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): July 22, 1999
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 July 22, 1999, the Registrant issued its second
quarter earnings press release. A copy of the press release
is attached as Exhibit 99.
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: July 22, 1999 By: /s/ JULIAN C. DAY
Julian C. Day
Executive Vice President
and Chief Financial Officer
EXHIBITS
99 Sears, Roebuck and Co. press release dated July 22, 1999.
CONTACT:
William H. Parke
(847) 286-5998
FOR IMMEDIATE RELEASE:
July 22, 1999
SEARS REPORTS SECOND-QUARTER 1999 RESULTS
Earnings Per Share Increase on Strength of Credit Business
HOFFMAN ESTATES, Ill. -- Sears, Roebuck and Co. reported
second-quarter 1999 net income of $331 million, or $0.86 per share,
compared with reported 1998 second-quarter net income of $336 million,
or $0.85 per share. Second-quarter 1998 earnings included non-comparable
income of $18 million, or $0.05 per share, related to the positive impact
of SFAS No. 125 accounting. Excluding this non-comparable item, earnings
per share were $0.80 in the second quarter of 1998 compared with second-quarter
1999 earnings per share of $0.86, a 7.5 percent increase.
The earnings per share increase was primarily due to the continuing
improvement of the credit business. "Our actions and investments in our
credit operations have been successful in significantly improving the
quality of our portfolio and our financial performance in this area,"
said Chairman and Chief Executive Officer Arthur C. Martinez. Earnings per
share also benefited from the repurchase of Sears shares during the past year.
Operating earnings from the company's international segment rose 22 percent
from the year-ago quarter. "We are pleased with the continuing strong
performance of Sears Canada," Martinez said. "Results in our domestic retail
and services segments were not indicative of our long-term objectives for
those businesses."
For the first six months of 1999, net income was $477 million, or $1.24
per share, compared with $469 million, or $1.19 per share, for the first
half of last year. The year-ago period included non-comparable income of
$39 million, or $0.10 per share, related to SFAS No. 125. Excluding this non-
comparable item, earnings per share increased 13.8 percent over the first half
of last year.
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Page 2
Revenues
Revenues for the second quarter were $9.99 billion, compared with $10.31
billion for the same period a year ago. The revenue comparison reflects the
company's divestitures of its HomeLife furniture and Western Auto businesses and
lower revenue in its credit business. Excluding the impact of business
divestitures, retail revenues rose 2.7 percent in the quarter. Domestic
comparable store sales rose 1.0 percent on top of 2.9 percent in the second
quarter of 1998.
"Hardgood sales continued to post solid gains in the quarter, led by home
appliances, electronics and home office equipment," said Martinez. "In
softgoods, we are encouraged by the performance of our proprietary apparel
brands, including Crossroads and Apostrophe for women, Fieldmaster for men and
TKS for children. These names continue to build a connection with our
customer, who is responding to their increased fashion content, deeper
assortments and enhanced presentation and value."
Services revenues were $807.7 million in the quarter, an increase of 1.3
percent from a year ago, reflecting increases in both the Home Services and
Direct Response businesses. Second-quarter credit revenues declined 13 percent
from a year ago, to $973.4 million, primarily due to lower late fee income and a
reduction in the level of owned credit card receivables.
Gross margin and selling and administrative costs
Consolidated gross margin as a percent of merchandise sales and services was
25.9 percent in the second quarter of 1999 compared with 26.0 percent in the
comparable 1998 period. The comparison reflects a higher level of promotional
activity in the retail segment, partially offset by margin improvement at Sears
Canada.
Selling and administrative expense as a percentage of total revenues was
20.5 percent in the second quarter of 1999 compared with 20.0 percent a year
ago. The increase reflects higher credit collection and systems expenses, as
well as the company's expanded e-commerce initiatives. In the retail segment,
the company achieved year-over-year leverage on operating expenses, reducing
expenses as a percent of sales.
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Page 3
Provision for uncollectible accounts
In the second quarter of 1999, the provision for uncollectible accounts was
$215 million, a 39 percent decrease from $355 million in the second quarter of
1998. The decrease in the provision is due to improvement in portfolio quality
as well as a decrease in the level of owned credit card receivable balances.
This release may contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by Sears with the SEC,
specifically the most recent reports on Form 8-K and Form 10-K, which indentify
important risk factors that could cause actual results to differ from those
contained in the forward-looking statements, including competitive conditions in
the retail industry, changes in consumer spending, consumer responses to
changes in advertising and other marketing efforts, general North American
economic conditions and normal business uncertainty. While Sears believes its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors that could cause actual results to differ materially
from predicted results.
Through its network of 848 full-line stores and more than 2,100 specialty
stores, Sears provides apparel, home and automotive products and related
services for families throughout America, serving nearly 60 million households.
# # # #
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 26 Weeks Ended
July 3,1999 and July 4,1998 July 3,1999 and July 4,1998
(millions, except
earnings per share) 1999 1998 %Change 1999 1998 %Change
<S> <C> <C> <C> <C> <C> <C>
Revenues
Merchandise and services $8,955 $9,128 -1.9% $16,864 $17,153 -1.7%
Credit revenues 1,037 1,186 -12.6% 2,165 2,394 -9.6%
Total revenues 9,992 10,314 -3.1% 19,029 19,547 -2.7%
Costs and expenses
Cost of sales, buying
and occupancy 6,640 6,754 -1.7% 12,675 12,838 -1.3%
Selling and
administrative 2,045 2,067 -1.1% 3,968 4,016 -1.2%
Depreciation and
amortization 215 211 1.9% 424 419 1.2%
Provision for
uncollectible accounts 215 355 -39.4% 506 749 -32.4%
Interest 313 361 -13.3% 647 737 -12.2%
Total costs and expenses 9,428 9,748 -3.3% 18,220 18,759 -2.9%
Operating income 564 566 -0.4% 809 788 2.7%
Other income, net (12) 3 - (14) 9 -
Income before income taxes
and minority interest 552 569 -3.0% 795 797 -0.3%
Income taxes (209) (223) -6.3% (301) (315) -4.4%
Minority interest (12) (10) 20.0% (17) (13) 30.8%
Net income $ 331 $ 336 -1.5% $ 477 $ 469 1.7%
Earnings per share:
Basic $0.87 $0.86 1.2% $ 1.25 $ 1.20 4.2%
Diluted $0.86 $0.85 1.2% $ 1.24 $ 1.19 4.2%
Average common and dilutive
Common equivalent shares
outstanding 383.6 395.4 384.4 394.9
</TABLE>
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 26 Weeks Ended
July 3,1999 and July 4,1998 July 3, 1999 and July 4,1998
1999 1998 %Change 1999 1998 %Change
<S> <C> <C> <C> <C> <C> <C>
Total Revenues:
Retail $7,252 $7,516 -3.5% $13,674 $14,121 -3.2%
Services 808 798 1.3% 1,526 1,490 2.4%
Credit 973 1,123 -13.4% 2,036 2,263 -10.0%
International 959 877 9.4% 1,793 1,673 7.2%
Total revenues $9,992 $10,314 -3.1% $19,029 $19,547 -2.7%
Operating income:
Retail $ 173 $ 199 -13.1% $ 104 $ 139 -25.2%
Services 94 97 -3.1% 169 177 -4.5%
Credit 315 286 10.1% 610 538 13.4%
Corporate (63) (53) -18.9% (136) (113) -20.4%
International 45 37 21.6% 62 47 31.9%
Total operating income $ 564 $ 566 -0.4% $ 809 $ 788 2.7%
</TABLE>
July 3, July 4,
1999 1998
Domestic inventories-LIFO $ 4,491 $ 4,685
-FIFO $ 5,183 $ 5,423
Pretax LIFO charge $ 12 $ 12
January 3, Homelife July 3,
Domestic retail stores: 1999 Opened Closed Sale 1999
Full-line stores 845 4 (1) - 848
Specialty formats 2,198 56 (22) (105) 2,127
Total 3,043 60 (23) (105) 2,975
Gross square feet 148.3 1.1 (0.5) (3.8) 145.1
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - CREDIT SEGMENT
(millions)
The following credit information relates to the domestic managed
portfolio of credit card receivables which is comprised of on-book
credit card receivables, credit card receivables underlying retained
interest securities and securities which have been sold to third parties.
The effective financing rate is based on both domestic on-book debt of the
company and securitization interest of the Sears Master Trust.
For the 13 weeks ended For the 26 weeks ended
July 3,1999 and July 4,1998 July 3,1999 and July 4,1998
1999 1998 1999 1998
Average managed domestic
credit card receivables $26,469 $27,808 $27,039 $28,151
July 3, July 4,
1999 1998
Domestic credit card receivables:
Managed credit card receivables $26,172 $27,725
Securitized balances sold (6,381) (6,667)
Retained interest in transferred
credit card receivables, gross (3,669) (4,302)
Other receivables 104 202
Owned credit card receivables $16,226 $16,958
<TABLE>
<CAPTION>
For the 13 weeks ended For the 26 weeks ended
July 3,1999 and July 4,1998 July 3,1999 and July 4,1998
Domestic managed credit
receivables: 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net interest margin:
Portfolio yield 19.37% 20.23% 19.61% 20.28%
Effective financing rate 5.74% 6.12% 5.73% 6.11%
Net interest margin 13.63% 14.11% 13.88% 14.17%
Domestic managed net
charge-off rate(1) 7.11% 7.37% 7.08% 7.74%
</TABLE>
(1)The 1999 managed net charge-off rate includes all of the accounts
in the domestic portfolio. Twelve percent of the account balances
were converted to the new Total Systems Services, Inc. ("TSYS") account
processing system in October 1998, 38% were converted in March 1999, and 50%
were converted in April 1999. Balances are generally charged-off earlier
under the TSYS system than under the proprietary system.
July 3,1999 April 3,1999 Jan. 2, 1999
Domestic managed credit
card receivables-Delinquency
rate(2) 7.29% 8.07% 9.28%
Allowance for uncollectible
accounts $850 $932 $942
Allowance % of domestic owned
credit card receivables 5.27% 5.72% 5.44%
(2)In mid-April 1999, Sears completed the conversion to the TSYS account
processing system. Therefore, the July 3, 1999 delinquency rate reflects
100% of the domestic managed credit card receivable balances. At April 3,
1999 and January 2, 1999, there were 50% and 12%, respectively, of the managed
credit card receivable balances on the TSYS system and delinquency rates at
these dates reflect only those portions of the portfolio. Delinquency rates
calculated on the Company's pre-TSYS proprietary system are not comparable
to delinquencies calculated on the TSYS system due to differences in calculation
methodology.
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
(millions)
<TABLE>
<CAPTION>
July 3, July 4, January 2,
1999 1998 1999
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 397 $ 450 $ 495
Retained interest in transferred
credit card receivables 3,600 4,302 4,294
Credit card receivables, net 16,771 17,160 17,972
Other receivables 384 293 397
Merchandise inventories 5,000 5,146 4,816
Prepaid expenses and
deferred charges 604 521 506
Deferred income taxes 729 759 791
Total current assets 27,485 28,631 29,271
Property and equipment, net 6,332 6,503 6,380
Deferred income taxes 531 649 572
Other assets 1,502 1,388 1,452
Total assets $35,850 $37,171 $37,675
Liabilities
Current liabilities
Short-term borrowings $ 3,814 $3,588 $4,624
Current portion of long-term
debt and capitalized leases 612 2,865 1,414
Accounts payable and other
liabilities 5,977 6,107 6,732
Unearned revenues 820 844 815
Other taxes 451 412 524
Total current liabilities 11,674 13,816 14,109
Long-term debt and capitalized
leases 14,042 13,257 13,631
Postretirement benefits 2,258 2,479 2,346
Minority interest and other
liabilities 1,593 1,434 1,523
Total liabilities 29,567 30,986 31,609
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,566 3,586 3,583
Retained income 5,149 4,447 4,848
Treasury stock - at cost (2,233) (1,655) (2,089)
Deferred ESOP expense (160) (192) (175)
Accumulated other comprehensive
income (362) (324) (424)
Total shareholders' equity 6,283 6,185 6,066
Total liabilities and shareholders'
equity $35,850 $37,171 $37,675
Total common shares outstanding 380.3 392.3 383.5
</TABLE>
