SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 18, 1998
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in charter)
New York 1-416 36-1750680
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 286-2500
Item 5. Other Events.
On February 18, 1998, the registrant held an analysts conference in New
York City. Attached as Exhibit 99.1 are excerpts from the presentation given at
the conference that contain information regarding the businesses of the
registrant.
Certain of the statements included in Exhibit 99.1 are forward looking and
as such involve risks and uncertainties that could cause actual results to
differ materially. The registrant's forward looking statements are based on
assumptions about many important factors, including ongoing competitive
pressures in the apparel industry, changes in consumer spending, general United
States economic conditions, such as higher interest rates and consumer
confidence, likely first-quarter results, the anticipated decline in credit
results from historical levels, the availability of suitable acquisitions and
growth opportunities in the Home Services business, and normal business
uncertainty. In addition, certain of the registrant's projections encompass
a five year period. The registrant cautions that the degree of uncertainty
regarding predicted results increases relative to the length of time over
which projections are made. While the registrant believes that its
assumptions are reasonable, it cautions that it is impossible to
predict the impact of certain factors which could cause actual
results to differ materially from predicted results.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The Exhibit Index on page E-1 is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEARS, ROEBUCK AND CO.
Date: February 19, 1998 By: /S/Gary L. Crittenden
GARY L. CRITTENDEN
Executive Vice President
and Chief Financial Officer
EXHIBITS
99.1 Sears, Roebuck and Co. materials presented at analysts conference held on
February 18, 1998 in New York City.
E-1
EXHIBIT 99.1
SEARS
1998 ANALYST MEETING
- --------------------------------------------------------------------------------
SEARS, ROEBUCK AND CO.
- --------------------------------------------------------------------------------
February 18, 1998
<PAGE>
Arthur C. Martinez
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
SEARS, ROEBUCK AND CO.
- --------------------------------------------------------------------------------
The Pierre Hotel
New York
February 18, 1998
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
1997 In Perspective
- -- Below Our Standards
- -- Significant Reversal in Credit Financial
Performance
- -- Strong Achievements in Other Businesses
- Retail
- Services
- Direct Response
- Canada
<PAGE>
SEARS
- --------------------------------------------------------------------------------
Premium Of Market Value Over Book Value
- --------------------------------------------------------------------------------
$6 Billion of Market Premium Has Been Added Since 1992.
Market/Book Has Nearly Doubled.
<TABLE>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Market/Book Value 1.56 1.74 1.66 3.50 3.71 3.06
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
1998 Agenda
- -- Reverse Trend in Credit
- -- Continue Success of Full-Line Stores
- -- Drive Growth of Services and Direct Response Businesses
- -- Target Format Capital Spending
- Strategically Relevant
- Clear Line of Sight to Acceptable Returns
- Measurable to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Sources of Higher Charge-Offs
-- Lower New Account Quality
- No Change in Underwriting Standards
- Unfavorable Distribution of Acceptances
-- Adverse Development of Older Accounts
-- Less Effective Operational Results
- Transition to New Collections Strategy
- Lower Reaffirmation Rate
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Credit Initiatives
-- Complete:
- Revenue Enhancement Actions
- New Underwriting Standards
- Delinquent Account Line Reductions
-- Underway:
- Risk-Based Pricing
- More Collectors
- Higher Collector Productivity
- Revamping Frequency and Loyalty Programs
-- Recent Trends:
- Reduced Increases in Bankruptcies
- Stabilized Increases in Delinquencies
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Business Impact of Credit Initiatives
-- Some Impact on 1998 is Unavoidable
- Fewer New Accounts Going Into the Year
- Lower Line Levels on Delinquent Accounts
-- Much of the Impact Felt Already in '97
- 4 Million vs. 6.5 Million New Accounts
- 67% of Accounts Opened at Point of Service
- Over $60 Billion of Available Open-to-Buy
-- Full-Line Stores Profit Plan for 1998 Up Solidly
Double Digits.
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Full-Line Store Same Store Sales Growth
(1995 - 1998P)
<TABLE>
<CAPTION>
1995 1996 1997 1998P
<S> <C> <C> <C> <C>
4.7% 5.9% 3.0% 3% - 4%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Sources Of Full-Line Store Revenue Growth
-- Space Recapture
-- Underdeveloped Businesses
-- Private Brands
-- New Store Strategies
- Urban
- Small Markets
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Sources Of Full-Line Store Profit Growth
-- Gross Margin Stability
- Balance of Sale
- Occupancy Cost Leverage
- Energy Cost Management
- Strategic Sourcing
- Logistics
-- SG&A Leverage
- Productivity Initiatives
- Technology Deployment
-- Asset Productivity
- Space Recapture
- Inventory Initiatives
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Sears Canada Update
-- Strong 1997 Profit Performance
- Excellent Sates Growth
- Remodeled Toronto Stores
- Reaping Benefits of Cost Reduction Program
-- All Formats Profitable
- Full-Line
- Catalog
- Furniture
- Dealer Stores
-- Competitive Set in Disarray
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Product Services
-- Major Consolidation Opportunity
-- Industry Leader
- 5 Times Size of Next Largest Player
- Repair All Brands
- Technology to Gain Competitive Advantage
- Customer-Friendly
- Technician Productivity
-- Significant Opportunity for Growth
- Marketing Program
- Multiple Channels
- In-Store Visibility
- Third Party Business
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Home Improvement Products
and Services Opportunity
- -- Significant Consumer Opportunity Space for Premium Provider
of Highly Reliable Home Improvement Products and Services
- -- Market Leader in Four of Five Major Services, Yet Total Share
of Market Still Small
- Roofing - Windows
- Siding - HVAC
- -- Consistent Premium Quality Provider
- Few Large National Partners - Consistent Training
- Owned and Licensed - Consistent Marketing Strategy
- Consistent Product Quality
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Direct Response Is A Virtual Business
-- Sears Owns the Customer Purchase Behavior Information
-- Sears Owns the Majority of the Products Sold
- Insurance
- Clubs and Services
-- Infrastructure is Almost Totally Outsourced
- Telecommunications
- Catalog Operations
- Merchandise Inventory
-- High Growth Potential Given Ownership of Value Components, High
ROIC Given Outsourced Infrastructure
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Capital Allocation Considerations
-- Maintain Strong Credit Rating
-- Rigorously Evaluate Projects Relative to Return Criteria
-- Manage for the Long-Term Without
Losing Sight of the Short-Run
-- Rank Order All Investment Alternatives
- New Stores/New Services
- Cost Reduction
- Share Repurchase
-- Fit Within Strategic Framework
<PAGE>
- --------------------------------------------------------------------------------
SEARS
- --------------------------------------------------------------------------------
Today's Agenda
-- Overview Arthur Martinez
-- Finance Gary Crittenden
-- Credit Alan Lacy
-- Full-Line Stores Bob Mettler/Al Stewart
-- Q & A
Break
-- Home Services Jane Thompson
-- Auto Group Paul Baffico
-- Home Stores Bill Salter
-- Direct Response/Marketing John Costello
-- Q & A
-- Closing Remarks Arthur Martinez
Lunch
<PAGE>
SEARS
1998 ANALYST MEETING
- --------------------------------------------------------------------------------
FINANCE
- --------------------------------------------------------------------------------
February 18, 1998
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Profit Segmentation Issues
- --------------------------------------------------------------------------------
-- Segment Operating Income Presented is
"Normalized." As Such, it Excludes:
- SFAS No. 125
- Reaffirmation Matter
- Gain from Benefits Change
- Charge for Conversion to Parts America
-- Operating Income Includes Interest Expense and is
Pre-Tax
-- Corporate Segment Expenses are not Allocated
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
1997 Normalized Segmented Income Statement
- --------------------------------------------------------------------------------
Decline in Credit Income Partially
Offset Gains in Retail and Services
<TABLE>
<CAPTION>
% Operating %
($ in millions) Revenue Change Income Change
- --------------- ------- ------ --------- ------
<S> <C> <C> <C> <C>
Retail $30,086 8.0% 946 9.0%
Services/Direct Response 3,074 9.0% 345 23.5%
Credit 5,143 23.5% 1,005 (13.7)%
International 3,488 2.9% 142 NM
Corporate -- -- (214) 1.4%
Total $41,791 9.3% 2,224 6.8%
</TABLE>
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Key Credit Statistics *
- --------------------------------------------------------------------------------
Revenue Enhancements and Funding
Cost Improvements Partially Offset
the Increase In Provision
<TABLE>
<CAPTION>
($ in millions) 1996 1997
------ ------
<S> <C> <C>
Provision for Bad Debts $1,081 $2,076
Finance Charge Yield 18.3% 20.2%
Funding Rate 7.26% 7.ll%
Profit Contribution $l,164 $1,005
</TABLE>
* Before the effect of SFAS No. 125 and reclassification for
retained interest in securitization trust
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Balance Sheet Continues to be Strong
- --------------------------------------------------------------------------------
- -- Debt to Total Capital Improved
from 84% to 83%
- -- Retail Businesses Essentially Debt Free
- -- Fixed Charge Coverage Remains at 2.1x
- -- Maintained A- and A2 Ratings from S&P
and Moody's, respectively
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
1998 Financial Guidance
- --------------------------------------------------------------------------------
-- EPS Up Mid-Single Digits from $3.27
-- Credit Earnings Down Approximately 20%
-- Domestic Same Store Sales Up 3-4%
-- 1-2% Comp-to-Total Differential
-- Merchandise Gross Margin Flat
-- SG&A Leverage of 40-50bps
-- Depreciation Up Low Double-Digit Percent
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
1998 Earnings Growth Uneven by Quarter
- --------------------------------------------------------------------------------
- -- First Quarter 1998 Plan Down Approximately 50%
- Anniversary Higher Credit Write-Off Rates in Q4
- -- Second Quarter 1998 Helped by Easter Shift
- -- Third Quarter 1998 Impacted by Anniversary of Credit
Revenue Enhancements
- -- Fourth Quarter 1998 Helped by Relative Retail
Contribution and Lower Increase in Reserve
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Free Cash Flow of Core Businesses
- --------------------------------------------------------------------------------
Core Businesses Generate
Meaningful Cash Flow
Free Cash Flow After Capital Expenditures
[graph]
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Historical Earnings Growth Rate of Core Business
- --------------------------------------------------------------------------------
Core Businesses Deliver
Solid Earning Growth
<TABLE>
<CAPTION>
1995-1997
Compound Annual
Growth Rate Prospective 5-Yr.
("CAGR") CAGR
--------------- -----------------
<S> <C> <C>
Full Line Stores 20% 10%- 12%
Credit * -- 8%-10%
Services/Direct Response 25% 17%-23%
Core Subtotal 12% 11% - 23%
S&P 500 14% 7%
</TABLE>
* Prospective Credit Growth Rate After 1998
<PAGE>
FINANCE
- --------------------------------------------------------------------------------
Financial Overview
- --------------------------------------------------------------------------------
- - 1997 Significantly Impacted by Credit
- - Retail, Services and Direct Response All Strong
- - 1998 Guidance Mid-Single EPS Growth
- - Long Term, Core Businesses Alone Could Grow Low
Double Digits and Generate Meaningful Cash Flow
<PAGE>
SEARS
1998 ANALYST MEETING
- --------------------------------------------------------------------------------
CREDIT
- --------------------------------------------------------------------------------
February 18, 1998
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Sears Credit Is One Of Largest U.S. Portfolios
- --------------------------------------------------------------------------------
- - Largest Retail Portfolio, Bigger Than Next 10
Combined
- - $28.6 Billion in Balances at Year-End 1997
- - 32 Million Purchase Active Accounts
- - Sixth Largest Portfolio Compared to Bank Cards
- - 55% Share of Sears Sales
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
1997 Financial Performance Summary
- --------------------------------------------------------------------------------
- Average Managed Receivables up 10% to $26.8B
- Revenue From Managed Assets Up 24% to $5.5B
- Provision for Losses Up 92% to $2.1B
- Pre-tax ROA Down 110 B.P. to 3.55%
- Pre-tax Earnings Down 14% To $1,005MM
NOTE: 1997 results exclude the effect of reaffirmation charges, SFAS #125, and
reclassification for retained interest in securitization trusts
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Significant Reserve Additions Were Made
- --------------------------------------------------------------------------------
- -- Reserve Increase of $324MM Fully Reflects Second
Half Credit Trends
- -- Reserve Level Based on Impaired Accounts
- Estimated Write-offs From Bankruptcy Filings
"On Hand"
- Delinquent Balances
- Range of Historical Roll Rates
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Credit Profitability Comparable To Industry And Monoline Credit Issuers
- --------------------------------------------------------------------------------
After Tax ROA -1997
-------------------
<TABLE>
<S> <C>
Sears Credit 2.2%
Industry Average 1.6
MBNA 1.4
Capital One 1.2
Advanta 0.4
Providian 1.8
</TABLE>
Source: Company reports, R. K Hammer Industry Estimate
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Contractual Write-Off Drivers
- --------------------------------------------------------------------------------
Portfolio Quality
-----------------
- New Accounts
- Seasoned Accounts
Operational Impacts
-------------------
- Collector Turnover
- Tighter Policies and Practices
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Seasoned Accounts Are Writing Off At A Higher Rate
- --------------------------------------------------------------------------------
Annual Net Write-Off Rate
Seasoned Accounts
<TABLE>
<CAPTION>
1994 1995 1996 1997
<S> <C> <C> <C>
3.2% 3.0% 3.5% 4.9%
</TABLE>
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Contractual Write-offs Drove This Trend
- --------------------------------------------------------------------------------
Net Write-Off Rate
<TABLE>
<CAPTION>
Q4 Bankruptcy Lower Contractual Q4
1996 Write-Offs Reaffirmation Write-Offs 1997
Rate (Delinquency)
<S> <C> <C> <C> <C>
4.8% .5% .4% 2.1% 7.8%
</TABLE>
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Contractual Write-Off Drivers
- --------------------------------------------------------------------------------
Portfolio Quality
-----------------
- New Accounts
- Seasoned Accounts
Operational Impacts
-------------------
- Collector Turnover
- Tighter Policies and Practices
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Seasoned Accounts Are Writing Off At A Higher Rate
- --------------------------------------------------------------------------------
Annual Net Write-off Rate
Seasoned Accounts
<TABLE>
<CAPTION>
1994 1995 1996 1997
<S> <C> <C> <C>
3.2% 3.0% 3.5% 4.9%
</TABLE>
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Significant Actions Have Been Taken To Improve Portfolio Quality
- --------------------------------------------------------------------------------
Underwriting | Portfolio Management
|
Tighter Upfront Underwriting Criteria | Tighter Over-Limit Controls
|
Better Direct Mail Back-End Controls | Credit Line Decreases
|
New Custom Predictive Models | Conservative Line Increases
|
| New Custom Risk Models
|
|
|
|
RESULT: Fewer New Accounts, | RESULT: Lower Losses from
Higher Quality | Existing Accounts
|
|
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
1998 Outlook
- --------------------------------------------------------------------------------
- Hold Credit Share
- Mid to High Single Digit Balance Growth
- Modest Improvement in Net Interest Margin
- Further Deterioration from Q4 1997 Write-Off Rate
- Reserve Addition in Line with Balance Growth
- Earnings to Decline Approximately 20%
<PAGE>
CREDIT
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
- Problems Are Significant but Identified and Being Addressed
- Our Returns Remain Strong
- We Can Grow Profit Again
- Credit is an Important Part of Sears Multiple Value Capture Strategy
<PAGE>
SEARS
1998 ANALYST MEETING
- --------------------------------------------------------------------------------
FULL-LINE STORES
- --------------------------------------------------------------------------------
February 18, 1998
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Key Softlines Businesses Provide Growth
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Comparable Store
Category Sales
--------------- ----------------
<S> <C>
- Ready to Wear 9.2%
- Fine Jewelry 10.6%
- Footwear 7.7%
- Cosmetics 13.8%
- Men's 1.7%
- Children's 3.0%
</TABLE>
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Mixed Results In Hardlines
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Comparable
Category Stores Sales
---------------------------- ------------
<S> <C> <C>
-- Brand Central 5.5%
- Home Appliances 5.2%
- Consumer Electronics 6.0%
-- Home Improvement -2.3%
- Lawn & Garden/Seasonal -0.9%
- Hardware -0.4%
- Sporting Goods -7.2%
</TABLE>
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Gross Margin Remains Stable
- --------------------------------------------------------------------------------
- Balance of Sale Shift to Apparel
- Favorable Effect of Strategic Sourcing
- Apparel Owned Brands Grow
- Competitive Pricing Posture
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Key Accelerators
- --------------------------------------------------------------------------------
Apparel
- Women's Special Sizes
- Cosmetics Roll-out
- Owned Brand Development
- Additional Space
- New National Brands
Hardlines
- Introduction of Maytag
- Redesign of Fitness, Grills, Patio and Sporting Goods
- Testing Re-Entry to Mattress Business
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Extended and New Brands
- --------------------------------------------------------------------------------
- Roll-Out New Brand in Children's - TKS Basics
- Grow Canyon River Blues to Include Newborns, Infants
- Continue Extension of Crossroads into Women's Sizes
- Complete First Full Season with CRB Khaki Line in Men's
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Three Good Stories
- --------------------------------------------------------------------------------
- Store Growth: Non-Traditional Markets
- Connecting with the Customer
- Productivity - Including Technology
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Our New Store Program Will Grow at a Slightly Accelerated Pace
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1996 1997 1998 1999 2000
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Markets 14 12 11 13 18
- ---------------------------------------------------------------
Replacements 13 9 11 12 12
- ---------------------------------------------------------------
Total Number of Stores 821 833 844 857 875
- ---------------------------------------------------------------
</TABLE>
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
27% of Existing Stores are Available for Remodeling and Space Recapture
- --------------------------------------------------------------------------------
-- 73% of Stores Completed Since Inception of Plan in 1993
- 532 Remodels and Expansions
- 78 New Stores
- Together Total 610 of Current 833 Full Line Stores
-- Estimate 6 Million Square Feet from Capital Program in 1998-2000
-- Changed Balance of Space from 52% to 67% Softlines
-- Apparel Sales per Square Foot Improved Store-Wide
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Small City Opportunity
- --------------------------------------------------------------------------------
- Rural Population Growth
- Better Competitive Environment
- Lower Capital Costs
- Lower Associate Turnover
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Small City Stores Grow Apparel and Intensify Hardware Businesses
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Square Feet) Old: 44k New: 63k
----------- ------------------
<S> <C> <C>
SOFTLINES SPACE -- 24k (55%) -- 45k (70%)
Ready to Wear - 7,500 - Double Space
Fine Jewelry - None - All Stores
HARDLINES SPACE -- 20k (45%) -- 18k (30%)
Hardware - Available - Expanded Space/Assortments
Brand Central - Available - Comparable
Sporting Goods - Available - Fitness Equipment Only
Automotive - Most Stores - Selectively Included
</TABLE>
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Improving Customer Focus
- --------------------------------------------------------------------------------
- Better Pre-screening of Associates
- Customer-Focused Training
- Trust in Associates to do the Right Thing
- Establishment of Pay-at-risk for Every Manager
- Associate Review of Managers
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Reducing SG&A Via Three Key Strategies
- --------------------------------------------------------------------------------
- Achieve Industry-Leading Expense Control
- Utilize Technology to Reduce Fixed Costs
- Increase Variable Payroll
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Long-Term Outlook
- --------------------------------------------------------------------------------
- 3-4% Comparable Store Sales Growth
- Continued Space Growth
- Consistent Gross Margin by Business
- Continued SG&A Leverage Improvements
- Double-Digit Earnings Growth
<PAGE>
SEARS
1998 ANALYST MEETING
--------------------------------------------------------------
HOME SERVICES
--------------------------------------------------------------
February 18, 1998
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Building The Sears HomeCentral(SM) Brand
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
<S> <C>
Brand - One look and feel across all media
Imagery - Reinforces "One Central Source for a Houseful of
Services From Someone You Know"
- -------------------------------------------------------------------
Customer - One number access - 1-800-4-MY-HOME
Experience - Consistent quality experience across services
- 100 million contacts/year
- -------------------------------------------------------------------
Marketing - Maximizing effectiveness across multiple services
Integration - Cross selling/cross marketing
- -------------------------------------------------------------------
</TABLE>
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Product Services
- --------------------------------------------------------------------------------
--------------
Product
Services
--------------
- In-Home Repair
- Carry-In Repair
- Parts/Teleparts
- HVAC Sales/Service
- Installation
- Service Contracts
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Product Services: Industry Dynamics
- --------------------------------------------------------------------------------
- Very Fragmented
- Increasingly Demanding Customer
- Slow Growth
- Deteriorating Fulfillment Economics for OEM's
- Locals Exiting/Outsourcing Increasing
- Emerging Channels
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Home Improvement Services
- --------------------------------------------------------------------------------
-----------------
Home
Improvement
Services
-----------------
<TABLE>
<CAPTION>
<S> <C>
Major Home - Siding
Improvements - Windows/Doors
- Roofing
- Cabinet Refacing
Home Owner - Pest Control
Services - Carpet Cleaning
- Plumbing and Electrical
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Home Improvement: Industry Dynamics
- --------------------------------------------------------------------------------
- Huge Markets
- Fragmented with High Turnover
- Access to Financing Critical
- Deep Customer Concerns
- Positive Growth Trends
<PAGE>
SEARS HOME SERVICES
- --------------------------------------------------------------------------------
Home Improvement: Strategy
- --------------------------------------------------------------------------------
Extend Our Leadership in the Most Attractive
Service Segments
- Strict Adherence to Service and Product
Quality Standards
- Driven By Consistent, Powerful Marketing and Sales
- Built on Sears Reputation for Trust
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
1997 Accomplishments
- --------------------------------------------------------------------------------
- Achieved Plan Revenues Increase of 47%
- Profits Exceeded Plan
- Significantly Improved ROIC
- Shifted Unit Growth to High Financial Return Businesses
- Defined and Tested Concept Improvements Across the Portfolio
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Unit Growth Reflects Investment Prioritization
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net Change
-----------
1995 Stores 1996 1997 1997 Stores
-------------- ---- ---- -----------
<S> <C> <C> <C> <C>
Hardware Stores 108 +121 +26 255
Dealer Stores 375 +94 +107 576
HomeLife 138 +11 (20) 129
Commercial Sales * 17 +15 +29 61
--- ----------- -----
Home Stores 638 +241 +142 1,021
</TABLE>
* Represents Showroom Locations
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Hardware Stores 1998 Priorities
- --------------------------------------------------------------------------------
- Roll Out Conversion Process
- Merchandising / Marketing
- Systems / Staffing
- Physical Format and Layout
- Improve Local Market Focus
- Open 30 to 35 Hardware Stores with Focus on California
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Dealer Stores Continues Profitable Growth
- --------------------------------------------------------------------------------
1997 Accomplishments
- Opened 124 New Stores
- Comparable Store Sales Outpaced the Industry
- Tested New Concepts
- Implemented Electronic Advertising Generating Material Sales Lift
- Strong Operating Performance
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Dealer Stores Will Accelerate Store Openings in 1998
- --------------------------------------------------------------------------------
1998 Priorities
- Accelerate Store Opening Pace to 150+ New Stores
- Improve Gross Margin Rate by Increasing Balance of Sale of
Better / Best Product
- Continue to Tailor Assortments to Needs of Small Town America
- Improve Inventory Turnover
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Continue HomeLife Improvement
- --------------------------------------------------------------------------------
1998 Priorities
- - Roll Out Furniture Distribution Network to Secondary Markets
- - Replicate Local Market Focus Initiative in Other Sun-Belt Markets
- - Minimal Investment in Target Markets
- - Complete Rollout of Natuzzi and Stearns & Foster
- - Continue to Drive Operational Efficiencies
- - Enhance Marketing Campaign
---------------------------------------------------
Encouraged by Sustainable Progress, but
Studying Contribution to Shareholder Value
---------------------------------------------------
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Commercial Sales Successfully Leverages the
- --------------------------------------------------------------------------------
Kenmore Brand
1997 Accomplishments
- Opened 20 Appliance Select Units
- Acquired Florida Builder Appliances
- Strong Operating Performance
1998 Priorities
- Open Approximately 15 Appliance Select Units
- Expand Florida Builder Appliances
- Acquire Additional Builder Distributors in Strategic Markets
<PAGE>
HOME STORES
- --------------------------------------------------------------------------------
Summary
- --------------------------------------------------------------------------------
1998 Priorities
- Maintain Strong Comparable Sales Performance
- Continue Significant Financial Improvement
- HomeLife
- Build on Current Business Momentum
- Encouraged by Sustainable Progress
- Aggregate Contribution to Shareholder Value
Under Study
- Hardware Stores
- Implement Enhanced Business Model to Leverage
Strong Strategic Fit
<PAGE>
SEARS
1998 ANALYST MEETING
--------------------------------------------------------
Direct Response and Marketing
--------------------------------------------------------
February 18, 1998
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Sears Has Built One Of The Largest, Fastest-Growing
- --------------------------------------------------------------------------------
Direct Response Businesses In Retailing
- High Sustainable Earnings Growth
- +20% Annual Profit Growth
- Very Predictable (Test and Expand)
- High Shareholder Value Generation
- Large Profit
- Low Capital/Infrastructure Needs
- Leverages Current Assets
- Multiple Value Capture Opportunities
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Sears Has Built One Of The Largest, Fastest-Growing
- --------------------------------------------------------------------------------
Direct Response Businesses In Retailing
- Sustainable Competitive Advantage
- Sears Customer Affinity
- Proprietary Databases
- State-of-the-Art Modeling
- Seasoned Management
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Direct Response - Business Segment Overview
- --------------------------------------------------------------------------------
- Insurance
- Credit Protection, AD&D, Term Life
- Specialty Catalogs
- 14 Licensed Catalogs
- 3 Proprietary Catalogs
(Craftsman, Wishbook, Health Care)
- On-Going New Concept Testing
- Clubs and Services
- Leverage Sears Name
- Merchandise Offers
-Credit Inserts
- Solo Mailers
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Direct Response - 1998 Core Strategies
- --------------------------------------------------------------------------------
- Continue Growth of Insurance Products
- Increased File Penetration
- New Products
- Cost Control
- Accelerate Profit of Clubs & Services and
Merchandise Segments
- Focus on Highest Potential Segments
- Leverage Data Warehouse
- Expand Use of Sears Brands in Catalog Channel
- Canyon River Blues
- Circle of Beauty
- Craftsman
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Marketing Objectives
- --------------------------------------------------------------------------------
- Connect with Our Target Customer
- Make Sears a More Compelling Place to Shop
- Drive Sales and Profit
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
1998 Marketing Strategies
- --------------------------------------------------------------------------------
- Continue Brand-Building on Sears, Our Private Brands and Formats
- Use Promotion to Leverage Sales and Top-Of-Mind Awareness
- Expand Targeted Marketing Efforts
- Explore New Channels to Reach Customers
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
1998 Marketing Strategies
- --------------------------------------------------------------------------------
- Continue Brand-Building on Sears, Our Private Brands and Formats
- Use Promotion to Leverage Sales and Top-Of-Mind Awareness
- Expand Targeted Marketing Efforts
- Explore New Channels to Reach Customers
- Increase Marketing Effectiveness and Efficiency
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Marketing Objectives
- --------------------------------------------------------------------------------
- Connect with Our Target Customer
- Make Sears a More Compelling Place to Shop
- Drive Sales and Profit
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Brand Central Growth Initiatives
- --------------------------------------------------------------------------------
- Attraction of New Maytag Customer
- Expansion of"Brandsnet" Technology
- Increase of "Take-with" Merchandise
- Full-Year of Cameras
- More Home Theater Offerings
<PAGE>
SEARS
1998 ANALYST MEETING
---------------------------------------------------------
Home Stores
---------------------------------------------------------
February 18, 1998
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Home Improvement Growth Initiatives
- --------------------------------------------------------------------------------
- Build Upon Craftsman Strength
- Energize National Brand Program
- Extend Year-Round Hardware Gift Program
- Improve Promotional and Inventory Execution
- Redesign Lawn & Garden and Sporting Goods
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Inventory and Gross Margin Management
- --------------------------------------------------------------------------------
- Assortment Planning System
- Fashion Size Bias System
- Factory Package
- Lost Sales Key
<PAGE>
FULL-LINE STORES
- --------------------------------------------------------------------------------
Strong Merchandising Team
- --------------------------------------------------------------------------------
-- Additions
- Mark Cohen
- Bob Thacker
-- Realignment
- Lana Cain
- Lyle Heidemann
- Meg Rist
- Bob Shamberg
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
1998 Marketing Strategies
- --------------------------------------------------------------------------------
- Continue Brand-Building on Sears, Our Private Brands and Formats
- Use Promotion to Leverage Sales and Top-Of-Mind Awareness
- Expand Targeted Marketing Efforts
- Explore New Channels to Reach Customers
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
1998 Marketing Strategies
- --------------------------------------------------------------------------------
- Continue Brand-Building on Sears, Our Private Brands and Formats
- Use Promotion to Leverage Sales and Top-Of-Mind Awareness
- Expand Targeted Marketing Efforts
- Explore New Channels to Reach Customers
- Increase Marketing Effectiveness and Efficiency
<PAGE>
Direct Response and Marketing
- --------------------------------------------------------------------------------
Advertising Effectiveness Initiative
- --------------------------------------------------------------------------------
Objective: Build a Sustainable Competitive Advantage
Through Improving Marketing Effectiveness
Strategy: Build a Fact Base on Productivity (Return on
Marketing Investment) Across:
- Product Lines
- Media
- Geography
Using Leading Edge Analytical Methods
<PAGE>
SEARS
1998 ANALYST MEETING
--------------------------------------------------------
AUTOMOTIVE GROUP
--------------------------------------------------------
February 18, 1998
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
1997 Was a Year of Transition for the Automotive Group
- --------------------------------------------------------------------------------
- Financial Results were Below Expectations
- Virtually All Elements of the Business
Experienced Rapid and Dramatic Change
- Change was Necessary
- Now Positioned for Future Success
- Our Objectives in 1998 are Simple
- Focus on Execution
- Return to 1996 Profitability Levels
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
We Made Significant Changes In 1997
- --------------------------------------------------------------------------------
- Created a New Brand in NTB
- Developed Marketing Campaigns to Support Our Two Formats
- Overhauled Our Infrastructure
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
The Automotive Aftermarket is Not Standing Still
- --------------------------------------------------------------------------------
-- Sears Has Leading Market Share Positions in Both
Tires and Batteries
-- The Tire Group Could Not be Complacent Given
Market Position and Strategic Relevancy to Sears
-- Our Competitors are Very Active
- Building Stores and Entering New Markets
- Accelerating Consolidation and Positioning
Through Acquisitions
- Experimenting with New Formats
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
We Accomplished Key Strategic Imperatives In 1997
- --------------------------------------------------------------------------------
That Will Increase Future Shareholder Value
Customer-Related
----------------
-- Created NTB, National Tire and Battery
- Converted 278 NTW and Tire America Stores
- Built 47 New NTB Stores
-- Developed and Launched the NTB Brand
-- Continued Upgrading the Sears Auto Centers
- Remodeled 100 Stores in 1997
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
We Accomplished Key Strategic Imperatives In 1997
- --------------------------------------------------------------------------------
That Will Increase Future Shareholder Value
Cost-Related
------------
-- Improved In-Store Operations
- New Store Compensation and Benefits
- Store-Level Assortment and Pricing
-- Completed Battery Strategic Sourcing
-- Dedicated Tire Distribution Network
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
Overall, Sears Will Continue to Benefit from Our
- --------------------------------------------------------------------------------
Enhanced Focus On the DieHard Brand
-- Increased DieHard Branding
-- Greater Exposure Through Multiple Sears Outlets
- NTB
- Sears Auto Centers
- Parts America
- Western Auto (Puerto Rico)
- Hardware Stores
- Dealer Stores
-- Battery Share Improved in 1997 Due to Outlet Expansion
-- Completed Another Round of Battery Strategic Sourcing
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
The Changes We Made In 1997 Were Imperative
- --------------------------------------------------------------------------------
-- Focus on a Pure Parts Format was Based on Strategic,
Operational and Financial Considerations
-- The Western Auto "Wet" Stores Were
- Strategically Disadvantaged
- Complex to Manage
- Delivered Returns Below the Cost of Capital
-- Pace of Consolidation in the DIY Parts Market Required
Us to Accelerate the Parts America Format
[PICTURE APPEARS HERE]
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
The Conversion from Service to Parts is Now Complete
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------
Format 1993 1995 1997
- --------------------------------------------------
<S> <C> <C> <C>
Parts America 0 190 576
- --------------------------------------------------
Western Auto 338 354 0
- --------------------------------------------------
Puerto Rico 29 36 39
- --------------------------------------------------
Total 367 580 615
- --------------------------------------------------
</TABLE>
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
1997 Financial Performance Reflects the Pain of
- --------------------------------------------------------------------------------
Conversion
-- Total Sates Declined 9%, to $1.3 Billion
- Fewer Total Stores
- Parts America Stores are Immature
- Parts America Business Model Generates Lower
Revenues than Western Auto
-- Profitability Suffered
- Store Closings Resulted in $25 Million of Expenses
- Incurred Over $14 Million of One-Time
Reorganization Expenses
<PAGE>
AUTOMOTIVE GROUP
- --------------------------------------------------------------------------------
. . . Designed to Deliver Value to Our Customers and Shareholders
- --------------------------------------------------------------------------------
- Aggressively Seeking Market Share Leadership in
the Markets in which We Compete
- Focused on Achieving Superior Financial Returns
- Developing Stronger Vendor Partnerships