Sears Reports Second Quarter 2003 Results

Sears, Roebuck and Co. (NYSE: S) today reported net income of $309 million, or $1.04 per share, for the second quarter ended June 28, 2003, compared with net income of $229 million, or $0.71 per share, in the second quarter of 2002.

"We delivered a solid quarter that was consistent with our expectations," said Chairman and CEO Alan J. Lacy. "We are pleased that sales in core businesses such as lawn and garden, tools and apparel have shown signs of strengthening, especially considering the difficult economic environment."

Sears' second quarter 2003 earnings included a pretax gain of $93 million, or $0.20 per share, on the sale of previously charged-off credit card accounts, which was partially offset by a pretax charge of $28 million, or $0.06 per share, for severance costs associated with a productivity improvement program to further streamline the company's home office and field operations.

In the second quarter of 2002, Sears refined its methodology for determining its allowance for uncollectible accounts to include the uncollectible portion of current credit card accounts and credit card fee balances. As a result, the 2002 second quarter results included a pretax charge of $300 million, or $0.59 per share.

Retail and Related Services

Retail and Related Services reported operating income of $183 million for the second quarter of 2003, compared with operating income of $300 million in the second quarter of 2002. The decrease reflects lower gross margins on full-line store sales due to clearance activity and a highly promotional retail environment.

Revenues for the second quarter were $7.8 billion, an increase of 0.9 percent over the same period last year. A revenue increase from the addition of Lands' End, which was acquired in June 2002, was partially offset by revenue decreases in retail stores. Comparable store sales for the quarter declined 3.5 percent. In hardlines, lawn and garden experienced strong performances in both full-line and dealer stores.

"Sales trends generally improved during the quarter, reflecting continuing progress against our goals of upgrading merchandise offerings, enhancing the customer experience in Sears stores and strengthening our marketing," Lacy said. "Apparel sales benefited from the contribution of Lands' End merchandise. In fact, comparable sales for apparel in stores carrying the Lands' End brand were 2-4 percent better than those without. We are encouraged by these initial results and look forward to completing our rollout to all Sears stores by year end."

The company's gross margin rate for the quarter declined 10 basis points from the prior year, as a significant increase in promotional activity was largely offset by improvements in sourcing and the inclusion of the higher- margin Lands' End business.

Selling and administrative expenses increased by $107 million due primarily to the inclusion of Lands' End. In addition, selling and administrative expenses in Retail and Related Services included a charge of $16 million for severance costs related to the company's productivity improvement program. The remaining portion of the severance charge was recorded in the corporate and other segment.

Credit and Financial Products

Credit and Financial Products reported operating income of $355 million for the quarter, up $243 million compared to the 2002 second quarter, which included a $300 million charge related to a refinement in the method for determining the allowance for uncollectible credit card accounts. In addition, the current year quarter included a $93 million gain on the sale of previously charged-off accounts.

Second quarter domestic Credit and Financial Products revenues decreased approximately 4.2 percent from a year ago to $1.27 billion, as an increase in average receivable balances was more than offset by a lower yield. The lower yield is attributable to the lower interest rate environment, reduced late fees and an increase in the size of the MasterCard portfolio, which carries a lower yield than Sears' private label card.

Domestic credit card receivables at the end of the second quarter increased 4.2 percent over the prior year to $29.4 billion. Funding costs were even with last year's quarter, as favorability from the lower interest rate environment was offset by greater interest expense associated with higher debt balances to support the increase in receivables.

The domestic provision for uncollectible credit card accounts was $446 million in the second quarter, compared with $693 million in last year's period, a decrease of $247 million due primarily to the $300 million charge taken in the second quarter of 2002. The current year provision also benefited from a $93 million gain realized during the current quarter as Sears sold approximately $2.5 billion of previously charged-off accounts. The sale generated pretax proceeds of $178 million and the resulting gain was recorded as a reduction of the provision for uncollectible accounts. Consequently, the net charge-off rate for the quarter was 4.57 percent, compared with 5.32 percent a year ago. Excluding the benefit of the sale of the charged off accounts, the net charge-off rate for the quarter would have been 6.71 percent.

Year-over-year delinquencies rose to 7.41 percent from 6.87 percent, reflecting continued seasoning of the MasterCard portfolio. The domestic allowance for uncollectible credit card accounts at the end of the second quarter was $1.9 billion, or 6.45 percent of ending credit receivables, compared with 6.06 percent of ending credit receivables at the end of the 2003 first quarter.

Share Repurchase Program

During the quarter, Sears repurchased 34.9 million shares of its common stock for a total cost of $1.02 billion, at an average price of $29.19 per share. As of June 28, 2003, the company had remaining authorization to repurchase $230 million of shares by December 31, 2004, under its existing share repurchase program.

On July 15, the Sears board of directors authorized an incremental $1 billion to replenish the existing share repurchase program, bringing the total authorized under the program to approximately $1.2 billion. The shares will be purchased in the open market or through privately negotiated transactions. Timing will depend on prevailing market conditions, alternative uses of capital and other factors.

Outlook

In Retail and Related Services, the company anticipates that full-year operating income will be roughly flat with the previous year. This assumes comparable store sales of flat to up low-single digit in the second half. Credit and Financial Products remains on plan for a mid-single digit decline in operating income, including the benefit from the sale of charged-off receivables. Sears expects that the gain will be largely offset by lower than planned late fees, due to lower delinquent accounts resulting from risk mitigation activities.

The company expects full-year earnings per share (EPS) to be between $4.80 and $5.00. This compares with its previous forecast of EPS between $4.95 and $5.15. This full-year expectation excludes any effect that may result from the sale of the Credit and Financial Products business.

Forward-Looking Statements

This release contains guidance on full-year 2003 earnings per share, as well as comparable store sales, margins and other company performance measures. These statements are forward-looking statements based on assumptions about the future that are subject to risks and uncertainties, and actual results may differ materially from the results projected in the forward looking statements. Risks and uncertainties that may cause actual results to differ materially include competitive conditions in retail and credit; changes in consumer confidence and spending; delinquency and charge-off trends in the credit card portfolio; consumer debt levels and the level of consumer bankruptcies; the success of initiatives to address increased delinquencies and credit losses and improve credit profitability; the success of the full- line store strategy and other strategies; the possibility that the company will identify new business and strategic options for one or more of its business segments, potentially including selective acquisitions, dispositions, restructurings, joint ventures and partnerships; Sears' ability to integrate and operate Lands' End successfully; the successful integration of Sears retail businesses with a third-party credit card program, which involves significant training and the integration of complex systems and processes; the outcome of pending legal proceedings; anticipated cash flow; social and political conditions such as war, political unrest and terrorism or natural disasters; the possibility of negative investment returns in the company's pension plan; changes in interest rates; the volatility in financial markets; changes in the company's debt ratings, credit spreads and cost of funds; the possibility of interruptions in systematically accessing the public debt markets; general economic conditions and normal business uncertainty. In addition, Sears typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. The company intends these forward- looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available.

Webcast

Sears will webcast its second quarter earnings conference call at 10:30 a.m. EDT/9:30 a.m. CDT today. Investors and the media are invited to listen to the call through the company's website at www.sears.com/investors, under "Events and Webcasts." A telephone replay of the call will be available beginning at approximately 12:30 p.m EDT/11:30 a.m. CDT today. The replay number is 1-888-562-6126, access code: 3276. A replay of the conference call will also be available on the company's website at www.sears.com/investors, under "Events and Webcasts."

About Sears

Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2002, the company's revenue was $41.4 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web sites, sears.com, thegreatindoors.com and landsend.com, and a variety of specialty catalogs.

   SEARS, ROEBUCK AND CO.
   CONSOLIDATED INCOME


                                       For the 13 Weeks     For the 26 Weeks
                                            Ended                Ended
                                        June 28, 2003        June 28, 2003
                                      and June 29, 2002    and June 29, 2002
  (millions, except earnings per
   common share)                         2003    2002     2003     2002

      REVENUES
        Merchandise sales and services  $8,851  $8,753  $16,325  $16,400
        Credit and financial products
         revenues                        1,345   1,389    2,751    2,779
                Total revenues          10,196  10,142   19,076   19,179

      COSTS AND EXPENSES
        Cost of sales, buying and
         occupancy                       6,402   6,342   11,876   11,968
        Selling and administrative       2,327   2,236    4,437    4,297
        Provision for uncollectible
         accounts                          461     701      944    1,082
        Depreciation and amortization      230     221      455      431
        Interest                           287     276      566      568
        Special charges and impairments      -       -        -      111
             Total costs and expenses    9,707   9,776   18,278   18,457

      Operating income                     489     366      798      722
      Other income, net                     13      10       14       88

      Income before income taxes and
        minority interest                  502     376      812      810

      Income taxes                        (186)   (140)    (301)    (288)

      Minority interest                     (7)     (7)     (10)      25

      Income before cumulative effect
       of accounting change                309     229      501      547

      Cumulative effect of change in
       accounting for goodwill               -       -        -     (208)

      NET INCOME                          $309    $229     $501     $339

      EARNINGS PER COMMON SHARE

        Basic
           Earnings per share before
            cumulative effect of a change
            in accounting principle      $1.04   $0.72    $1.63    $1.72

           Cumulative effect of change
            in accounting for goodwill       -       -        -    (0.65)

             Earnings per share          $1.04   $0.72    $1.63    $1.07

        Diluted
           Earnings per share before
            cumulative effect of a change
            in accounting principle      $1.04   $0.71    $1.63    $1.70

           Cumulative effect of change
            in accounting for goodwill       -       -        -    (0.65)

             Earnings per share          $1.04   $0.71    $1.63    $1.05

      Average common and dilutive
       common equivalent shares
       outstanding                       298.0   321.1    307.9    322.5





   SEARS, ROEBUCK AND CO.
   CONSOLIDATED BALANCE SHEET

      (millions)

                                          June 28,    June 29,  December 28,
                                            2003        2002       2002
      Assets
        Current Assets
          Cash and cash equivalents        $2,921      $1,019     $1,962
          Credit card receivables          31,323      29,812     32,595
            Less allowance for
             uncollectible accounts         1,957       1,485      1,836
            Net credit card receivables    29,366      28,327     30,759
          Other receivables                   728         635        863
          Merchandise inventories           5,447       5,396      5,115
          Prepaid expenses and deferred
           charges                            620         617        535
          Deferred income taxes               839       1,010        749
            Total current assets           39,921      37,004     39,983

        Property and equipment, net         6,909       6,797      6,910
        Deferred income taxes                 627         365        734
        Goodwill                              945         936        944
        Tradenames and other intangible
         assets                               703         725        704
        Other assets                        1,268         917      1,134
            Total assets                  $50,373     $46,744    $50,409

      Liabilities
        Current liabilities
          Short-term borrowings            $5,464      $3,981     $4,525
          Current portion of long-term
           debt and capitalized lease
           obligations                      5,050       4,325      4,808
          Accounts payable and other
           liabilities                      6,759       6,831      7,485
          Unearned revenues                 1,256       1,180      1,199
          Other taxes                         496         471        580
            Total current liabilities      19,025      16,788     18,597

        Long-term debt and capitalized
         lease obligations                 21,462      20,348     21,304
        Pension and Postretirement
         benefits                           2,336       1,645      2,491
        Minority interest and other
         liabilities                        1,318       1,868      1,264
            Total liabilities              44,141      40,649     43,656

      Commitments and Contingent
       Liabilities

      Shareholders' Equity
        Common shares                         323         323        323
        Capital in excess of par value      3,501       3,516      3,505
        Retained earnings                   8,861       7,605      8,497
        Treasury stock - at cost           (5,463)     (4,506)    (4,474)
        Deferred ESOP expense                 (34)        (48)       (42)
        Accumulated other comprehensive
         loss                                (956)       (795)    (1,056)
            Total shareholders' equity      6,232       6,095      6,753
            Total liabilities and
             shareholders' equity         $50,373     $46,744    $50,409

            Total common shares
             outstanding                    282.6       315.9      316.7



   SEARS, ROEBUCK AND CO.

   Segment Income Statements

   (millions, except earnings per share)

   For the 13 Weeks Ended June 28, 2003 and June 29, 2002


                                                         Credit & Financial
                             Retail & Related Services        Products
                                 2003          2002        2003        2002

  Merchandise sales and
   services                     $7,771        $7,699         $-          $-
  Credit and financial
   products revenues                 -             -      1,266       1,321

  Total Revenues                 7,771         7,699      1,266       1,321

  Costs and expenses
     Cost of sales, buying
      and occupancy              5,662         5,602          -           -
     Selling and
      administrative             1,723         1,616        215         264
     Provision for uncollectible
      accounts                       -             -        446         693
     Depreciation and
      amortization                 187           176          5           5
     Interest expense
      (income)                      16             5        245         247
         Total costs and
          expenses               7,588         7,399        911       1,209

  Operating income (loss)         $183          $300       $355        $112

  Net Income

  EPS - Diluted

     Average shares o/s


                                       Corporate & Other     Sears Canada

                                        2003      2002      2003       2002

  Merchandise sales and services        $100       $92      $980       $962
  Credit and financial products
   revenues                                -         -        79         68

  Total Revenues                         100        92     1,059      1,030

  Costs and expenses
     Cost of sales, buying and
      occupancy                           41        35       699        705
     Selling and administrative          121       110       268        246
     Provision for uncollectible
      accounts                             -         -        15          8
     Depreciation and amortization        10        16        28         24
     Interest expense (income)             -         -        26         24
            Total costs and expenses     172       161     1,036      1,007

  Operating income (loss)               $(72)     $(69)      $23        $23

  Net Income

  EPS - Diluted

     Average shares o/s

                                                           Total

                                                   2003               2002

  Merchandise sales and services                  $8,851             $8,753
  Credit and financial products
   revenues                                        1,345              1,389

  Total Revenues                                  10,196             10,142

  Costs and expenses
      Cost of sales, buying and occupancy          6,402              6,342
      Selling and administrative                   2,327              2,236
      Provision for uncollectible accounts           461                701
      Depreciation and amortization                  230                221
      Interest expense (income)                      287                276
            Total costs and expenses               9,707              9,776

  Operating income (loss)                           $489               $366

  Net Income                                        $309               $229

  EPS - Diluted                                    $1.04              $0.71

     Average shares o/s                            298.0              321.1



  For the 26 Weeks Ended June 28, 2003 and June 29, 2002

                                                         Credit & Financial
                             Retail & Related Services        Products
                                2003          2002       2003        2002

  Merchandise sales and
   services                    $14,415       $14,467         $-          $-
  Credit and financial
   products revenues                 -             -      2,596       2,639

  Total Revenues                14,415        14,467      2,596       2,639

  Costs and expenses
     Cost of sales, buying
      and occupancy             10,576        10,607          -           -
     Selling and
      administrative             3,284         3,128        433         492
     Provision for
      uncollectible
      accounts                       -             -        917       1,064
     Depreciation and
      amortization                 370           344          9          10
     Interest expense
      (income)                      25             1        487         518
     Special charges and
      impairments                    -             -          -           -
         Total costs and
          expenses              14,255        14,080      1,846       2,084

  Operating income (loss)         $160          $387       $750        $555

  Net Income before
   cumulative effect of
   change in accounting

  Cumulative effect of
   change in accounting

  Net Income

  EPS - Diluted

     Average shares o/s


                                       Corporate & Other     Sears Canada
                                        2003      2002      2003       2002

  Merchandise sales and services        $163      $150    $1,747     $1,783
  Credit and financial products
   revenues                                -         -       155        140

  Total Revenues                         163       150     1,902      1,923

  Costs and expenses
     Cost of sales, buying and
      occupancy                           65        56     1,235      1,305
     Selling and administrative          222       204       498        473
     Provision for uncollectible
      accounts                             -         -        27         18
     Depreciation and amortization        21        28        55         49
     Interest expense (income)             -         -        54         49
     Special charges and impairments       -         -         -        111
            Total costs and expenses     308       288     1,869      2,005

  Operating income (loss)              $(145)    $(138)      $33       $(82)

  Net Income before cumulative
   effect of change in accounting

  Cumulative effect of change in
   accounting

  Net Income

  EPS - Diluted

     Average shares o/s



                                                           Total
                                                   2003               2002

  Merchandise sales and services                 $16,325            $16,400
  Credit and financial products revenues           2,751              2,779

  Total Revenues                                  19,076             19,179

  Costs and expenses
      Cost of sales, buying and
       occupancy                                  11,876             11,968
      Selling and administrative                   4,437              4,297
      Provision for uncollectible accounts           944              1,082
      Depreciation and amortization                  455                431
      Interest expense (income)                      566                568
      Special charges and impairments                  -                111
            Total costs and expenses              18,278             18,457

  Operating income (loss)                           $798               $722

  Net Income before cumulative effect
   of change in accounting                          $501               $547

  Cumulative effect of change in accounting           $-              $(208)

  Net Income                                        $501               $339

  EPS - Diluted                                    $1.63              $1.05

     Average shares o/s                            307.9              322.5




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


   ($ in millions)

                               Average Balance              Ending Balance
                   For the 13 Weeks      For the 26 Weeks
                        Ended                Ended
                  June 28, 2003 and     June 28, 2003 and
                     June 29, 2002        June 29, 2002   June 28, June 29,
                    2003       2002       2003       2002    2003    2002

  Sears Card
   credit card
   receivables     $16,784    $20,094    $17,320   $20,878  $16,501 $19,679
  Sears Gold
   MasterCard
   credit card
   receivables      12,614      7,519     12,511     6,634   12,942   8,567
  Total domestic
   credit card
   receivables     $29,398    $27,613    $29,831   $27,512  $29,443 $28,246


                 For the 13 Weeks Ended   For the 26 Weeks Ended
                   June 28, 2003 and        June 28, 2003 and
                     June 29, 2002            June 29, 2002
  Domestic credit
   card
   receivables-       2003       2002       2003       2002
  Net interest
   margin:
  Portfolio yield   16.56%     18.47%     16.73%     18.51%
  Effective
   financing rate    3.31%      3.55%      3.24%      3.74%
  Net interest
   margin           13.25%     14.92%     13.49%     14.77%

  Reported
   domestic net
   charge-off
   rate:
     Sears Card      3.37%      6.20%      5.15%      6.17%
     Sears Gold
      MasterCard     6.16%      2.99%      5.61%      2.83%
       Total         4.57%      5.32%      5.34%      5.37%

  Domestic net
   charge-off rate
   (without
    consideration
    of the Q2 2003
    sale of previously
    charged-off
    accounts):
       Sears Card    6.89%      6.20%      6.85%      6.17%
       Sears Gold
        MasterCard   6.48%      2.99%      5.77%      2.83%
         Total       6.71%      5.32%      6.40%      5.37%


                           2003                     2002
                    June 28,  March 29,  Dec. 28,   Sep. 28, Jun. 29,
                      2003       2003     2002       2002     2002


  Sears Card
   delinquency
   rate              9.33%     10.14%     10.34%     9.74%   8.75%
  Sears Gold
   MasterCard
   delinquency
   rate              4.96%      4.72%      3.76%     2.99%   2.57%
  Total domestic
   delinquency
   rate              7.41%      7.87%      7.69%     7.24%   6.87%

  Allowance for
   uncollectible
   accounts         $1,900     $1,790     $1,780    $1,630  $1,441

  Allowance % of
   domestic credit
   card receivables  6.45%      6.06%      5.79%     5.57%   5.10%


                              June 28,   June 29,
                                2003       2002

  Domestic inventories
           -LIFO               $4,881     $4,854
           -FIFO               $5,507     $5,469


                  For the 13 Weeks Ended        For the 26 Weeks Ended
           June 28, 2003 and June 29, 2002   June 28, 2003 and June 29, 2002

  Pretax
   LIFO charge    $12             $12              $24              $24


                            June 28,    June 29,    December 28,
  Domestic retail stores:     2003         2002          2002

   Full-line                  869           870          872
   Specialty                1,307         1,295        1,305
   Lands' End                  15            15           15
            Total           2,191         2,180        2,192

   During 2003, the Company opened 10 stores consisting of one Full-line
   store and nine Specialty stores.  In addition, the Company closed 11
   stores consisting of four Full-line stores and seven Specialty stores.

SOURCE: Sears, Roebuck and Co.

CONTACT: Edgar P. McDougal, +1-847-286-9669, or Investor Contact, Pam
White, +1-847-286-1468, both of Sears

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








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