<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) January 21, 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
<PAGE> 2
Item 5. Other Events.
On January 21, 1999, the Registrant issued its fourth quarter earnings
press release attached hereto 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.
<PAGE> 3
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: January 21, 1999 By: /s/ ALAN J. LACY
-----------------------
ALAN J. LACY
Chief Financial Officer
<PAGE> 4
EXHIBITS
99. Sears, Roebuck and Co. press release dated January 21, 1999.
E-1
<PAGE> 1
EXHIBIT 99
NEWS FROM SEARS
CONTACT:
William H. Parke
(847) 286-5998
FOR IMMEDIATE RELEASE:
January 21, 1999
SEARS REPORTS FOURTH-QUARTER 1998 RESULTS
STRENGTH IN CREDIT BUSINESS OFFSETS RETAIL SOFTNESS
HOFFMAN ESTATES, Ill. -- Sears, Roebuck and Co. reported fourth-quarter
1998 net income of $535 million, or $1.39 per share, compared with $536
million, or $1.35 per share, in the fourth quarter of 1997. Earnings per share
benefited from fewer shares outstanding in 1998. Both periods were affected by
non-comparable items.
Excluding these non-comparable items, fourth quarter 1998 net income
would have been $572 million, or $1.48 per share, a 14.7 percent per share
increase from $512 million, or $1.29 per share for the comparable 1997 period.
The increase was primarily due to improved performance of the credit business.
Credit benefited from the successful execution of management's operational
plans, which improved portfolio quality and led to a lower provision for
uncollectible accounts. The favorable credit results and a lower effective tax
rate more than offset softness in the retail business segment.
Significant non-comparable items affecting the fourth quarter of 1998
included impairment charges related to the sale of Western Auto and the
pending sale of HomeLife, as well as the impact of SFAS No. 125 accounting,
which in aggregate reduced net income by $37 million, or $0.09 per share. The
non-comparable item in the fourth quarter of 1997 was the impact of SFAS No.
125 accounting, which increased net income by $24 million, or $0.06 per share.
Fourth-quarter 1998 revenues were $12.16 billion, a decrease from
revenues of $13.08 billion in the fourth quarter of 1997. The fourth quarter
of 1998 included 13 weeks as compared with 14 weeks in the fourth quarter of
1997. Excluding the fourteenth week in 1997 and the impact of the November 2,
1998 sale of Western Auto, fourth quarter revenues would have been flat.
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<PAGE> 2
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"Our robust home appliance and electronics business drove hardgood
sales in our full-line stores during the quarter, with notable performers being
major appliances, big screen TVs and camcorders, but these results were offset
by slower softgood sales," said Chairman and Chief Executive Officer Arthur C.
Martinez. "Although the arrival of colder weather during the holidays spurred
seasonal apparel sales, quarterly apparel results were disappointing. Several
categories did well, however, including women's special sizes, jewelry,
cosmetics and fragrances. Off the mall, our hardware and dealer stores
continued to perform well."
Net income for 1998 was $1.05 billion, or $2.68 per share as compared to
$1.19 billion, or $2.99 per share in 1997. Excluding the impact of significant
non-comparable items, net income would have been $1.30 billion, or $3.32 per
share, compared with $1.30 billion, or $3.27 per share for the comparable 1997
period, as strong credit results offset a decline in retail results. In
addition, the effective tax rate was reduced from 40.1 percent in 1997 to 38.2
percent in 1998.
For 1998, revenues were $41.32 billion, a slight increase over revenues of
$41.30 billion in the same period last year. The 1998 fiscal year included 52
weeks as compared with 53 weeks in fiscal 1997. Excluding the fifty-third week
in 1997 and the impact of the sale of Western Auto, annual revenues would have
increased $946 million or 2.3 percent.
DOMESTIC OPERATIONS
Fourth quarter domestic operations revenues were $11.07 billion, versus
revenues of $11.93 billion in the comparable 1997 period. Excluding the
fourteenth week included in the prior year and the impact of the sale of Western
Auto, fourth quarter domestic operations revenues would have increased $18
million or 0.2 percent. Revenues, adjusted for the fourteenth week and the
impact of the sale of Western Auto, included a 1.1 percent increase in domestic
retail revenues, which included a comparable store sales decrease of 1.6
percent; a 2.1 percent increase in services revenues, and an 8.5 percent
decrease in credit revenues. The decrease in credit revenues was attributable
to reduced late fee income and a lower level of owned credit card receivables.
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<PAGE> 3
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Domestic gross margin as a percentage of merchandise sales and services in
the fourth quarter of 1998 was 26.3 percent versus 27.7 percent in 1997.
Increased promotional activity in the retail segment to meet higher competitive
levels led to the margin decline.
Domestic operations selling and administrative expense as a percentage of
revenues was 18.8 percent in the fourth quarter of 1998 versus 18.5 percent in
the fourth quarter of 1997. An improvement in retail expense leverage
partially offset the increase in credit expenses, which was primarily due to
higher operating expenses within the credit business and a decrease in credit
revenues.
In the fourth quarter of 1998, the domestic provision for uncollectible
accounts was $245 million, a 60.7 percent decrease from $623 million in the
fourth quarter of 1997. The decrease in the provision is due to favorable
trends in delinquency rates, charge-off experience and bankruptcies and a
decrease in the level of owned credit card receivable balances.
"In the fourth quarter, we continued to increase our investment in
collection and risk management activities and have seen improvement in
delinquency and charge-off statistics for our portfolio overall," Martinez
said. "Our improvement in the provision for the fourth quarter reflects this
underlying positive trend in portfolio quality during 1998," he added. The
provision benefited from a $34 million reduction to the allowance for
uncollectible accounts as compared with an increase of $244 million in the
fourth quarter of 1997.
INTERNATIONAL OPERATIONS
International operations in the fourth quarter of 1998 include Sears
interest in 55 percent of Sears Canada. International operating results were
strong in the fourth quarter of 1998, providing $26 million of Sears
consolidated net income compared with $19 million in the fourth quarter of
1997. The international segment benefited from Sears Canada's improved
operating results as well as the timing of certain holding company costs, but
the improvement was partially offset by the negative effects of a lower
exchange rate.
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<PAGE> 4
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OUTLOOK
For 1999, the company expects a low double-digit percentage increase in
earnings per share (excluding non-comparable items) over the 1998 level.
This outlook is forward looking and as such involves risks and
uncertainties that could cause actual results to differ materially. The
company's forward-looking statements are based on assumptions about many
important factors, including competitive conditions in the retail industry;
changes in consumer confidence, spending and preferences; general United States
economic conditions such as changing interest rates; the trends in personal
bankruptcies; the outcome of pending bankruptcy reform legislation, and normal
business uncertainty. While the company 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.
Through its network of 845 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 more than 60 million
households.
# # # #
<PAGE> 5
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the 13 Weeks Ended Jan. 2, 1999 For the 52 Weeks Ended Jan. 2, 1999
and 14 Weeks Ended Jan. 3, 1998 and 53 Weeks Ended Jan. 3, 1998
----------------------------------- -----------------------------------
(millions, except earnings per share) 1998 1997 % Change 1998 1997 % Change
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Merchandise and service $11,036 $11,753 -6.1% $36,704 $36,371 0.9%
Credit revenues 1,122 1,329 -15.6% 4,618 4,925 -6.2%
------- ------- ------- -------
Total revenues 12,158 13,082 -7.1% 41,322 41,296 0.1%
Costs and expenses
Cost of sales, buying and occupancy 8,104 8,475 -4.4% 27,257 26,779 1.8%
Selling and administrative 2,302 2,449 -6.0% 8,318 8,322 -
Depreciation and amortization 207 212 -2.4% 830 785 5.7%
Provision for uncollectible accounts 250 634 -60.6% 1,287 1,532 -16.0%
Interest 345 388 -11.1% 1,423 1,409 1.0%
Impairment loss 56 - - 352 - -
Reaffirmation charge - - - - 475 -
------- ------- ------- -------
Total costs and expenses 11,264 12,158 -7.4% 39,467 39,302 0.4%
------- ------- ------- -------
Operating income 894 924 -3.2% 1,855 1,994 -7.0%
Other income, net 4 8 - 28 145 -
------- ------- ------- -------
Income before income taxes and
minority interest 898 932 -3.6% 1,883 2,139 -12.0%
Income taxes (338) (370) -8.6% (766) (912) -16.0%
Minority interest (25) (26) -3.8% (45) (39) 15.4%
------- ------- ------- -------
Net income before extraordinary loss 535 536 -0.2% 1,072 1,188 -9.8%
Extraordinary loss on debt extinguishment - - - 24 - -
------- ------- ------- -------
Net income $ 535 $ 536 -0.2% $ 1,048 $ 1,188 -11.8%
======= ======= ======= =======
Net income consists of:
Domestic operations $ 509 $ 517 -1.5% $ 1,008 $ 1,203 -16.2%
International operations 26 19 36.8% 40 (15) -
------- ------- ------- -------
Net income $ 535 $ 536 -0.2% $ 1,048 $ 1,188 -11.8%
======= ======= ======= =======
Earnings per share:
Basic $ 1.39 $ 1.37 $ 2.70 $ 3.03
======= ======= ======= =======
Diluted $ 1.39 $ 1.35 $ 2.68 $ 2.99
======= ======= ======= =======
Average common and common
equivalent shares outstanding 385.6 396.5 391.7 397.8
</TABLE>
<PAGE> 6
SEARS, ROEBUCK AND CO.
SUMMARY OF SIGNIFICANT NON-COMPARABLE ITEMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
13 Weeks Ended Jan. 2, 1999 14 Weeks Ended Jan. 3, 1998
--------------------------- ---------------------------
$ EPS $ EPS
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Reported Net Income $ 535 $ 1.39 $ 536 $ 1.35
Non-comparable Items:
SFAS No. 125 Accounting 2 0.01 24 0.06
Western Auto Impairment (18) (0.05) -- --
HomeLife Impairment (21) (0.05) -- --
----------- ------------ ------------ ------------
(37) (0.09) 24 0.06
Net income excluding non-comparable items $ 572 $ 1.48 $ 512 $ 1.29
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
52 Weeks Ended Jan. 2, 1999 53 Weeks Ended Jan. 3, 1998
--------------------------- ---------------------------
$ EPS $ EPS
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Reported Net Income $ 1,048 $ 2.68 $ 1,188 $ 2.99
Non-comparable Items:
SFAS No. 125 Accounting 36 0.09 136 0.35
Western Auto Impairment (243) (0.62) -- --
HomeLife Impairment (21) (0.05) -- --
Extraordinary Loss on Debt Extinguishment (24) (0.06) -- --
Parts America Conversion -- -- (23) (0.06)
Post Retirement Life Insurance -- -- 37 0.09
Sale of Sears Mexico -- -- (36) (0.09)
Sale of Advantis -- -- 91 0.23
Reaffirmation Charge -- -- (320) (0.80)
----------- ------------ ------------ ------------
(252) (0.64) (115) (0.28)
Net income excluding non-comparable items $ 1,300 $ 3.32 $ 1,303 $ 3.27
=========== ============ ============ ============
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
SEARS, ROEBUCK AND CO.
DOMESTIC OPERATIONS INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
For the 13 Weeks Ended Jan. 2, 1999 For the 52 Weeks Ended Jan. 2, 1999
and 14 Weeks Ended Jan. 3, 1998 and 53 Weeks Ended Jan. 3, 1998
----------------------------------- -----------------------------------
(millions) 1998 1997 % Change 1998 1997 % Change
------- ------- --------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Merchandise and service $10,011 $10,672 -6.2% $33,542 $33,159 1.2%
COMPARABLE STORE SALES INC(DEC) (1.6%) 2.2% 1.1% 2.3%
Credit revenues
Gross finance charges and other revenues 1,172 1,380 -15.1% 4,802 5,086 -5.6%
Funding costs on securitized receivables (110) (122) -9.8% (433) (437) -0.9%
------- ------- ------- -------
Total credit revenues 1,062 1,258 -15.6% 4,369 4,649 -6.0%
------- ------- ------- -------
Total revenues 11,073 11,930 -7.2% 37,911 37,808 0.3%
Costs and expenses
Cost of sales, buying and occupancy 7,381 7,712 -4.3% 24,935 24,431 2.1%
GROSS MARGIN % 26.3% 27.7% 25.7% 26.3%
Selling and administrative 2,080 2,209 -5.8% 7,589 7,542 0.6%
% OF TOTAL REVENUES 18.8% 18.5% 20.0% 19.9%
Depreciation and amortization 191 196 -2.6% 766 725 5.7%
Provision for uncollectible accounts 245 623 -60.7% 1,261 1,493 -15.5%
Interest 319 360 -11.4% 1,318 1,290 2.2%
Impairment loss 56 - - 352 - -
Reaffirmation charge - - - - 475 -
------- ------- ------- -------
Total costs and expenses 10,272 11,100 -7.5% 36,221 35,956 0.7%
------- ------- ------- -------
Operating income $ 801 $ 830 -3.5% $ 1,690 $ 1,852 -8.7%
======= ======= ======= =======
Operating income by business format:
Retail $ 506 $ 689 -26.6% $ 734 $ 951 -22.8%
Services 91 85 7.1% 375 361 3.9%
Credit 315 113 178.8% 1,144 752 52.1%
Corporate (55) (57) -3.5% (211) (212) -0.5%
Impairment loss (56) - - (352) - -
------- ------- ------- -------
Total operating income $ 801 $ 830 -3.5% $ 1,690 $ 1,852 -8.7%
======= ======= ======= =======
Operating income by business format, excluding non-comparable items:
Retail $ 506 $ 689 -26.6% $ 734 $ 928 -20.9%
Services 91 85 7.1% 375 361 3.9%
Credit 312 74 321.6% 1,086 1,005 8.1%
Corporate (55) (57) -3.5% (211) (212) -0.5%
------- ------- ------- -------
Total operating income $ 854 $ 791 8.0% $ 1,984 $ 2,082 -4.7%
======= ======= ======= =======
Pretax LIFO credit $ (64) $ (47) $ (34) $ (17)
======= ======= ======= =======
</TABLE>
<PAGE> 8
SEARS, ROEBUCK AND CO.
DOMESTIC OPERATIONS INFORMATION (continued)
==============================================================================
(millions, except number of stores)
<TABLE>
<CAPTION>
For the 13 Weeks Ended Jan. 2, 1999 For the 52 Weeks Ended Jan. 2, 1999
and the 14 Weeks Ended Jan. 3, 1998 and the 53 Weeks Ended Jan. 3, 1998
----------------------------------- -----------------------------------
1998 1997 % Change 1998 1997 % Change
-------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Total Domestic Revenues:
Retail $ 9,214 $ 9,833 - 6.3% $30,429 $30,086 1.1%
Services 797 838 - 4.9% 3,113 3,073 1.3%
Credit 1,062 1,259 -15.6% 4,369 4,649 -6.0%
------- ------- ------- -------
Total Domestic Revenues $11,073 $11,930 -7.2% $37,911 $37,808 0.3%
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
------------------
Jan. 2, Jan. 3,
1999 1998
------- -------
<S> <C> <C>
Domestic inventories -LIFO $ 4,336 $ 4,598
======= =======
-FIFO $ 5,013 $ 5,311
======= =======
Domestic credit card receivables:
Managed credit card receivables $28,357 $28,945
Securitized balances sold (6,626) (6,404)
Retained interest in transferred
credit card receivables (4,400) (3,316)
Other receivables 166 161
------- -------
Owned credit card receivables $17,497 $19,386
======= =======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
Jan. 3, Western Auto Jan. 2,
Domestic retail stores: 1998 Opened Closed Sale 1999
------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Full-line stores 833 23 (11) 0 845
Specialty formats 2,697 216 (63) (652) 2,198
------- ------- ------- ----- ------
Total 3,530 239 (74) (652) 3,043
======= ======= ======= ===== ======
Gross square feet 151.0 5.2 (1.9) (6.9) 147.4
======= ======= ======= ===== ======
</TABLE>
<PAGE> 9
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL DOMESTIC CREDIT INFORMATION
- --------------------------------------------------------------------------------
The following tables indicate the extent to which line items on the externally
reported income statement were affected by the implementation of SFAS No. 125 &
115 as contrasted with the accounting treatment prior to implementation of these
standards. (e.g. as if the accounting method had not been changed):
<TABLE>
<CAPTION>
FOURTH QUARTER
For the 13 Weeks Ended Jan. 2, 1999 For the 14 Weeks Ended Jan. 3, 1998
----------------------------------- -----------------------------------
INCREASE (DECREASE) SFAS 125 SFAS 115 TOTAL SFAS 125 SFAS 115 TOTAL
----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Credit Revenues $ (141.8) $ (76.4) $ (218.2) $ (131.1) $ (67.3) $ (198.4)
Selling and administrative expense (32.8) - (32.8) (34.2) - (34.2)
Provision for uncollectible accounts (111.6) (76.4) (188.0) (136.6) (67.3) (203.9)
----------- --------- -------- ---------- ---------- ---------
OPERATING INCOME 2.6 - 2.6 39.7 - 39.7
Income Tax 0.7 - 0.7 15.5 - 15.5
----------- --------- -------- ---------- ---------- ---------
Net Income $ 1.9 $ - $ 1.9 $ 24.2 $ - $ 24.2
=========== ========= ======== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
YEAR TO DATE
For the 52 Weeks Ended Jan. 2, 1999 For the 53 Weeks Ended Jan. 3, 1998
----------------------------------- -----------------------------------
SFAS 125 SFAS 115 Total SFAS 125 SFAS 115 Total
----------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Credit Revenues $ (549.6) $ (283.7) $ (833.3) $ (321.6) $ (173.4) $ (495.0)
Selling and administrative expense (128.6) - (128.6) (126.4) - (126.4)
Provision for uncollectible accounts (478.4) (283.7) (762.1) (417.6) (173.4) (591.0)
----------- --------- -------- ---------- ---------- ---------
OPERATING INCOME 57.4 - 57.4 222.4 - 222.4
Income Tax 21.5 - 21.5 86.4 - 86.4
----------- --------- -------- ---------- ---------- ---------
Net Income $ 35.9 $ - $ 35.9 $ 136.0 $ - $ 136.0
=========== ========= ======== ========== ========== =========
</TABLE>
The following charge-off, delinquency and portfolio yield information relate to
the 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 on-book debt of the company and securitization
interest of the Sears Master Trust.
<TABLE>
<CAPTION>
For the 13 weeks ended Jan. 2, 1999 For the 52 weeks ended Jan. 2, 1999
NET INTEREST MARGIN: and the 14 weeks ended jan. 3, 1998 and the 53 weeks ended jan. 3, 1998
----------------------------------- -----------------------------------
1998 1997 1998 1997
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Portfolio Yield 20.09% 21.02% 20.18% 20.17%
Effective Financing Rate 5.84% 6.14% 6.00% 6.13%
------------- ------------ ------------- -----------
Net Interest Margin 14.25% 14.88% 14.18% 14.04%
============= ============ ============= ===========
Delinquency rate* 7.23% 7.03% 7.23% 7.03%
Net charge-off rate 6.74% 7.76% 7.35% 6.36%
</TABLE>
*The 1998 delinquency rate includes 12% of the managed accounts which have been
converted to the new credit system (TSYS). For the TSYS accounts, the
delinquency rate is 10.1%.
<TABLE>
<CAPTION>
For the 13 weeks ended Jan. 2, 1999 For the 52 weeks ended Jan. 2, 1999
and the 14 weeks ended Jan. 3, 1998 and the 53 weeks ended Jan. 3, 1998
----------------------------------- -----------------------------------
1998 1997 1998 1997
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Average managed domestic
credit card receivables $27,675 $ 27,895 $ 27,922 $ 27,150
</TABLE>
