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Press Release

Sears Holdings Reports Fourth Quarter and Full Year 2006 Results
CONTACT:

Sears Public Relations And Communications
(847) 286-8371

Sears Holdings Reports Fourth Quarter and Full Year 2006 Results

    HOFFMAN ESTATES, Ill., March 1 /PRNewswire-FirstCall/ -- 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 SOURCE Sears Holdings Corporation
Web site: http://www.searsholdings.com

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