and administrative                3,623    6,820   1,138   11,581
  Selling and administrative expense as a
   percentage of total revenues             19.4%    23.4%   21.9%    21.8%
  Depreciation and amortization                77      927     138    1,142
  Gain on sales of assets                     (71)     (11)    -        (82)
  Restructuring charges                         9      -        19       28
  Total costs and expenses                 17,699   27,856   4,934   50,489
  Operating income                           $948   $1,323    $252   $2,523

  Number of:
    Kmart Stores                            1,388      -       -      1,388
    Full-Line Stores                          -        935     123    1,058
    Specialty Stores                          -      1,095     250    1,345
    Total Stores                            1,388    2,030     373    3,791


  2005  - Reported                       Fiscal Year Ended January 28, 2006
  millions                                              Sears        Sears
                                           Kmart  Domestic  Canada  Holdings
  Merchandise sales and services          $19,094  $25,868  $3,949  $48,911
  Credit and financial products revenues      -        -       213      213
    Total revenues                         19,094   25,868   4,162   49,124

  Cost of sales, buying and occupancy      14,462   18,221   2,822   35,505
  Gross margin dollars                      4,632    7,647   1,127   13,406
  Gross margin rate                         24.3%    29.6%   28.5%    27.4%

  Selling and administrative                3,804    5,968   1,036   10,808
  Selling and administrative expense as a
   percentage of total revenues             19.9%    23.1%   24.9%    22.0%
  Depreciation and amortization                47      769     116      932
  Loss (gain) on sales of assets              (40)       1     -        (39)
  Gain on sale of business                    -        -      (317)    (317)
  Restructuring charges                        54      -        57      111
  Total costs and expenses                 18,327   24,959   3,714   47,000
  Operating income                           $767     $909    $448   $2,124

  Number of:
    Kmart Stores                            1,416      -       -      1,416
    Full-Line Stores                          -        924     123    1,047
    Specialty Stores                          -      1,128     252    1,380
    Total Stores                            1,416    2,052     375    3,843


  2005  - Pro Forma                      Fiscal Year Ended January 28, 2006
  millions                                              Sears        Sears
                                           Kmart  Domestic  Canada  Holdings
  Merchandise sales and services          $19,094  $30,038  $4,830  $53,962
  Credit and financial products revenues      -        -       299      299
    Total revenues                         19,094   30,038   5,129   54,261

  Cost of sales, buying and occupancy      14,462   21,239   3,476   39,177
  Gross margin dollars                      4,632    8,799   1,354   14,785
  Gross margin rate                         24.3%    29.3%   28.0%    27.4%

  Selling and administrative                3,804    7,039   1,306   12,149
  Selling and administrative expense as a
   percentage of total revenues             19.9%    23.4%   25.5%    22.4%
  Depreciation and amortization                47      911     150    1,108
  Gain on sales of assets                     (40)     -       -        (40)
  Gain on sale of business                    -        -      (317)    (317)
  Restructuring charges                        54      -        57      111
  Total costs and expenses                 18,327   29,189   4,672   52,188
  Operating income                           $767     $849    $457   $2,073



                          Sears Holdings Corporation
                               Adjusted EBITDA

  Amounts are Preliminary and Subject to Change

                                           Quarters Ended
                             February 3, 2007         January 28, 2006
                        Domestic  Sears   Sears    Domestic   Sears  Sears
                       Operations Canada Holdings Operations Canada Holdings

  Operating income per
   statement of income    $1,269   $130   $1,399    $1,072     $458  $1,530
  Plus depreciation and
   amortization              262     37      299       242       40     282
  Less gain on sale of
   assets/businesses         (50)     -      (50)      (14)    (317)   (331)
  Before excluded items    1,481    167    1,648     1,300      181   1,481

  Legal reserve - AIG
   Annuity Insurance Co.,
   et al. v. Sears
   Roebuck                    74      -       74         -        -       -
  Restructuring charges        1      -        1         3        4       7
  Adjusted EBITDA as
   defined                $1,556   $167   $1,723    $1,303     $185  $1,488
  % to revenues            10.6%  10.2%    10.6%      9.0%    11.4%    9.3%




                                         Fiscal Years Ended
                            February 3, 2007           January 28, 2006
                        Domestic  Sears   Sears    Domestic   Sears  Sears
                       Operations Canada Holdings Operations Canada Holdings
                                                     Pro       Pro    Pro
                                                    Forma     Forma  Forma
  Operating income per
   statement of income    $2,271   $252   $2,523    $1,616     $457  $2,073
  Plus depreciation and
   amortization            1,004    138    1,142       958      150   1,108
  Less gain on sale of
   assets/businesses         (82)     -      (82)      (40)    (317)   (357)
  Before excluded items    3,193    390    3,583     2,534      290   2,824

  Vice Chairman separation
   expense                     8      -        8         -        -       -
  Visa/MasterCard
   settlement                (36)     -      (36)        -        -       -
  Merger transaction costs     -      -        -        34        -      34
  Legal reserve - AIG
   Annuity Insurance Co.,
   et al. v.  Sears
   Roebuck                    74      -       74         -        -       -
  Restructuring charges        9     19       28        54       57     111
  Adjusted EBITDA as
   defined                $3,248   $409   $3,657    $2,622     $347  $2,969
  % to revenues             6.8%   7.9%     6.9%      5.3%     6.8%    5.5%



                         Sears Holdings Corporation
                          Pro Forma Reconciliation

The following tables provide a reconciliation from the as reported results to the pro forma results presented for Sears Holdings, Sears Domestic and Sears Canada for the fiscal year ended January 28, 2006.

  Sears Holdings                       Fiscal Year Ended January 28, 2006(1)
  millions
                                                    Pre-   Purchase
                                           As      merger  Account-   Pro
                                         reported Activity  ing      Forma
  Merchandise sales and services         $48,911   $5,051   $-     $53,962
  Credit and financial products revenues     213       86    -         299
    Total revenue                         49,124    5,137    -      54,261

  Cost of sales, buying and occupancy     35,505    3,672    -      39,177
  Selling and administrative              10,808    1,330     11    12,149
  Depreciation and amortization              932      147     29     1,108
  Gain on sales of assets                    (39)      (1)   -         (40)
  Gain on sale of business                  (317)     -      -        (317)
  Restructuring charges                      111      -      -         111
  Total costs and expenses                47,000    5,148     40    52,188
  Operating income (loss)                  2,124      (11)   (40)    2,073
  Interest and investment income            (127)     (32)   -        (159)
  Interest expense                           323       57     (2)      378
  Other income                               (37)     -      -         (37)
  Income before income taxes, minority
   interest and cumulative effect of
   change in accounting principle          1,965      (36)   (38)    1,891
  Income tax expense (benefit)               716        4    (15)      705
  Minority interest                          301        6    -         307
  Income before cumulative effect of
   change in accounting principle            948      (46)   (23)      879
  Cumulative effect of change in
   accounting principle, net of tax          (90)     -      -         (90)

  NET INCOME (LOSS)                         $858     $(46)  $(23)     $789

  (1)  Certain prior period amounts have been reclassified to conform to
       current year presentation


  Sears Domestic                       Fiscal Year Ended January 28, 2006(1)
  millions
                                                    Pre-   Purchase
                                           As      merger  Account-   Pro
                                         reported Activity  ing      Forma
  Merchandise sales and services revenue $25,868   $4,170   $-     $30,038

  Cost of sales, buying and occupancy     18,221    3,018    -      21,239
  Selling and administrative               5,968    1,060     11     7,039
  Depreciation and amortization              769      116     26       911
  Loss (gain) on sales of assets               1       (1)   -         -
  Gain on sale of business                   -        -      -         -
  Total costs and expenses                24,959    4,193     37    29,189
  Operating income (loss)                   $909     $(23)  $(37)     $849



  Sears Canada                        Fiscal Year Ended January 28, 2006(1)
  millions
                                                    Pre-   Purchase
                                           As      merger  Account-   Pro
                                         reported Activity  ing      Forma
  Merchandise sales and services          $3,949     $881   $-      $4,830
  Credit and financial product revenues      213       86    -         299
    Total revenues                         4,162      967    -       5,129

  Cost of sales, buying and occupancy      2,822      654    -       3,476
  Selling and administrative               1,036      270    -       1,306
  Depreciation and amortization              116       31      3       150
  Loss (gain) on sales of assets             -        -      -         -
  Gain on sale of business                  (317)     -      -        (317)
  Restructuring charges                       57      -      -          57
  Total costs and expenses                 3,714      955      3     4,672
  Operating income (loss)                   $448      $12    $(3)     $457

First Call Analyst:
FCMN Contact:

SOURCE: Sears Holdings Corporation

CONTACT: Sears Holdings Public Relations, +1-847-286-8371

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








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