<PAGE> 1
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) April 22, 1999
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
New York 1-416 36-1750680
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
</TABLE>
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 286-2500
<PAGE> 2
Item 5. Other Events.
On April 22, 1999, the Registrant issued its first quarter earnings
press release. A copy of the press release is attached as Exhibit 99(i).
During the week of April 26, 1999, representatives of the Registrant
intend to meet with analysts and investors in England. Attached as Exhibit
99(ii) are excerpts from the presentations to be given at those meetings
containing information regarding the businesses of the Registrant.
Certain of the statements included in Exhibit 99(ii) 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 competitive
conditions in the apparel industry, changes in consumer confidence, spending and
preference in apparel, general United States economic conditions including
interest rate fluctuations and trends in personal bankruptcies, the availability
of suitable acquisitions and growth opportunities and normal business
uncertainty. While the Registrant believes that 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.
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: April 23, 1999 By: /s/ JULIAN DAY
----------------
Julian Day
Executive Vice President and
Chief Financial Officer
<PAGE> 3
EXHIBITS
99(i) Sears, Roebuck and Co. press release dated April 22, 1999.
99(ii) Sears, Roebuck and Co. materials to be presented at meetings held in
England during the week of April 26, 1999.
E-1
<PAGE> 1
CONTACT:
William H. Parke
(847) 286-5998
FOR IMMEDIATE RELEASE:
April 22, 1999
SEARS REPORTS FIRST-QUARTER 1999 RESULTS
Strong Earnings Per Share Increase Led by Credit
Business
HOFFMAN ESTATES, Ill. -- Sears, Roebuck and Co.
reported first-quarter 1999 net income of $146
million, or $0.38 per share, compared to reported
1998 first-quarter net income of $133 million, or
$0.34 per share. Excluding non-comparable items,
earnings per share increased 36 percent in the first
quarter of 1999. First quarter 1998 earnings
included non-comparable income of $0.06 per share
from SFAS No. 125 accounting.
The earnings increase was primarily due to
improved performance of the credit business, which
benefited from a lower provision for uncollectible
accounts, a result of continuing favorable trends in
portfolio quality. Earnings of Sears Canada also
improved strongly from a year ago.
"We are pleased with the consistency and quality
of improvement in the credit business, as well as
with the strong results from Sears Canada," said
Chairman and Chief Executive Officer Arthur Martinez.
"While we continue to make progress on our retail and
services initiatives, results do not yet reflect the
enormous amount of work being done in these
businesses."
Comparable retail sales up 1.9 percent on top of 4.9
percent last year
First quarter revenues were $9.04 billion, versus
revenues of $9.23 billion in the comparable 1998
period. Comparable store sales increased 1.9
percent on top of 4.9 percent last year. Results
included a 2.8 percent decrease in retail revenues,
primarily due to the loss of sales related to the
recent divestitures of HomeLife and Western Auto.
Excluding the impact of the sale of divested
businesses, first quarter retail revenues
increased $212 million or 3.4 percent.
more -
<PAGE> 2
Page 2
Services revenues rose 3.8 percent due to
increases in both Home Services and Sears Direct
businesses. Credit revenues decreased 6.8 percent,
primarily attributable to reduced late fee income and
a lower level of owned credit card receivables.
International revenues rose 4.8 percent, due
largely to strong comparable store sales and revenue
from new store formats.
"In retail, sales of durable goods continued at
their strong pace, led by major home appliances and
electronics in our full-line stores," said
Martinez. "Our leadership categories included
washers, dryers and refrigerators, as well as big
screen TVs and camcorders. In softgoods, sales
were led by women's specialty and children's apparel,
jewelry, cosmetics and fragrances. Off the mall, our
hardware and dealer stores continued to perform very
well."
Expense leverage in retail operations
Gross margin as a percentage of merchandise sales
and services was 23.7 percent in the first quarter of
1999 compared to 24.2 percent in the comparable 1998
period. The change reflects a higher level of retail
promotional activity.
Selling and administrative expense as a percentage of
total revenues was 21.3 percent in the first quarter
of 1999 compared to 21.1 percent in the prior-year
period. The increase is primarily due to higher
credit collection and legal costs in the credit
segment and to the timing of information systems
projects. The retail business demonstrated strong
improvement in selling and administrative expense as
a percentage of retail revenues, leveraging
associate-related and marketing costs.
Lower provision for uncollectible accounts
In the first quarter of 1999, the provision for
uncollectible accounts was $291 million, a 26.1
percent decrease from $394 million in the first
quarter of 1998. The decrease in the provision is
due to favorable charge-off experience and favorable
trends in delinquency rates and bankruptcies, as
well as a decrease in the level of owned credit card
receivable balances. The allowance for uncollectible
accounts decreased $10 million during the
quarter.
more -
<PAGE> 3
Page 3
Through its network of 847 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.
# # # #
<PAGE> 4
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the 13 Weeks Ended
April 3, 1999 and April 4, 1998
-------------------------------
(millions, except earnings per share) 1999 1998 % Change
--------- ------- -----------
<S> <C> <C> <C>
Revenues
Merchandise and services $7,909 $8,025 -1.4%
Credit revenues 1,128 1,208 -6.6%
------ ------
Total revenues 9,037 9,233 -2.1%
Costs and expenses
Cost of sales, buying and
occupancy 6,035 6,084 -0.8%
Selling and administrative 1,923 1,949 -1.3%
Depreciation and
amortization 209 208 0.5%
Provision for uncollectible
accounts 291 394 -26.1%
Interest 334 376 -11.2%
------ ------
Total costs and expenses 8,792 9,011 -2.4%
------ ------
Operating income 245 222 10.4%
Other income, net (2) 6 -
------ ------
Income before income taxes
and minority interest 243 228 6.6%
Income taxes (92) (92) -
Minority interest (5) (3) 66.7%
------ ------
Net income $ 146 $ 133 9.8%
====== ======
Earnings per share:
Basic $ 0.38 $ 0.34 11.8%
====== ======
Diluted $ 0.38 $ 0.34 11.8%
====== ======
Average common and common
equivalent shares
outstanding 385.1 394.5
</TABLE>
<PAGE> 5
SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEET
================================================================================
(millions)
<TABLE>
<CAPTION> April 3, April 4, January 2,
1999 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 37l $ 344 $ 495
Retained interest in transferred credit
card receivables 3,633 3,113 4,294
Credit card receivables, net 16,843 18,962 17,972
Other receivables 357 403 397
Merchandise inventories 5,177 5,465 4,816
Prepaid expenses and deferred charges 642 568 506
Deferred income taxes 746 773 791
---------- ---------- -----------
Total current assets 27,769 29,628 29,271
Property and equipment, net 6,266 6,391 6,380
Deferred income taxes 562 659 572
Other assets 1,493 1,376 1,452
---------- ---------- -----------
Total assets $ 36,090 $ 38,054 $ 37,675
========== ========== ===========
Liabilities
Current liabilities
Short-term borrowings $ 4,502 $ 4,095 $ 4,624
Current portion of long-term debt and
capitalized leases 936 2,723 1,414
Accounts payable and other liabilities 6,078 6,009 6,732
Unearned revenues 803 828 815
Other taxes 397 393 524
---------- ----------- -----------
Total current liabilities 12,716 14,048 14,109
Long-term debt and capitalized leases 13,457 14,161 13,631
Postretirement benefits 2,302 2,516 2,346
Minority interest and other liabilities 1,512 1,418 1,523
---------- ---------- -----------
Total liabilities 29,987 32,143 31,609
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,575 3,593 3,583
Retained income 4,906 4,201 4,848
Treasury stock - at cost (2,199) (1,699) (2,089)
Deferred ESOP expense (167) (198) (175)
Accumulated other comprehensive income (335) (309) (424)
---------- ---------- -----------
Total shareholders' equity 6,103 5,911 6,066
---------- ---------- -----------
Total liabilities and shareholders'
equity $ 36,090 $ 38,054 $ 37,675
========== ========== ===========
Total common shares outstanding 381.0 391.1 383.5
</TABLE>
<PAGE> 6
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
================================================================================
(millions, except number of stores)
<TABLE>
<CAPTION>
For the 13 Weeks Ended
April 3, 1999 and April 4, 1998
-------------------------------
<S> <C> <C> <C>
1999 1998 % Change
------- ------ --------
Total Revenues:
Retail $ 6,422 $6,605 -2.8%
Services 718 692 3.8%
Credit 1,063 1,140 -6.8%
International 834 796 4.8%
------- ------
Total revenues $ 9,037 $9,233 -2.1%
======= ======
Operating income:
Retail $ (69) $ (60) -15.0%
Services 75 80 -6.3%
Credit 295 252 17.1%
Corporate (73) (60) -21.7%
International 17 10 70.0%
------- ------
Total operating income $ 245 $ 222 10.4%
======= ======
<CAPTION>
------------------
April 3, April 4,
1999 1998
<S> <C> <C>
Domestic inventories-LIFO $ 4,689 $ 4,972
======== ========
-FIFO $ 5,369 $ 5,697
======== ========
Pretax LIFO charge $ 12 $ 12
======== ========
<CAPTION>
----------------------------------------------
January 3, Homelife April 3,
Domestic retail stores: 1999 Opened Closed Sale 1999
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Full-line stores 845 3 (1) - 847
Specialty formats 2,198 23 (12) (105) 2,104
------- ----- ----- ---- -----
Total 3,043 26 (13) (105) 2,951
======= ===== ===== ==== =====
Gross square feet 148.3 0.7 (0.4) (4.7) 143.9
======= ===== ===== ==== =====
</TABLE>
<PAGE> 7
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.
<TABLE>
<CAPTION>
For the 13 weeks ended
April 3, 1999 and April 4, 1998
----------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
AVERAGE MANAGED DOMESTIC
CREDIT CARD RECEIVABLES $27,540 $28,425
<CAPTION>
April 3, April 4,
1999 1998
--------------- --------------
DOMESTIC CREDIT CARD RECEIVABLES:
Managed credit card receivables $26,768 $27,875
Securitized balances sold (6,744) (6,255)
Retained interest in transferred
credit card receivables (3,633) (3,113)
Other receivables 142 189
--------------- --------------
Owned credit card receivables $16,533 $18,696
=============== ==============
<CAPTION>
For the 13 weeks ended
April 3, 1999 and April 4, 1998
----------------------------------
MANAGED CREDIT CARD RECEIVABLES - 1999 1998
------------- -----------------
<S> <C> <C>
Net Interest Margin:
Portfolio Yield 19.89% 20.38%
Effective Financing Rate 5.73% 6.11%
------------- -----------------
Net Interest Margin 14.16% 14.27%
============= =================
MANAGED NET CHARGE-OFF RATE (1) 7.08% 8.12%
============= =================
</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 and 38% were converted in March 1999. Balances are charged-off
earlier under the TSYS system than under the proprietary system. The March
1999 conversion has not yet had an effect on the charge-off rate.
<TABLE>
<CAPTION>
April 3, 1999 April 4, 1998
----------------------------- -------------
Proprietary Proprietary
System System
Converted Unconverted Unconverted
Accounts Accounts Accounts
--------------- ----------- -----------
<S> <C> <C> <C>
MANAGED CREDIT CARD RECEIVABLES-
DELINQUENCY RATE(2) 8.07% 6.80% 6.97%
=============== =========== ===========
</TABLE>
(2) In March 1999, Sears completed the second phase of the conversion to the
TSYS account processing system. Approximately 50% of the managed accounts
have been converted to the new TSYS system. Under the existing proprietary
receivables processing system, Sears divides delinquencies as of the end of
each billing cycle by balances at the end of the month. The TSYS processing
system divides delinquencies as of the end of the month by balances at the
end of the month. If Sears had calculated delinquencies for converted
accounts by dividing delinquencies as of the end of each billing cycle by
balances at the end of the month, as it does for unconverted accounts, the
delinquency rate for converted accounts would have been 9.08%.
<PAGE> 1
EXHIBIT 99(ii)
SEARS, ROEBUCK AND CO.
INVESTOR PRESENTATION
ARTHUR C. MARTINEZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
APRIL 1999
<PAGE> 2
SEARS, ROEBUCK AND CO.
- -------------------------------------------------------------------------------
OVERVIEW
1998 REVENUE : $41.3B
FULL-LINE - 845 FULL-LINE STORES
56%
SPECIALTY RETAIL - 2,100 SPECIALTY STORES
17%
Credit - LEADING SERVICES MARKET
8% SHARE IN MULTIPLE CATEGORIES
SERVICES - LARGEST RETAIL CREDIT OPERATION
11%
Canada - OWN KENMORE, CRAFTSMAN AND
8% DIEHARD BRANDS
- SERVE 50 MILLION+ U.S. HOUSEHOLDS
ANNUALLY
- LEADING CANADIAN DEPARTMENT STORE
<PAGE> 3
1998 WAS A YEAR OF CONSIDERABLE CHALLENGES
- --------------------------------------------------------------------------------
EPS GROWTH BELOW THE PACE OF THE PREVIOUS FIVE YEARS
ACCOMPLISHMENTS SHORTFALLS
--------------- ----------
- - TURNED AROUND CREDIT BUSINESS - SHAREHOLDER VALUE CREATION
BELOW STANDARD AND INDUSTRY
- - REVENUE PERFORMANCE AND PERFORMANCE
SHARE GAINS IN HARDLINES
AUTHORITY CATEGORIES - WEAK APPAREL SALES AND MARGIN
- - FAVORABLE DEVELOPMENT OF - TIRE GROUP UNDERPERFORMED
DEALER AND HARDWARE STORES
- DECELERATION OF HOME SERVICES
- - CONTINUED IMPROVEMENTS IN GROWTH RATE
SEARS CANADA
- - STRONG COMPREHENSIVE
EXPENSE MANAGEMENT
- - DISPOSED OF UNDERPERFORMING,
NON-STRATEGIC BUSINESSES
<PAGE> 4
DECLINE IN RETAIL OPERATING INCOME OFFSET GAINS IN
SERVICES AND CREDIT
- --------------------------------------------------------------------------------
1998 RESULTS: $3.32 vs $3.27 PER SHARE
SEGMENT OPERATING INCOME
(AFTER INTEREST EXPENSE)
<TABLE>
<CAPTION>
Retail Services Credit International
---------- ------------ -------------- -------------
1997 1998 1997 1998 1997 1998 1997 1998
---- ---- ---- ---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$928 $734 $361 $375 $1,005 $1,086 $142 $165
</TABLE>
<PAGE> 5
STRONG CREDIT IMPROVEMENT DROVE 36% EPS GROWTH IN
Q1 '99
- --------------------------------------------------------------------------------
FIRST QUARTER 1999 RESULTS: $0.38 vs $0.28
SEGMENT OPERATING INCOME
(AFTER INTEREST EXPENSE)
<TABLE>
<CAPTION>
Retail Services Credit International
------ -------- ------ -------------
1998 1999 1998 1999 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$(61) $(69) $ 80 $ 75 $ 218 $ 269 $ 10 $ 17
</TABLE>
<PAGE> 6
WE ARE COMMITTED TO A TANGIBLE SET OF INITIATIVES FOCUSED
ON DELIVERING MEASUREABLE SHAREHOLDER VALUE
- --------------------------------------------------------------------------------
1999 PRIORITIES
- - REVITALIZE FULL-LINE STORE REVENUE AND PROFIT GROWTH
- - CONTINUE TO IMBED IMPROVEMENTS IN CREDIT PERFORMANCE
- - AGGRESSIVELY MANAGE COSTS AND CASH FLOW
- - INNOVATE AND GROW OPPORTUNITIES DEFINED BY CUSTOMER
AUTHORITY AND MEANINGFUL VALUE-CREATION POTENTIAL
- HOME SERVICES
- SPECIALTY RETAIL
- ELECTRONIC COMMERCE
<PAGE> 7
REVITALIZE FULL-LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
WINNING STRATEGIC ADVANTAGES
- - UNIQUELY POSITIONED TO SATISFY GROWING VALUE SOPHISTICATION
-UNPARALLELED ASSORTMENT
-COMBINE MALL VITALITY WITH VALUE LEADERSHIP
-SUPERIOR CUSTOMER INFORMATION
-EXCELLENT CROSS-MARKETING AND FINANCING OPPORTUNITIES
-SIZE AND SCOPE TO LEVERAGE VENDOR PARTNERSHIPS
- - CUSTOMER SATISFACTION MEASURES IMPROVING
- - LOCATIONS ARE EXCELLENT
- - DEMONSTRATING CONSISTENT LEVERAGE GAINS ON OPERATING
EXPENSES
- -5% RETAIL OPERATING MARGIN GOAL APPROPRIATE AND ATTAINABLE
<PAGE> 8
REVITALIZE FULL-LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
COMPETITIVE AND CONSUMER ENVIRONMENT FOR APPAREL
- - GROWING CONSUMER SOPHISTICATION ABOUT PRODUCT AND VALUE
- - CREDIBILITY AND QUALITY OFF-MALL APPAREL COMPETITION HAS
IMPROVED
- WAL-MART
- TARGET, KOHL'S
- - STRONG CONTEMPORARY/LIFESTYLE APPEAL IN SPECIALTY CONCEPTS
-GAP STORES, OLD NAVY
-ABERCROMBIE & FITCH
<PAGE> 9
REVITALIZE FULL-LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
EXTEND HARDLINES DOMINANCE
[KENMORE LOGO]
[GE LOGO]
[MAYTAG LOGO] - APPLIANCE SHARE UP 100 BASIS POINTS IN 1998
[WHIRLPOOL LOGO] - CONSUMER ELECTRONICS PRODUCT CYCLE WILL
DRIVE REVENUE AND SHARE GAINS
[CRAFTSMAN LOGO]
- TOOL AND LAWN & GARDEN SUPERSTORE
[PANASONIC LOGO]
[SONY LOGO]
[MAKITA LOGO]
[DIEHARD LOGO]
[TOSHIBA LOGO]
[HITACHI LOGO]
[DEWALT LOGO]
<PAGE> 10
REVITALIZE FULL-LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
REESTABLISH APPAREL MOMENTUM WITH AN
UNEQUIVOCAL STATEMENT OF WHOLE-HOUSE VALUE
[CROSSROADS LOGO]
[FIRST ISSUE LOGO] - SOFTLINES BUSINESS HAS GROWN AT HIGH
SINGLE DIGIT CAGR SINCE 1993
[APOSTROPHE LOGO]
- PRODUCT AND PRICING LARGELY IN PLACE
[LAURA SCOTT LOGO]
- MARKETING MESSAGE NEEDS
[SAG HARBOR LOGO] REVITALIZATION
[NORTON MCNAUGHTON LOGO] - CLARITY OF IN-STORE OFFER TO IMPROVE
[VANITY FAIR LOGO]
[ESPN LOGO]
[FIELDMASTER LOGO]
[TKS BASICS LOGO]
[REEBOK LOGO]
[OSHKOSH LOGO]
[HEALTH TEX LOGO]
<PAGE> 11
CONTINUE TO IMPROVE CREDIT PERFORMANCE AND GROWTH
- --------------------------------------------------------------------------------
KEY CREDIT PERFORMANCE METRICS
DOMESTIC PORTFOLIO, MANAGED BASIS ($ IN MILLIONS)
<TABLE>
<CAPTION>
1997 1998 CHANGE
------- ------- -------
<S> <C> <C> <C>
AVERAGE MANAGED RECEIVABLES $27,150 $27,922 +2.8%
PROVISION FOR BAD DEBTS $ 2,084 $ 2,024 (2.9)%
FINANCE CHARGE YIELD 20.17% 20.18% 1bp
FUNDING RATE 6.13% 6.00% (13)bp
PROFIT CONTRIBUTION $ 1,005 $ 1,086 +8.1%
</TABLE>
<PAGE> 12
CONTINUE TO IMPROVE CREDIT PERFORMANCE AND GROWTH
- --------------------------------------------------------------------------------
POWERFUL, SUSTAINABLE MANAGEMENT INITIATIVES DRIVE
MEANINGFUL IMPROVEMENTS IN PORTFOLIO QUALITY
*
DELINQUENCIES= 60+ DAYS NET CHARGE-OFFS
[LINE GRAPH OMITTED] [LINE GRAPH OMITTED]
* Q4 DELINQUENCY DATA EXCLUDES TSYS ACCOUNTS
* SOURCE: FITCH CREDIT CARD PERFORMANCE INDEX
<PAGE> 13
CONTINUE TO IMPROVE CREDIT PERFORMANCE AND GROWTH
- --------------------------------------------------------------------------------
ENHANCE SEARS CARD VALUE PROPOSITION
[SEARS CARD GRAPHIC] - REDUCE ATTRITION, RESTORE BALANCE GROWTH
- NEW TECHNOLOGY/CAPABILITIES
-RISK BASED PRICING
-TRANSACTION LEVEL PRICING
-IMPROVED REWARDS PROGRAMS
- TARGETED, COMPELLING CREDIT PROMOTIONS
<PAGE> 14
AGGRESSIVELY MANAGE COST AND CASH FLOW
- --------------------------------------------------------------------------------
STRONG RECORD OF LEVERAGING COSTS; INVENTORY AN OPPORTUNITY
RETAIL SG&A
170bp OF SG&A LEVERAGE SINCE 1994 - RE-ENGINEER PROCESSES AND TECHNOLOGY
20.4% - IMPROVE 1 FULL TURN OVER NEXT 4 YEARS
19.7% 19.8% 19.1% - INVENTORY TAKE-OUT/AVOIDANCE OF $850
MILLION
18.7 - INCREASE SVA BY $100 MILLION
1994 1995 1996 1997 1998
<PAGE> 15
AGGRESSIVELY MANAGE COST AND CASH FLOW
- --------------------------------------------------------------------------------
STRONG CASH FLOW THE BASIS OF SHARE REPURCHASE PROGRAM
SHARE REPURCHASE PROGRAM
------------------------
- $1.5 BILLION AUTHORIZED OVER 3 YEARS
- FUND PROGRAM FROM FREE CASH FLOW
- REFLECTS STRONG FINANCIAL POSITION
<TABLE>
<CAPTION>
$(Billions)
CapEx Free Cash(1)
----------- ------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C>
$1.3 $1.2 -$0.5 $0.9
</TABLE>
(1) DOMESTIC CASH FLOW ASSUMES CREDIT RECEIVABLES FUNDED AT 9:1 DEBT TO EQUITY
<PAGE> 16
ACCELERATE SERVICES GROWTH IN NEW AND EXISTING CHANNELS
- --------------------------------------------------------------------------------
REESTABLISH HOME SERVICES GROWTH COMMENSURATE WITH OPPORTUNITY
- SOLID 1998 IN PRODUCT SERVICES AND SERVICE CONTRACTS
1998 REVENUE $3.0B
PRODUCT SERVICE - HOME IMPROVEMENTS SERVICES DISAPPOINTED
SERVICES CONTRACTS - ROOFING, SIDING, CARPET, PEST CONTROL, HVAC
$1B $1B - MULTIPLE BUSINESS MODELS UNITED BY BRAND SEARS
- NEW LEADERSHIP FOCUS
HOME - MARKETING EFFECTIVENESS
IMPROVEMENT SERVICES - VERTICAL MECHANISMS TO SUPPORT CONSISTENCY
$1B - HORIZONTAL MECHANISMS TO SUPPORT LEVERAGE
- EFFECTIVE QUALITY CONTROL
<PAGE> 17
INNOVATE AND GROW
- --------------------------------------------------------------------------------
SPECIALTY RETAIL
1998 REVENUE: $4.7B - FORMATS EXTEND CUSTOMER OFFERINGS IN
AREAS OF GREATEST AUTHORITY
TIRE & BATTERY DEALER
$2.3B $1.0B - DEALER STORES
- HARDWARE STORES
HARDWARE - TIRE AND BATTERY STORES
$1.4B - THE GREAT INDOORS
- 1999 ROLLOUTS PACED TO MATURITY OF
BUSINESS DESIGN
- 241 NEW STORES
<PAGE> 18
INNOVATE AND GROW
- --------------------------------------------------------------------------------
SEARS ONLINE
- - TARGETING AREAS OF GREATEST AUTHORITY
- - SITE LAUNCH FEATURING APPLIANCES IS IMMINENT, WITH
DISTINCTIVE SUPERIORITY IN:
-ASSORTMENT
-DELIVERY AND INSTALLATION
-REPAIR SERVICES
-PARTS
-CREDIT
-INFORMATION AND SOLUTIONS
- - OBJECTIVE: TO BE THE DEFINITIVE ONLINE SOURCE FOR
HOMEOWNERS
<PAGE> 19
WE ARE FOCUSED ON THE MOST COMPELLING VALUE CREATION
OPPORTUNITIES
- --------------------------------------------------------------------------------
MULTIPLE VALUE CAPTURE
[GRAPHIC OMITTED]
Merchandise Brands Service Credit Information Total
<PAGE> 20
CUSTOMER-CENTERED MULTIPLE VALUE DELIVERY
- --------------------------------------------------------------------------------
A POWERFUL DIFFERENTIATED PROPOSITION FEATURING
UNRIVALED BRANDS, VALUE, AND SOLUTIONS ORIENTATION
FULL-LINE STORES SPECIALTY CATALOGS
SPECIALTY RETAIL CUSTOMER HOME SERVICES
E-COMMERCE CREDIT
<PAGE> 21
FUNDING
<PAGE> 22
FUNDING SOURCES
- --------------------------------------------------------------------------------
WELL-DIVERSIFIED $25 BILLION DOMESTIC PORTFOLIO
YEAR END 1998
OTHER 2% DISCRETE BONDS 24% COMMERCIAL PAPER 16%
$0.4B $6.0B $4.1B
MEDIUM TERM NOTES 31%
ASSET-BACKED 27%
$7.8B $6.7B
- -DEBT TO TOTAL CAPITAL: 82%
- -FIXED CHARGE COVERAGE: 2.1X
<PAGE> 23
CURRENT RATING
- --------------------------------------------------------------------------------
PRIORITY TO MAINTAIN SINGLE-A RATING
<TABLE>
<CAPTION>
RATINGS AS OF MARCH 1999
---------------------------------------------
STANDARD DUFF& FITCH
MOODY'S & POOR'S PHELPS IBCA
---------- ------------ -------- --------
<S> <C> <C> <C> <C>
SENIOR UNSECURED A2 A- A A
COMMERCIAL PAPER P-1 A-2 D-1 F-1
TERM SECURITIZATION Aaa AAA AAA AAA
</TABLE>
<PAGE> 24
FINANCING ACTIVITY
- --------------------------------------------------------------------------------
FREQUENT USER OF CAPITAL MARKETS WITH
OVER $19 BILLION ISSUED SINCE 1995
ISSUANCE BY MATURITY ISSUANCE BY MARKET
5-6 YRS <5 YRS >6 YRS DISCRETE MEDIUM TERM NOTES ASSET-BACKED
49% 24% 27% BONDS 40% 32%
28%
SINCE 1997, ALMOST HALF OF SEARS DISCRETE UNSECURED ISSUANCE -- INCLUDING LAST
YEAR'S $1 BILLION GLOBAL TRANSACTION -- HAS BEEN DESIGNED TO INCLUDE
INTERNATIONAL INVESTORS
<PAGE> 25
SEARS ROEBUCK ACCEPTANCE CORP (SRAC)
- --------------------------------------------------------------------------------
SEARS PRIMARY FUNDING ARM
- - FIRST TIER, WHOLLY-OWNED SUBSIDIARY
- - DIRECT COMMERCIAL PAPER ISSUER
-CONTINUOUS MARKET PRESENCE
-$6.1 BILLION IN COMMITTED BANK FACILITIES
-RELATIONSHIPS WITH OVER 650 INSTITUTIONAL INVESTORS
- - OVER $11 BILLION OF LONG TERM DEBT OUTSTANDING
- - $2.8 BILLION OF EQUITY; $18.2 BILLION OF ASSETS AT YEAR END 1998
- - SAME CREDIT RATINGS AS SEARS
- - FIXED CHARGE COVERAGE AND OWNERSHIP AGREEMENT
<PAGE> 26
LIABILITY STRATEGY DRIVEN BY INTEREST RATES
- --------------------------------------------------------------------------------
As Interest Rates Have Declined, Sears has
Extended the Repricing Term of the Portfolio
[30-YEAR U.S. TREASURY RATE LINE GRAPH OMITTED]
[BAR GRAPH]
YEARS
8 WEIGHTED AVERAGE YEARS TO REPRICING
6
6.0
4 4.1
3.6
2 3.1
0
1995 1996 1997 1998
<PAGE> 27
MATURITY PROFILE
- --------------------------------------------------------------------------------
TERM MATURITIES AVERAGE $3 BILLION ANNUALLY THROUGH 2003
[BAR GRAPH OMITTED]
<PAGE> 28
SUMMARY
- --------------------------------------------------------------------------------
- - OUR CHALLENGES ARE CLEAR AND BEING ADDRESSED
- - OUR SENSE OF URGENCY IS HIGH
- - RESUMPTION OF REVENUE GROWTH AND APPROPRIATE
PROFIT CONVERSION IS CRITICAL
- - REVITALIZED MARKETING IS A KEY INGREDIENT
- - MUST ALSO MAINTAIN FOCUS ON AND INVEST IN NEW
CHANNELS
- - STRONG BALANCE SHEET AND DIVERSE FUNDING SOURCES
PROVIDE FINANCIAL FLEXIBILITY
- - SINGLE-A TARGET DEBT RATING
<PAGE> 29
SAFE HARBOR STATEMENT
- --------------------------------------------------------------------------------
- - THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY.
- - FOR A DISCUSSION OF FACTORS THAT COULD AFFECT FORWARD LOOKING STATEMENTS, SEE
THE REPORTS FILED BY SEARS AND SRAC WITH THE SECURITIES AND EXCHANGE
COMMISSION.
