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Press Release

Sears Holdings Reports Second Quarter Results
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Sears Public Relations And Communications
(847) 286-8371

Sears Holdings Reports Second Quarter Results

    HOFFMAN ESTATES, Ill., Aug. 28 /PRNewswire-FirstCall/ -- Sears Holdings
Corporation ("Holdings," "we," "us," "our" or the "Company") (Nasdaq: SHLD)
today reported net income of $65 million, or $0.50 per diluted share, for
the second quarter ended August 2, 2008, compared with net income of $173
million, or $1.15 per diluted share, for the second quarter ended August 4,
2007. Our second quarter 2008 results include the positive impact of the
reversal of a $62 million ($37 million after tax or $0.29 per diluted
share) reserve because of the overturning of the previously disclosed
February 2, 2007 adverse jury verdict relating to the redemption of certain
Sears, Roebuck and Co. bonds in 2004. Excluding this item, earnings per
diluted share were $0.21 for the second quarter of fiscal 2008. The decline
in our second quarter results from the same quarter last year primarily
reflects lower operating results at both Sears Domestic and Kmart,
partially offset by improved operating results at Sears Canada.

    "Our second quarter results reflect the continued effects of a slowing
economy which contributed to the earnings declines we have experienced
since the third quarter of 2007," said W. Bruce Johnson, Sears Holdings'
interim chief executive officer and president. "While it was a difficult
quarter, we were successful in reducing our domestic inventory levels by
$500 million which should lead to lower markdowns and favorably impact our
gross margin rates in the second half of the year."

    Mr. Johnson added, "We expect to generate higher EBITDA in the second
half of this year as compared to the corresponding period in 2007 as we
benefit from our lower domestic inventory levels and continued vigilant
expense management. Given our year-to-date results and the state of the
economy, our current full-year EBITDA forecast, which assumes flat to
modest comparable store sales declines for the rest of the year, is
comparable to, but no longer exceeds, last year's EBITDA".

    Revenues and Comparable Store Sales

    For the quarter, Sears Domestic's comparable store sales declined 6.7%
while Kmart's comparable store sales declined 5.6%. Total domestic
comparable store sales declined 6.2%. The comparable store sales declines
at both Kmart and Sears Domestic continue to reflect increasing competition
and weakness in the general economy, but are less than the declines
reported by Sears Domestic and Kmart during the first quarter of 2008 of
9.8% and 7.1%, respectively. Comparable store sales declined for the
quarter across most major categories at both Kmart and Sears Domestic, but
continue to be offset by increases in sales of consumer electronics.
Comparable store sales declines continue to be driven by categories
directly impacted by housing market conditions (including home appliances
and, most notably, tools at Sears Domestic), and the increased costs of
consumer staples, such as food and gas, which decrease consumers'
discretionary spending.

    Bruce Johnson noted that, "Despite the difficult economic environment,
we remain focused on long-term value creation and continue to invest in the
future of the Company. Since last year we have added 65 net stores, which
consist of Home Appliance Showrooms, dealer stores and outlet stores, and
we have continued to expand our online and multi-channel capabilities. In
May we added a huge selection of books, DVDs, music and software to
sears.com, nearly quadrupling the number of products available."

    For the quarter, our total revenues declined $0.5 billion to $11.8
billion in fiscal 2008, as compared to $12.3 billion for the second quarter
of fiscal 2007. The decrease in revenue primarily reflects the impact of
lower domestic comparable store sales.

    Operating Income

    For the second quarter 2008, we reported operating income of $187
million, as compared to operating income of $332 million in the second
quarter of fiscal 2007. The decrease in operating income was mainly due to
lower gross margin generated at both Kmart and Sears Domestic. We generated
$3.1 billion in total gross margin in the second quarter as compared to
$3.4 billion in the second quarter last year. Our gross margin rate
decreased by approximately 120 basis points to 26.5% and reflects rate
declines for both Sears Domestic and Kmart due to increased markdown
activity as a result of the intense competition for consumer business.
Domestic gross margin rate was also reduced as a result of a $36 million
increase in inventory reserves over the reserve for the comparable period
last year primarily attributable to the reset of the Sears home electronics
department and transition to newer products. The decline in Sears Domestic
and Kmart gross margin rates was somewhat offset by an increase in the
gross margin rate at Sears Canada. Given that we do not expect any
significant near-term improvement in the overall retail environment, we
believe that our sales and gross margin will likely continue to be
pressured by the above-noted unfavorable economic factors for the balance
of fiscal 2008.

    Declines in sales and gross margin were partially offset by declines in
selling and administrative expenses for the quarter. Selling and
administrative expenses for the second quarter of 2008 include the
above-noted impact of $62 million related to a favorable legal judgment. In
addition to the legal judgment, selling and administrative expenses
declined $46 million, mainly as a result of our focus on controlling costs.
This additional decline was comprised of decreases in domestic operations
of $54 million and a slight increase of $8 million at Sears Canada. The
decline in domestic selling and administrative expenses is primarily due to
lower payroll and advertising expenses. The increase in Sears Canada was
primarily due to changes in foreign currency exchange rates.

    Financial Position

    We had cash and cash equivalents of $1.5 billion at August 2, 2008 (of
which $771 million was domestic and $763 million was at Sears Canada) as
compared to $2.6 billion at August 4, 2007 and $1.6 billion at February 2,
2008. During the first two quarters of 2008, significant uses of cash
included share repurchases of $477 million (as discussed further below),
capital expenditures of $277 million and long-term debt repayments of $179
million. These amounts were partially offset by an $812 million increase in
short-term borrowings, primarily through borrowing on our $4 billion credit
facility.

    Merchandise inventories at August 2, 2008 were $9.8 billion, as
compared to 10.2 billion at August 4, 2007. Domestic inventory declined
from $9.4 billion at August 4, 2007 to $8.9 billion at August 2, 2008,
reflecting the effectiveness of our efforts to control inventory levels.
Sears Canada's inventory levels increased approximately $80 million from
August 4, 2007 to $880 million at August 2, 2008. The increase in Sears
Canada's inventory is partially due to the change in exchange rates. As we
expect difficult economic conditions to persist in the near term, we intend
to continue to manage our inventories throughout the remainder of the year
with the goal of further reducing our domestic merchandise inventories to
better align current levels with expected sales.

    Share Repurchase

    During the 13- and 26- week periods ended August 2, 2008, we
repurchased 5.6 million and 6.0 million of our common shares at a total
cost of $437 million and $477 million, respectively, under our share
repurchase program. As of August 2, 2008, we had remaining authorization to
repurchase $206 million of common shares under the share repurchase
program. Share repurchases may be implemented using a variety of methods,
which may include open market purchases, privately negotiated transactions,
block trades, accelerated share repurchase transactions, the purchase of
call options, the sale of put options or otherwise, or by any combination
of such methods. Timing of repurchases is dependent on prevailing market
conditions, alternative uses of capital and other factors. Since the third
quarter of fiscal 2005, when our repurchase plan was first approved, we
have repurchased approximately 38.7 million of our common shares at a total
cost of $4.8 billion pursuant to the program. As of August 2, 2008, we had
approximately 126 million common shares outstanding.

    Adjusted EBITDA

    For purposes of evaluating operating performance, we use 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 nonrecurring gains/(losses). Adjusted EBITDA is used by management
to evaluate the operating performance of our 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 our 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; and

    -- Other significant items, while periodically affecting our results,
may vary significantly from period to period and have a disproportionate
effect in a given period, which affects the comparability of results.



> Adjusted EBITDA was determined as follows: 13 Weeks Ended 26 Weeks Ended August 2, August 4, August 2, August 4, 2008 2007 2008 2007 Operating income per statement of operations $187 $332 $179 $741 Plus depreciation and amortization 247 262 495 524 Less gain on sales of assets (6) (5) (38) (10) Before excluded items 428 589 636 1,255 Legal matter reserve (62) -- (62) (30) Sears Canada post-retirement benefit plans curtailment gain -- -- -- (27) Hurricane related recoveries -- (3) -- (18) Adjusted EBITDA as defined $366 $586 $574 $1,180 % to revenues 3.1% 4.8% 2.5% 4.9% Adjusted EBITDA for our domestic (United States operations) and Sears Canada operations are as follows:

> 13 Weeks Ended 26 Weeks Ended Adjusted EBITDA % To Revenues Adjusted EBITDA % To Revenues August August August August August August August August 2, 2008 4, 2007 2, 2008 4, 2007 2, 2008 4, 2007 2, 2008 4, 2007 Domestic operations $246 $489 2.4% 4.5% $374 $1,017 1.9% 4.7% Sears Canada 120 97 8.6% 7.3% 200 163 7.6% 6.8% Total Adjusted EBITDA $366 $586 3.1% 4.8% $574 $1,180 2.5% 4.9% Quarterly Report on Form 10-Q We plan to file our Quarterly Report on Form 10-Q for the second quarter 2008 with the SEC on or about August 29, 2008. Forward-Looking Statements Results are unaudited. This press release contains forward-looking statements about our expectations regarding our 2008 forecast. Forward-looking statements are subject to risks and uncertainties that may cause our 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 are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement initiatives to improve inventory management and other capabilities; competitive conditions in the retail and related services industries; the impact of seasonal buying patterns, including seasonal fluctuations due to weather conditions, which are difficult to forecast with certainty; general economic conditions and normal business uncertainty, changes in consumer confidence, tastes, preferences and spending, including the impact of fuel costs and spending patterns, the availability and level of consumer debt, and unanticipated increases in our costs; our dependence on sources outside the United States for significant amounts of our merchandise; our extensive reliance on computer systems to process transactions, summarize results and manage our business; our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business; our ability to properly implement and realize the expected benefits from our new organizational structure and operating model; our ability to attract, motivate and retain key executives and other associates; the outcome of pending and/or future legal proceedings, including product liability claims and bankruptcy claims, including proceedings with respect to which the parties have reached a preliminary settlement; and our ability to successfully invest available capital. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available. About Sears Holdings Corporation Sears Holdings Corporation is the nation's fourth largest broadline retailer, with over $50 billion in annual revenues, and approximately 3,900 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. We also have Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. We are 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. * * * * * During the fourth quarter of 2007, Sears Canada changed its fiscal year end from the Saturday nearest December 31st to the Saturday nearest January 31st. Prior to this change, Sears Canada's results were consolidated into Holdings' results on a one-month lag. With the change, Sears Canada's fiscal year end is now aligned with the fiscal year end of Holdings. As required by accounting standards, this change has been retrospectively applied to all prior year amounts included in the following Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Segment Results and Adjusted EBITDA.

> Sears Holdings Corporation Condensed Consolidated Statements of Operations (Unaudited) 13 Weeks Ended 26 Weeks Ended millions, except per share data August August August August 2, 2008 4, 2007 2, 2008 4, 2007 REVENUES Merchandise sales and services $11,762 $12,260 $22,830 $24,007 COSTS AND EXPENSES Cost of sales, buying and occupancy 8,640 8,869 16,685 17,306 Gross margin dollars 3,122 3,391 6,145 6,701 Gross margin rate 26.5% 27.7% 26.9% 27.9% Selling and administrative 2,694 2,802 5,509 5,446 Selling and administrative expense as a percentage of total revenues 22.9% 22.9% 24.1% 22.7% Depreciation and amortization 247 262 495 524 Gain on sales of assets (6) (5) (38) (10) Total costs and expenses 11,575 11,928 22,651 23,266 Operating income 187 332 179 741 Interest and investment income (20) (42) (31) (82) Interest expense 65 71 131 144 Other (income) loss 1 (12) 2 (17) Income before income taxes and minority interest 141 315 77 696 Income taxes expense 56 128 28 276 Minority interest 20 14 40 24 NET INCOME $65 $173 $9 $396 EARNINGS PER COMMON SHARE Diluted earnings per share $0.50 $1.15 $0.07 $2.60 Diluted weighted average common shares outstanding 128.8 150.9 130.3 152.4 Sears Holdings Corporation Condensed Consolidated Balance Sheets (Unaudited) millions August 2, August 4, February 2, 2008 2007 2008 ASSETS Current assets Cash and cash equivalents $1,534 $2,634 $1,622 Receivables 1,020 751 744 Merchandise inventories 9,754 10,158 9,963 Prepaid expenses and other current assets 497 673 473 Total current assets 12,805 14,216 12,802 Property and equipment, net 8,568 8,842 8,863 Goodwill 1,660 1,714 1,686 Tradenames and other intangible assets 3,322 3,391 3,353 Other assets 434 420 693 TOTAL ASSETS $26,789 $28,583 $27,397 LIABILITIES Current liabilities Short-term borrowings and current portion of long-term debt $1,364 $631 $404 Merchandise payables 3,494 3,448 3,487 Unearned revenues 1,106 1,118 1,121 Accrued expenses and other current liabilities 3,909 4,384 4,550 Total current liabilities 9,873 9,581 9,562 Long-term debt and capitalized lease obligations 2,250 2,646 2,606 Pension and post-retirement benefits 1,135 1,467 1,258 Minority interest and other liabilities 3,351 3,265 3,304 Total Liabilities 16,609 16,959 16,730 Total Shareholders' Equity 10,180 11,624 10,667 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,789 $28,583 $27,397 Total common shares outstanding 126.4 144.4 132.4 Sears Holdings Corporation Segment Results (Unaudited) 13 Weeks Ended August 2, 2008 millions, except for number of stores Sears Sears Kmart Domestic Canada Holdings Merchandise sales and services $4,005 $6,367 $1,390 $11,762 Cost of sales, buying and occupancy 3,087 4,590 963 8,640 Gross margin dollars 918 1,777 427 3,122 Gross margin rate 22.9% 27.9% 30.7% 26.5% Selling and administrative 863 1,524 307 2,694 Selling and administrative expense as a percentage of total revenues 21.5% 23.9% 22.1% 22.9% Depreciation and amortization 34 181 32 247 Gain on sales of assets (1) (5) - (6) Total costs and expenses 3,983 6,290 1,302 11,575 Operating income $22 $77 $88 $187 Number of: Kmart Stores 1,382 - - 1,382 Full-Line Stores - 933 122 1,055 Specialty Stores - 1,177 260 1,437 Total Stores 1,382 2,110 382 3,874 13 Weeks Ended August 4, 2007 millions, except for number of stores Sears Sears Kmart Domestic Canada Holdings Merchandise sales and services $4,228 $6,706 $1,326 $12,260 Cost of sales, buying and occupancy 3,203 4,736 930 8,869 Gross margin dollars 1,025 1,970 396 3,391 Gross margin rate 24.2% 29.4% 29.9% 27.7% Selling and administrative 870 1,633 299 2,802 Selling and administrative expense as a percentage of total revenues 20.6% 24.4% 22.5% 22.9% Depreciation and amortization 27 202 33 262 Gain on sales of assets - (2) (3) (5) Total costs and expenses 4,100 6,569 1,259 11,928 Operating income $128 $137 $67 $332 Number of: Kmart Stores 1,388 - - 1,388 Full-Line Stores - 934 123 1,057 Specialty Stores - 1,111 253 1,364 Total Stores 1,388 2,045 376 3,809 Sears Holdings Corporation Segment Results (Unaudited) 26 Weeks Ended August 2, 2008 millions, except for number of stores Sears Kmart Domestic Canada Sears Holdings Merchandise sales and services $7,738 $12,467 $2,625 $22,830 Cost of sales, buying and occupancy 5,953 8,919 1,813 16,685 Gross margin dollars 1,785 3,548 812 6,145 Gross margin rate 23.1% 28.5% 30.9% 26.9% Selling and administrative 1,719 3,178 612 5,509 Selling and administrative expense as a percentage of total revenues 22.2% 25.5% 23.3% 24.1% Depreciation and amortization 67 364 64 495 Gain on sales of assets (2) (4) (32) (38) Total costs and expenses 7,737 12,457 2,457 22,651 Operating income $1 $10 $168 $179 Number of: Kmart Stores 1,382 - - 1,382 Full-Line Stores - 933 122 1,055 Specialty Stores - 1,177 260 1,437 Total Stores 1,382 2,110 382 3,874 26 Weeks Ended August 4, 2007 millions, except for number of stores Sears Sears Kmart Domestic Canada Holdings Merchandise sales and services $8,243 $13,366 $2,398 $24,007 Cost of sales, buying and occupancy 6,258 9,365 1,683 17,306 Gross margin dollars 1,985 4,001 715 6,701 Gross margin rate 24.1% 29.9% 29.8% 27.9% Selling and administrative 1,710 3,211 525 5,446 Selling and administrative expense as a percentage of total revenues 20.7% 24.0% 21.9% 22.7% Depreciation and amortization 53 408 63 524 Gain on sales of assets (1) (1) (8) (10) Total costs and expenses 8,020 12,983 2,263 23,266 Operating income $223 $383 $135 $741 Number of: Kmart Stores 1,388 - - 1,388 Full-Line Stores - 934 123 1,057 Specialty Stores - 1,111 253 1,364 Total Stores 1,388 2,045 376 3,809 Sears Holdings Corporation Adjusted EBITDA 13 Weeks Ended millions August 2, 2008 August 4, 2007 Domestic Sears Domestic Sears Operations Sears Holdings Operations Sears Holdings Canada Canada Operating income per statement of operations $99 $88 $187 $265 $67 $332 Plus depreciation and amortization 215 32 247 229 33 262 Less gain on sales of assets (6) - (6) (2) (3) (5) Before excluded items 308 120 428 492 97 589 Legal matter reserve (62) - (62) - - - Hurricane related recoveries - - - (3) - (3) Adjusted EBITDA as defined $246 $120 $366 $489 $97 $586 % to revenues 2.4% 8.6% 3.1% 4.5% 7.3% 4.8% 26 Weeks Ended millions August 2, 2008 August 4, 2007 Domestic Sears Domestic Sears Operations Sears Holdings Operations Sears Holdings Canada Canada Operating income per statement of operations $11 $168 $179 $606 $135 $741 Plus depreciation and amortization 431 64 495 461 63 524 Less gain on sales of assets (6) (32) (38) (2) (8) (10) Before excluded items 436 200 636 1,065 190 1,255 Legal matter (62) - (62) (30) - (30) Hurricane related recoveries - - - (18) - (18) Sears Canada post-retirement benefit plans curtailment gain - - - - (27) (27) Adjusted EBITDA as defined $374 $200 $574 $1,017 $163 $1,180 % to revenues 1.9% 7.6% 2.5% 4.7% 6.8% 4.9% SOURCE Sears Holdings Corporation
Web site: http://www.searsholdings.com

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