<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) February 17, 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 60170
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 286-2500
<PAGE> 2
Item 5. Other Events.
On February 17, 1999, the Registrant held an analyst meeting in Hoffman
Estates, Illinois. Attached as Exhibit 99.1 are excerpts from the presentation
given at the meeting 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 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, likely first-quarter results,
the availability of suitable acquisitions and growth opportunities 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.
<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: February 18, 1999 By: /s/ Alan J. Lacy
--------------------------------
Alan J. Lacy
Chief Financial Officer and
President, Credit
<PAGE> 4
EXHIBITS
99.1 Sears, Roebuck and Co. materials presented at analyst meeting held on
February 17, 1999 in Hoffman Estates, Illinois.
E-1
<PAGE> 1
SEARS
1999 ANALYST MEETING
Arthur C. Martinez
Chairman and Chief Executive Officer
February 17, 1999
<PAGE> 2
1998 WAS A YEAR OF CONSIDERABLE CHALLENGES
- --------------------------------------------------------------------------------
Accomplishments
- -- Turned around Credit business
- -- Revenue performance and
share gains in hardlines
authority categories
- -- Favorable development of
Dealer and Hardware stores
- -- Continued improvements in
Sears Canada
- -- Strong comprehensive
expense management
- -- Disposed of underperforming
non-strategic businesses
Shortfalls
- -- Shareholder value creation
below standard and industry
performance
- -- Weak apparel sales and
margin
- -- Tire Group underperformed
- -- Deceleration of Home
Services growth rate
<PAGE> 3
WE ARE COMMITTED TO A TANGIBLE SET OF INITIATIVES
FOCUSED ON DELIVERING MEASURABLE 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> 4
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 and database management capabilities
- Singular cross-marketing and financing abilities
- Size and scope to leverage vendor partnerships
- -- Customer satisfaction measures improving
- -- Locations are excellent
- -- Cost structure not an impediment to effective competition
- Own/ground lease 481 mall locations
- Most lease arrangements over 18 years old
- -- Demonstrating consistent leverage gains on operating expenses
- -- 5% retail operating margin goal appropriate and attainable
<PAGE> 5
REVITALIZE FULL LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
Extend Hardlines Dominance
- -- Appliance share up 100 basis points in 1998
- Our most authoritative business
- Unrivaled assortment, service, financing, store experience, and assurance
- Basis for innovative format extensions
- Targeting additional appliance share growth
- -- Consumer electronics product cycle will drive revenue and share gains
- Leadership in high-value, complex product lines
- Knowledgeable selling proposition
- -- Tool and Lawn & Garden superstore
- Craftsman brand surrounded by powerful national brand assortment and key
frequency items
<PAGE> 6
REVITALIZE FULL LINE STORE REVENUE AND PROFIT GROWTH
- --------------------------------------------------------------------------------
Reestablish Apparel Momentum with an
Unequivocal Statement of Whole-House Value
- -- Softlines business has grown at high single digit CAGR since 1993
- -- Product and pricing largely in place
- -- Marketing message needs revitalization
- Rebalance pre-print and broadcast messages
- Introduce stronger value message to branding
- Stronger whole-house emphasis
- -- Clarity of in-store offer to improve
- Assortment edit underway
- Eliminating non-value added elements
- Building brand presence
- Rolling out significant presentation enhancements
<PAGE> 7
CONTINUE TO IMPROVE CREDIT PERFORMANCE AND GROWTH
- --------------------------------------------------------------------------------
- -- Portfolio charge-off rate declined sharply
- 138 basis points during the year on $28 billion base
- Powerful, sustainable management initiatives
- -- Achieved 8% operating profit growth versus plan of -20%
- -- Restore focus on balance growth
- Card repositioning
- New value proposition
<PAGE> 8
ACCELERATE SERVICES GROWTH IN NEW AND EXISTING CHANNELS
- --------------------------------------------------------------------------------
Reestablish Home Services Growth
Commensurate with the Opportunity
- -- Home Services comprised of three related businesses
- Product Services
- Maintenance Agreements
- Home Improvement Services
- -- Product Services and Service Contracts had solid 1998
- -- Home Improvements Services disappointed
- Roofing, Siding, Carpet, Pest Control, HVAC
- Multiple business models united by brand name
- -- New leadership focus
- Marketing effectiveness
- Vertical mechanisms to support consistency
- Horizontal mechanisms to support leverage
- Effective quality control
<PAGE> 9
ACCELERATE SERVICES GROWTH IN NEW AND EXISTING CHANNELS
- --------------------------------------------------------------------------------
Home Services Opportunity Remains
Extraordinarily Attractive
- -- Structurally conducive to consolidation and market growth
- -- Entry/expansion/alliance costs for Sears incrementally low
- -- Competitive advantage from connection with Sears
<PAGE> 10
ENDURING PRECEPTS FOR A SEGMENTED AND MULTI-CHANNEL WORLD
- --------------------------------------------------------------------------------
Strategic Priorities
1993
- -- Focus on core businesses
where we can win
- -- Position Sears as a
Compelling Place to Shop
- -- Achieve local market focus
- -- Accelerate pace of cost
reduction
- -- Build a winning culture
1999
- -- Focus on winning with
customers
- -- Sears as a Compelling
Place to Shop
- -- Targeted offers
- -- Cost/asset productivity
- -- Winning culture
<PAGE> 11
AGENDA
- --------------------------------------------------------------------------------
8:00 am: -- Arthur Martinez
-- Finance - Alan Lacy
-- Full Line Stores - Bob Mettler & Jim Clifford
-- Marketing and Customer lnformation - Mark Cohen
-- Q&A
-- Break
10:25 am: -- Home Services - Rich Srednicki
-- Credit - Alan Lacy
-- the great indoors film
-- Specialty Retailing and E-Commerce
- Home Stores - Bill Salter
- Tire Group - Paul Baffico
- E-Commerce - Jane Thompson
-- Q&A
-- Merchandising and Presentation Initiatives
12:30 pm: -- Lunch
2:00 pm: -- Buses Depart for Woodfield Mail
2:30 pm: -- Sears at Woodfield Mall - Al Stewart
4:15 pm: -- Conclude
<PAGE> 12
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
<PAGE> 13
SEARS
1999 ANALYST MEETING
- -------------------------------------------------------------------------------
FINANCE
- -------------------------------------------------------------------------------
Alan J. Lacy
Chief Financial officer and
President, Credit
February 17, 1999
<PAGE> 14
SEARS - Finance
Divestitures
- -------------------------------------------------------------------------------
Disposed of Two Low Return, Non-strategic Businesses
Western Auto
- Sold to Advance Auto Parts for $175M in cash, $75M tax benefit
- 40% continuing interest
- Cap ex savings $50-100M
HomeLife
- Sold to CVC partners for $100M in cash, $10M note
- 19% continuing interest
- Cap ex savings $10M
<PAGE> 15
SEARS - Finance
DOMESTIC CASH FLOW
We Expect to Generate Meaningful Free Cash Again in 1999
<TABLE>
<CAPTION>
1999
1998 Projections
---- --------------------
Domestic cash flow before cap ex
<S> <C> <C> <C>
Retail/Services $1,300 1,100 - $1,4OO
Credit* 800 800 900
---- --------------------
Cash generated 2,1OO 1,900 2,300
Capital expenditures (1,100) (1,000) - (1,100)
Dividends (300) (350)
---------- --------------------
Cash flow before acquisitions/divestitures 700 550 - 850
Divestitures 250 100
Acquisitions (50) TBD
----------- -------------------
Free cash $900 $650 - $950
</TABLE>
* Credit card receivables are funded at a 9 to 1 debt to equity ratio
<PAGE> 16
SEARS -Finance
1999 EARNINGS OUTLOOK
- -------------------------------------------------------------------------------
Our Earnings Outlook for 1999
- - Earnings guidance: EPS up low double digit percentage from $3.32
- -Improvement in retail driven by
-Low single digit percentage increase in same store sales
-Modest gross margin rate improvement
-Continued expense leverage
- -Credit earnings to be up
-Revenue and receivables decline
-Continued favorability in provision of uncollectible accounts
- - Earnings improvements in both Services and International
- - Earnings increases are planned for each quarter
<PAGE> 17
SEARS
1999 ANALYST MEETING
- --------------------------------------------------------------------------------
FULL-LINE STORES
- --------------------------------------------------------------------------------
Robert L. Mettler
President, Merchandising
James R. Clifford
Chief Operating Officer
February 17, 1999
<PAGE> 18
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
PERFORMANCE BY CATEGORY
- --------------------------------------------------------------------------------
Change in Comparable Sales
<TABLE>
<S> <C>
- - Lawn & Garden +9%
- - Home Appliances +8
- - Home Electronics +4
- - Hardware -1
- - Home Office -10
- - Cosmetics +12%
- - Fine Jewelry +7
- - Home Fashions +2
- - Footwear -1
- - Women's -1
- - Children's -2
- - Men's -4
</TABLE>
<PAGE> 19
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
APPAREL SALES PERFORMANCE
- --------------------------------------------------------------------------------
- -- Promotional intensity of traditional department stores increasing
- Deeper percentage reductions
- Layered promotions
- -- Alternative formats gaining acceptance
- Clear, simple proposition
- Ease of shopping
- -- Expanded apparel vendor base created over-assorted position
- Lack of clarity
- Difficult shopping experience
- -- Not communicating price/value message effectively
- -- Lack of newness in inventory
<PAGE> 20
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
1999 PRIORITIES
- --------------------------------------------------------------------------------
- -- Defend and grow market share in key hardlines authority categories
- -- Create greater clarity in apparel offering
- Reduced vendor base
- Increased shop presentation
- Build private brands
- Acquire unique, differentiated product
- -- Enhance marketing message to reflect reality of value offering
<PAGE> 21
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
DEFEND AND GROW MARKET SHARE
- --------------------------------------------------------------------------------
- -- Continue to build appliance market share
- All brands/BrandsNet
- Price Leadership
- Surround with Credit/Service
- Unquestioned authority
- -- BUILD ELECTRONICS SHARE AT HIGH END OF PRODUCT/PRICE RANGE
- All key brands
- Value-added selling
- New product cycle
- --REINFORCE AUTHORITY ON HARDWARE BUSINESS
- New in-store shop
- Extended national brand offering
<PAGE> 22
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
MARKETING
- --------------------------------------------------------------------------------
- -- More store-wide events to broaden our appeal
- 50% of preprints will be storewide promotions
- -- Ensure preprint sends consistent whole house value message
- -- Add aggressive item promotions to drive footsteps
- -- Drive outlet/value message in all brand marketing
<PAGE> 23
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
KEY APPAREL PRIORITIES
- --------------------------------------------------------------------------------
- -- Reduce vendor base by at least 15%
- Clearer statements
- In-stock/in-depth
- -- Reinforce successful private brand program with clearer in-store
shop/presentation elements
- Support Crossroads/FieldMaster with brand advertising
- -- Continue to add customer credibility with additional national brands
- -- Reduce prices on fashion basics/commodity items
- Respond to alternative formats
- Support item promotions
<PAGE> 24
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
IN-STORE EXECUTION
- --------------------------------------------------------------------------------
- -- Shift capital from remodels to in-store merchandise concept rollouts
- -- Roll-out merchandising initiatives
- Modular shop concepts
- Proprietary brands
- -- Add new categories
- Dinnerware - Flatware
- Storage - Glassware
- Gifts - Gardening
CAPITAL INVESTMENT LEVELS WILL BEGIN TO DECLINE,
AS MAJOR REMODEL/SPACE RECAPTURE PROGRAM CONCLUDES
Number of stores*
1993 87
1994 149
1995 131
1996 112
1997 115
1998 111
1999 76
* Number of stores includes new locations, expansions, relocations and remodels.
<PAGE> 25
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
NEW CAPITAL FOCUS ON MERCHANDISING INITIATIVES/UPDATING
- --------------------------------------------------------------------------------
1999 Capital Plan
-----------------
- -- New stores/Relocation $270M
- 20 new
- -- Remodel Program $185M
- 124 stores available
- 2.1 M sq. ft. opportunity
for recapture
- -- Merchandising $ 75M
<PAGE> 26
SEARS
- --------------------------------------------------------------------------------
Full-Line Stores
- --------------------------------------------------------------------------------
MARGIN IMPROVEMENT
- -- Better inventory position going into 1999
- $50M lower Apparel inventory
- Weekly inventory management to improve flow
- -- Continue strategic sourcing efforts
- Program to date savings of $650M
- Addressing nearly $1B in cost in 1999
- -- Increase direct import program by 12%
<PAGE> 27
SEARS
- --------------------------------------------------------------------------------
Full-Line Stores
- --------------------------------------------------------------------------------
1999 OPERATIONAL REVIEW
-- Customer Service
-- Asset Productivity
-- Cost Management
-- Organizational Design
<PAGE> 28
SEARS
- --------------------------------------------------------------------------------
Full-Line Stores
- --------------------------------------------------------------------------------
SUPPLY CHAIN ASSESSMENT
- -- Productivity competitive today
- -- Progress over last few years
- Reduced logistics expense ratios from 6.1 % to 5.5%
- Reduced cycle time on fashion goods by one-half
- Inventory leverage improved from 50% to 51 %
- -- Future systems plan targeted to improve productivity
- -- Opportunity exists (is required) to improve significantly
<PAGE> 29
SEARS
- --------------------------------------------------------------------------------
Full-Line Stores
- --------------------------------------------------------------------------------
ACTION PLAN/APPROACH
- -- Balanced (Productivity/In-stock)
- -- Two tracks
- Systems (longer term)
- Process (shorter term)
- -- Organize
- Dedicated team
- Cross-functional
- Re-engineer processes
- Across the company
- Business-by-business
- Utilize systems to institutionalize change
<PAGE> 30
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
GOALS - IMPLICATIONS
- --------------------------------------------------------------------------------
- -- Goal: Improve 1 full turn over next 4 years
- -- Inventory Take Out $850M
- Borrowing cost $ 40M
- -- SVA increase of $100M
- -- 5 Turns and 60 Day Terms
<PAGE> 31
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
COST MANAGEMENT
- --------------------------------------------------------------------------------
- -- Continued good progress
- Corporate
- Full-line stores
- -- Benchmarking
- Organization
- Processes
- Functions
- -- Cost/productivity/efficiency major focus
<PAGE> 32
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
COST MANAGEMENT
- --------------------------------------------------------------------------------
- -- Action plan
- Tight control
- Three tier review underway
- Stores
- Field
- Home Office
- -- Objective
- No "Event"
- Bolster/protect earnings
<PAGE> 33
SEARS - Full-Line Stores
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
- -- 1998 a difficult year
- -- Understand issues/clear priorities
- Sales momentum
- Marketing
- Capital realignment
- Service
- Costs
- Asset productivity
- -- Organized for focus and results
<PAGE> 34
SEARS
1999 ANALYST MEETING
- --------------------------------------------------------------------------------
HOME SERVICES
- --------------------------------------------------------------------------------
Rich Srednicki
President
February 17, 1999
<PAGE> 35
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
Current Performance
- -------------------------------------------------------------------------------
Ups and Downs
UPS
- Awareness of Sears
HomeCentral
- Transformation of Product
Services Business
- Segmentation Driving Improved
Profitability of Service Contracts
DOWNS
- Performance of Home
Improvements Businesses
- Execution not Supporting
Strategy
- Marketing Focus and
Effectiveness
GOING-FORWARD
- Revisiting Our Executional Priorities to Get Back on Track
- Excited About Our Long-Term Growth Prospects
<PAGE> 36
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
BUSINESS FOCUS: PRODUCT SERVICES
- -------------------------------------------------------------------------------
WORLD CLASS
- National Coverage
- Retail Sales Linkages
- Technician Effectiveness and Training
- Technology
COMPETITIVE
- Telephone Processes
- Marketing
- Problem Resolution
NEEDS IMPROVEMENT
- Fulfillment Around Rural Markets
- Cross Selling
- New Product Development
<PAGE> 37
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
BUSINESS FOCUS: SERVICE CONTRACTS
- --------------------------------------------------------------------------------
WORLD CLASS
- Retail Linkages
- Customer Segmentation
- Marketing Expertise
COMPETITIVE
- Technology
- Measurement Systems
NEEDS IMPROVEMENT
- CROSS SELLING
- NEW PRODUCT DEVELOPMENT
<PAGE> 38
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
BUSINESS FOCUS: HOME IMPROVEMENTS SERVICES
- --------------------------------------------------------------------------------
WORLD-CLASS
- Leveraging Customer Information
- Repeat Customers for Company
COMPETITIVE
- Contractor Management
- New Product Development
- Direct Marketing Expertise
- Problem Resolution Processes
NEEDS IMPROVEMENT
- Business Model Development
- Cross Selling
- Acquisition Integration Leverage
<PAGE> 39
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
BUSINESS FOCUS: MARKETING EFFECTIVENESS
- --------------------------------------------------------------------------------
Home Improvements Services
- - New advertising for in-home services
- - Renewed emphasis on customer satisfaction
- - Direct Response testing matrix
- - Improved Retail linkages
- - Unique selling proposition research by product
- - New product development
- - Cross selling test
<PAGE> 40
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
BUSINESS MODEL REVIEW FOCUS ON TWO LEVERS
- --------------------------------------------------------------------------------
- Understand attribute importance
1. Customer - Establish customer relationship
Acquisition - Redesign lead generation strategy
- Generate cross selling opportunities
- Review ownership structure
2. Fulfillment - Amend licensee agreements
- Leverage core competencies
- Enhance repeat/referral business
Create A Superior Value Proposition For The Customer
<PAGE> 41
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
IMPERATIVE #1: BUILD THE CUSTOMER RELATIONSHIP
ACROSS THE CORRIDOR
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOME CARPET HOUSEHOLD KITCHEN & SIDING LAWN HOME NEW HOME
[PHOTO] INSPECTION CLEANING HELP BATH [Current] CARE SECURITY PATIO WARRANTY
BUY A HOME, [Current] [Current] [Current] [NEW] [FUTURE]
CONDO OR
RENT APARTMENT MOVING HOUSE PEST APPLIANCE NEW NEW NEW/AC PAINTING DIY
COMPANY CLEANING CONTROL REPAIRS WINDOWS ROOF FURNACE [Current] PARTS
[Current] [Current] [Current] [Current] [Current] [Current]
</TABLE>
[ ] CURRENT [ ] NEW [ ] FUTURE
- Understand Customer Needs (Segmentation)
- Establish Product/Service Authority
- Distribution Channel Effectiveness
- Fulfillment Consistency
- Leverage Customer Experience
- Extend Core Competencies
<PAGE> 42
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
IMPERATIVE #3: WIN AGAINST THE COMPETITION
- --------------------------------------------------------------------------------
1. SUPERIOR CUSTOMER SATISFACTION
4. BUSINESS SEARS 2. BUSINESS MODEL
INFRASTRUCTURE HOME IMPROVEMENTS
RATIONALIZATION SERVICES
3. CROSS SELLING & RELATIONSHIP LINKAGES
<PAGE> 43
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
MAKING CHANGE HAPPEN: BEHAVIORS
- --------------------------------------------------------------------------------
Performance Business Desired
Drivers Objective Outcomes
- - Quality
- - People Market Share
Growth
- - Effectiveness Customer
Satisfaction
- - Innovation Compelling
Financial Returns
- - Risk
<PAGE> 44
SEARS - HOME SERVICES
- --------------------------------------------------------------------------------
Bottom Line
- --------------------------------------------------------------------------------
- Home Services market opportunity very big
- Sears has significant advantages competing in
this market
- Major elements of current business portfolio
performing very well
- Aggressive actions being taken to address
underperforming businesses
<PAGE> 45
SEARS
1999 ANALYST MEETING
- -------------------------------------------------------------------------------
CREDIT
- -------------------------------------------------------------------------------
Alan J. Lacy
Chief Financial Officer and
President, Credit
February 17, 1999
<PAGE> 46
SEARS - Credit
SEARS CREDIT REMAINS AMONG THE MORE PROFITABLE
CREDIT ISSUERS
- --------------------------------------------------------------------------------
1998 After Tax ROAR
-------------------
Providian 2.6%
Sears Credit 2.4%
Capital One 1.8%
Metris 1.6%
Discover 1.5%*
MBNA 1.5%
Industry 1.5%
*Estimate
<PAGE> 47
SEARS - Credit
1998 FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
Actual Charge-off Experience Was Significantly
Better Than Expectations
[1998 FINANCIAL PERFORMANCE GRAPH]
1997 Actual Expected 98 Actual 98
Q1 342.1 581 575.1
Q2 382 581 515.2
Q3 470.6 581 505.6
Q4 541.7 581 464.3
- - $280 Million 1998 Earnings Benefit from Actual versus Expected Results
<PAGE> 48
SEARS - Credit
ACTIONS TAKEN
- --------------------------------------------------------------------------------
In 1998, We Also Improved Capabilities for the Future
- - Risk and Collections
- Enhanced systems and modeling capabilities
- Increased staffing
- - New Systems Platform (Total Systems)
- Allows for new products and flexible pricing
- Phase one successfully completed in October 1998
- - Account Services
- New systems to improve customer service and productivity
<PAGE> 49
SEARS - Credit
1999 OUTLOOK
- --------------------------------------------------------------------------------
1999 Financial Drivers Similar to 1998
- - Expect high single digit earnings growth from continued
provision improvement
- - Receivables likely to decline
-Continued share loss
-Higher payment rate
- - Continued investment in future capabilities
-Risk management activities
-Total Systems conversion
-Sears Card repositioning
<PAGE> 50
SEARS - CREDIT
1999 OUTLOOK
- --------------------------------------------------------------------------------
The Key Issue for 1999 Is Receivables Growth
- - Industry growth is slowing
- - Consumers are showing increasing preference for cash
payment
- - Competition from home equity and consolidation loan
industry is increasing
- - Current Sears Card offering is not aligned with all of our
customers' needs
The value proposition of the Sears Card will be
enhanced in 1999 to make it more compelling
<PAGE> 51
SEARS - CREDIT
1999 OUTLOOK
- --------------------------------------------------------------------------------
Sears Card Repositioning
Objective: Reestablish Profitable
Revenue Growth
STRATEGIES: Protect Existing Core Acquire New Core
Customers Customers
Examples: -Increase sales from existing -Target heavy Sears shoppers
Sears Card revolvers with targeted who revolve on other cards
promotions
-Reduce attrition with enhanced -Target destination shoppers (eg.
value Appliance, Auto) with tailored
products
-flexible pricing/rewards
<PAGE> 52
SEARS - CREDIT
1999 OUTLOOK
- --------------------------------------------------------------------------------
Successful Repositioning Will Drive Targeted
Account Acquisition Programs
NEW ACCOUNTS
(MILLIONS)
1997 1998 1999P
4.2 3.9 3.8 -Booked
3.0 3.1 3.1 -Active
<PAGE> 53
SEARS - CREDIT
1999 OUTLOOK
- --------------------------------------------------------------------------------
Strong Support of Retail and Services
- New products
- Commercial
- Home improvement
- Gift card
- Continued gains from investments in
collections capabilities
- Promotional support
- Special sales/offers
- 0% financing
- Cross-selling
- Insurance
- Clubs, and services
- Merchandise
<PAGE> 54
SEARS - CREDIT
SUMMARY
- --------------------------------------------------------------------------------
- Significant progress on portfolio performance
- Building capabilities for future growth and
profitability
- Focused on supporting Retail and Services
growth initiatives
<PAGE> 55
SEARS
1999
ANALYST MEETING
- --------------------------------------------------------------------------------
ONLINE STRATEGY
- --------------------------------------------------------------------------------
Jane Thompson
President, Sears Direct
February 17, 1999
<PAGE> 56
SEARS DIRECT
- --------------------------------------------------------------------------------
The Internet Opportunity
- --------------------------------------------------------------------------------
- -- Internet Retailing: Real and growing explosively
- -- Internet Ubiquitous = Electricity
- -- Very Concentrated: Top 10 = 51% of revenues
- -- First Mover Advantage: Amazon, E-Schwab
- -- Virtual Brands Leading: Amazon, Beyond.com, eToys, CDNow, N2K, Peapod
- -- Shareholders Value Creation: 5x to 170x
market cap/sales
- -- Still in the "Model T" era of development
<PAGE> 57
SEARS DIRECT
- --------------------------------------------------------------------------------
Internet: Keys To Success
- --------------------------------------------------------------------------------
- -- Focus and dominate - not a million SKU's
- Superior Product + Services + Solutions
- Exceptional customer service
- -- Provide unique personalized customer experience
- -- Reach doesn't come cheap: 25-65% A to S ratio
- -- Continually enhance and update web site
- -- Integrate multiple channels
- -- Engage the "sales force" - don't fight them
<PAGE> 58
SEARS DIRECT
- --------------------------------------------------------------------------------
SEARS ONLINE STRATEGY
- --------------------------------------------------------------------------------
"Dominate Areas of Greatest Authority"
- -- Sears Greatest Authority - The Home
- -- Value Creation/Protection
- -- Clear Superiority/Differentiation
- -- Ready Capabilities
- -- Size/Scale/Volume
- -- Internet Compatibility: Information Intensity
<PAGE> 59
SEARS DIRECT
- --------------------------------------------------------------------------------
SEARS "APPLIANCE.COM"
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUPERIOR SUPERIOR SUPERIOR
SUPERIOR DELIVERY/ REPAIR SUPERIOR SUPERIOR INFORMATION/
APPLIANCES INSTALLATION SERVICES PARTS CREDIT SOLUTIONS
<S> <C> <C> <C> <C> <C>
- -- All major -- 48 hour -- All brands -- All brands -- SearsCard -- Appliance
brands and delivery Repair Tips
models target -- 24/7 Order- -- Appliance -- Special
taking Schematics Financing -- Product
- -- Detailed -- 2 hour Programs usage tips
features delivery -- Emergency -- Online/on
window Service phone -- All major -- Link to
- -- Online/On technicians credit related
phone -- Evenings -- Online/on cards sites
brand and phone
masters weekends technicians
-- Maintenance
agreements
</TABLE>
SATISFACTION GUARANTEED
SEARS
<PAGE> 60
SEARS DIRECT
- --------------------------------------------------------------------------------
E-COMMERCE APPLIANCE COMPETITORS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sears Net Market iQVC Value America
----- ---------- ---- -------------
Members Only
<S> <C> <C> <C>
Online Yes Yes Yes
Commerce
---------------------------------------------------------------
2,000 SKU's 650 est. 400 est. 500 est.
---------------------------------------------------------------
2 to 7 day 21 to 28 days 7 to 10 days 7 to 10 days
delivery promise
---------------------------------------------------------------
Store
Promotional Below MAP MAP MAP
Pricing
---------------------------------------------------------------
All major Amana Whirlpool Amana
brands + G.E. G.E.
Kenmore Frigidaire
Maytag
Whirlpool
</TABLE>
<PAGE> 61
SEARS DIRECT
- --------------------------------------------------------------------------------
SEARS ONLINE: LEVERAGING SEARS MARKETING
- --------------------------------------------------------------------------------
- -- Goal: Ubiquitous web branding
- Preprint (eValues) - Branded merchandise
- TV/radio - SearsCards/statements
- In-store signing - Direct mail
- Shopping bags - Receipts
- -- Goal: New programs (New Movers Club)
- -- Goal: Leveraging the total marketing budget
- -- Goal: Extensive online media
<PAGE> 62
SEARS DIRECT
- --------------------------------------------------------------------------------
SEARS ONLINE: SUMMARY
- --------------------------------------------------------------------------------
1999 Strategies
-- Leverage the Sears brand
-- Be the definitive online source for homeowners
-- Go deep in key categories
-- Deliver a flawless experience to the customer
-- Invest in long-term customer relationships
"APPLIANCE.COM" - COMING SOON
<PAGE> 63
SEARS
1999 ANALYST MEETING
- --------------------------------------------------------------------------------
HOME STORES
- --------------------------------------------------------------------------------
BILL SALTER
PRESIDENT
February 17, 1999
<PAGE> 64
SEARS - Home Stores
- --------------------------------------------------------------------------------
ACHIEVED ALL MAJOR FINANCIAL OBJECTIVES IN 1998
- --------------------------------------------------------------------------------
--Exceeded plan revenues
--Exceeded plan profits
--A productive year for bringing critical
issues to closure
<PAGE> 65
SEARS - Home Stores
- --------------------------------------------------------------------------------
UNIT GROWTH IN 1999 WILL FOCUS ON DEALER STORES
- --------------------------------------------------------------------------------
Net Change
1997 ---------------- 1999
Stores 1998 1999P Stores
------ ---- ----- ------
Hardware Stores 255 +10 +20 285
Dealer Stores 576 +77 +170 823
the great indoors - +1 +1 2
Commercial Sales* 61 +17 +20 98
--- --- ---- - --
Home Stores 892 105 211 1208
=== === ==== ====
*Represents showroom locations
<PAGE> 66
SEARS - Hardware Stores
- --------------------------------------------------------------------------------
1999 PRIORITIES
- --------------------------------------------------------------------------------
- --Expect strong comparable sales growth
- Exceed industry performance
- Continue to improve square footage productivity
- --Implement Orchard Supply Hardware's superior customer
service model in Sears Hardware Stores
- --Additional profit growth
<PAGE> 67
SEARS - Dealer Stores
- --------------------------------------------------------------------------------
1999 PRIORITIES
- --------------------------------------------------------------------------------
--Open 170 new stores (net)
--Optimize business processes
-Store opening
-Merchandising
-Store support
--Improve local tailoring of merchandise selection
--Sustain rate of return on invested capital
--Design and test a new concept
<PAGE> 68
SEARS - Commercial Sales
- --------------------------------------------------------------------------------
1998 A SUCCESSFUL YEAR FOR COMMERCIAL SALES
- --------------------------------------------------------------------------------
- --1998 ACCOMPLISHMENTS
-Exceeded both revenue and profit plan
-Acquired McPhails Appliance Builder Distributors
-Opened 13 Appliance Select units
- --1999 PRIORITIES
-Open 10 Appliance Select units
-Expand Florida Builder Appliances and McPhails Appliance
Builder Distributors
-Acquire additional builder distributors in high growth
markets
<PAGE> 69
SEARS
1999 ANALYST MEETING
- --------------------------------------------------------------------------------
TIRE GROUP
- --------------------------------------------------------------------------------
PAUL BAFFICO
PRESIDENT
February 17, 1999
<PAGE> 70
SEARS - Tire Group
- --------------------------------------------------------------------------------
We completed the Merger Of Parts America With
Advance Auto Parts In November 1998
- --------------------------------------------------------------------------------
- --The merger allows Sears to continue to grow an attractive format
without committing additional capital
- --Allows a specialty retail management team to do what they do best
- --Sears 40% stake in Advance provides shareholders with upside
potential
<PAGE> 71
SEARS - Tire Group
- --------------------------------------------------------------------------------
WE NOW HAVE A SOLID FOUNDATION IN PLACE
- --------------------------------------------------------------------------------
- --Created and launched NTB Brand
- --Opened 51 new stores in 1998
- --Plan 30 new stores in 1999
- --Developed a state of the art logistics network
dedicated to the tire business
- --Implemented new systems, including a business
specific point-of-sale system
<PAGE> 72
SEARS - Tire Group
- --------------------------------------------------------------------------------
Our Compelling Business Model Will Drive Profitable
Returns
- --------------------------------------------------------------------------------
- --Leverage core assets with customers: Trust,
Expertise and Value
- --Focus on top line revenue growth
- --Drive operational excellence in stores
- --Strengthen unparalleled vendor relations and
superior logistics
- --Leverage strong proprietary brands, including
DieHard
