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 20, 2000
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 January 20, 2000, the Registrant issued the 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.
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.
By: /s/Jeffrey N. Boyer
Jeffrey N. Boyer
Chief Financial Officer
Date: January 20, 2000
EXHIBITS
99. Sears, Roebuck and Co. press release dated January 20, 2000.
E-1
MEDIA CONTACT:
Peggy A. Palter
(847) 286-8361
FOR IMMEDIATE RELEASE:
January 20, 2000
SEARS REPORTS RECORD FOURTH-QUARTER 1999 RESULTS
Strength in Retail and Credit Drive 34 Percent Comparable EPS Increase
HOFFMAN ESTATES, Ill. -- Sears, Roebuck and Co. (NYSE: S) reported
record fourth-quarter 1999 net income of $740 million, or $1.98 per share,
compared with reported 1998 fourth-quarter net income of $535 million, or $1.39
per share, a reported increase of 42 percent. Fourth quarter 1998 included non-
comparable charges totaling $37 million, or $0.09 per share, primarily related
to impairment charges for the divestiture of businesses. Excluding non-
comparable items for 1998, earnings per share for 1999 increased 34 percent
over the fourth quarter 1998 comparable earnings per share of $1.48.
The increase in earnings per share excluding non-comparable items
was a result of the strength of Sears retail and credit businesses.
In retail, higher sales coupled with improved gross margins resulted in a
significant operating income increase over the prior year fourth quarter.
The increase in credit income came primarily from portfolio quality
improvement as charge-offs continued to trend favorably.
Net income for 1999 was $1.45 billion, or $3.81 per share,
compared with $1.05 billion, or $2.68 per share in 1998. Excluding the
impact of non-comparable items, net income would have been $1.48 billion,
or $3.89 per share, compared with $1.30 billion, or $3.32 per share for the
comparable 1998 period. Excluding non-comparable items, earnings per share
increased 17 percent over the prior year.
"Strong performance in our retail and credit businesses
contributed to this quarter's record earnings. Our efforts to strengthen
retail sales and improve gross margins resulted in
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SEARS/ADD ONE
improvements which we began seeing in September and continued throughout
the fourth quarter," said Chairman and Chief Executive Officer Arthur C.
Martinez. "Gross margins for the quarter were particularly solid, largely
due to lower levels of promotional activity. We also took aggressive
action on post-Christmas clearance markdowns to prepare for 2000."
"In addition to the retail improvement, our credit business and Sears
Canada both experienced outstanding results for the fourth quarter, while
the services business performance was not up to par," added Martinez.
Revenues
Revenues for the fourth quarter were $12.5 billion, compared with
$12.2 billion for the same period a year ago. The revenue increase was
primarily due to improvement in the Full-line stores and Sears Canada.
Partially offsetting these improvements was the loss of revenue from the
divested businesses. Excluding the impact of business divestitures, revenues
rose 4.5 percent in the quarter.
"In the fourth quarter, sales increases in appliances and
electronics were strong, contributing to a 2.4 percent rise in domestic
comparable store sales. Hardware, The Great Indoors and dealer stores also
enjoyed strong performance for the quarter," said Martinez. "In softgoods,
children's apparel, home fashions, fine jewelry and cosmetics and fragrances
were strong performers, but were offset by women's and men's apparel
results."
Revenues in the services segment, which include Sears Home
Services and Sears Direct businesses, were $777 million in the quarter, a
decrease of 2.5 percent from a year ago. Fourth-quarter domestic credit
revenues increased 0.2 percent from a year ago, to $1.06 billion.
Gross margin and selling and administrative costs
Consolidated gross margin as a percent of merchandise sales and
services was 27.9 percent in the fourth quarter of 1999 compared with 26.6
percent in the comparable 1998 period. The increase in gross margin
reflects a reduction in promotional activity and a sharper focus on
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SEARS/ADD TWO
managing the cost of goods sold. In addition, our LIFO credit in the
fourth quarter of 1999 was higher than in 1998 and Sears Canada gross
margin showed a significant improvement.
Selling and administrative expense as a percentage of total revenues was
19.0 percent in both the fourth quarter of 1999 and 1998. While the dollar
amount of selling and administrative expenses decreased in Retail, Services
and Credit in the fourth quarter, Corporate expenses were higher primarily
due to increased e-commerce investments, higher information technology costs
and additional performance based incentive expenses. All segments
benefited from the company's strategic cost containment program.
Provision for uncollectible accounts
In the fourth quarter of 1999, the provision for uncollectible
accounts was $175 million, a 30 percent decrease from $250 million in the
fourth quarter of 1998. The decrease in the provision is a result of
improvement in portfolio quality as well as a decrease in the level of
average owned credit card receivable balances. The company has made
significant investments in its risk management and collection
activities and has improved its portfolio quality.
2000 Outlook
"For the year 2000, we believe the company will see a continuation
of most of its key retail and credit trends," said Martinez. "We are
planning for sales to increase at a modest rate as we continue to implement
a more sharply focused promotional plan and adhere to our rigorous cost
control strategy. In our credit business, we expect improvement in the
quality of our portfolio on a year over year basis." Martinez added that
the company is confident about its ability to deliver 10 percent earnings
per share growth in 2000.
Statements contained under the "2000 Outlook" heading of this
release are forward looking and as such involve 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 and spending, the ability of the company to successfully
implement its promotional plan and cost
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control strategy, general United States economic conditions such as higher
interest rates and normal business uncertainty. In addition, the company
typically earns a disproportionate share of its operating income in the
fourth quarter due to holiday buying patterns, which are difficult to
forecast with certainty. While the company believes that its assumptions
are reasonable, it cautions that it is impossible to predict the impact of
such factors which could cause actual results to differ materially from
predicted results. The company intends the forward-looking statements in
this release to speak only at the time of this release and does not undertake
to update or revise these projections as more information becomes available.
Through its U.S. network of 858 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.
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SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
For the 13 Weeks Ended For the 52 Weeks Ended
Jan. 1, 2000 and Jan. 2, 1999 Jan. 1, 2000 and Jan. 2, 1999
(millions, except
earnings per share) 1999 1998 %Change 1999 1998 %Change
Revenues
Merchandise
and services $ 11,374 $ 11,103 2.4% $ 36,728 $36,957 -0.6%
Credit revenues 1,130 1,122 0.7% 4,343 4,618 -6.0%
Total revenues 12,504 12,225 2.3% 41,071 41,575 -1.2%
Costs and expenses
Cost of sales,
buying and
occupancy 8,199 8,148 0.6% 27,212 27,444 -0.8%
Selling and
administrative 2,382 2,325 2.5% 8,418 8,384 0.4%
Depreciation and
amortization 219 207 5.8% 848 830 2.2%
Provision for
uncollectible accounts 175 250 -30.0% 871 1,287 -32.3%
Interest 313 345 -9.3% 1,268 1,423 -10.9%
Restructuring and
impairment charges (5) 56 - 41 352 -
Total costs and
expenses 11,283 11,331 -0.4% 38,658 39,720 -2.7%
Operating income 1,221 894 36.6% 2,413 1,855 30.1%
Other income, net 5 4 - 6 28 -
Income before income
taxes and minority
interest 1,226 898 36.5% 2,419 1,883 28.5%
Income taxes (452) (338) 33.7% (904) (766) 18.0%
Minority interest (34) (25) 36.0% (62) (45) 37.8%
Net income before
extraordinary loss 740 535 38.3% 1,453 1,072 35.5%
Extraordinary loss
on debt extinguishment - - - - 24 -
Net income $ 740 $ 535 38.3% $1,453 $1,048 38.6%
Earnings per share:
Basic $ 1.98 $1.39 42.4% $ 3.83 $ 2.70 41.9%
Diluted $ 1.98 $1.39 42.4% $ 3.81 $ 2.68 42.2%
Average common and
dilutive common
equivalent shares
outstanding 373.9 385.6 381.0 391.7
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION
(millions, except number of stores)
For the 13 Weeks Ended For the 52 Weeks Ended
Jan. 1, 2000 and Jan. 2, 1999 Jan. 1, 2000 and Jan. 2, 1999
1999 1998 %Change 1999 1998 %Change
Total Revenues:
Retail $ 9,301 $ 9,214 0.9% $ 29,775 $ 30,429 -2.1%
Services 777 797 -2.5% 3,078 3,113 -1.1%
Credit 1,064 1,062 0.2% 4,085 4,369 -6.5%
International 1,362 1,152 18.2% 4,133 3,664 12.8%
Total revenues $ 12,504 $12,225 2.3% $41,071 $41,575 -1.2%
Operating income
as reported:
Retail $ 719 $ 450 59.8% $ 841 $ 382 120.2%
Services 73 91 -19.8% 329 375 -12.3%
Credit 421 315 33.7% 1,347 1,144 17.7%
Corporate (109) (55) 98.2% (322) (211) 52.6%
International 117 93 25.8% 218 165 32.1%
Total operating
income $ 1,221 $ 894 36.6% $ 2,413 $1,855 30.1%
Operating income excluding non-comparable items:
Retail $ 719 $ 506 42.1% $ 866 $ 734 18.0%
Services 73 91 -19.8% 329 375 -12.3%
Credit 421 312 34.9% 1,347 1,086 24.0%
Corporate (109) (55) 98.2% (301) (211) 42.7%
International 117 93 25.8% 218 165 32.1%
Total operating
income $ 1,221 $ 947 28.9% $ 2,459 $2,149 14.4%
Jan. 1, Jan. 2,
2000 1999
Domestic inventories -LIFO $ 4,516 $ 4,336
-FIFO $ 5,112 $ 5,013
For the 13 Weeks Ended For the 52 Weeks Ended
Jan. 1, 2000 and Jan. 2, 1999 Jan. 1, 2000 and Jan. 2, 1999
Pretax LIFO
charge (credit) $ (103) $ (64) $ (73) $ (34)
Jan. 2, HomeLife Jan. 1,
Domestic retail stores: 1999 Opened Closed Sale 2000
Full-line stores 845 19 (6) - 858
Specialty formats 2,198 143 (83) (105) 2,153
Total 3,043 162 (89) (105) 3,011
Gross square feet 148.3 3.8 (1.9) (3.8) 146.4
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 52 weeks ended
Jan. 1, 2000 and Jan. 2, 1999 Jan. 1, 2000 and Jan. 2, 1999
1999 1998 1999 1998
Average managed domestic
credit card receivables $26,127 $27,675 $26,593 $27,922
Jan. 1, Jan. 2,
2000 1999
Domestic credit card
receivables:
Managed credit card receivables $26,739 $28,251
Securitized balances sold (6,579) (6,626)
Retained interest in transferred
credit card receivables (3,145) (4,294)
Other receivables 37 112
Owned credit card receivables $17,052 $17,443
For the 13 weeks ended For the 52 weeks ended
Jan. 1, 2000 and Jan. 2, 1999 Jan. 1, 2000 and Jan. 2, 1999
Domestic managed
credit card
receivables - 1999 1998 1999 1998
Net interest margin:
Portfolio yield 19.90% 20.09% 19.58% 20.18%
Effective financing rate 5.88% 5.84% 5.77% 6.00%
Net interest margin 14.02% 14.25% 13.81% 14.18%
Domestic managed net
charge-off rate (1) 5.20% 6.74% 6.44% 7.35%
(1) The 1999 domestic managed net charge-off rate includes all of the accounts
in the domestic portfolio. Twelve percent of the accounts 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.
Jan. 1, 2000 Oct. 2,1999 July 3,1999 Apr. 3,1999 Jan. 2, 1999
Domestic managed
credit card
receivables-
Delinquency rate(2) 7.58% 7.57% 7.29% 8.07% 9.28%
Allowance for
Uncollectible
accounts $ 725 $ 773 $ 850 $ 932 $ 942
Allowance % of
domestic owned credit
card receivables 4.26% 4.78% 5.27% 5.72% 5.44%
(2) In mid-April 1999, Sears completed the conversion to the TSYS account
processing system. Therefore, the January 1, 2000, October 2, 1999 and July
3, 1999 delinquency rates reflect 100% of the domestic managed credit card
accounts. At April 3, 1999 and January 2, 1999, there were 50% and 12%,
respectively, of the managed credit card accounts 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 comparable to
delinquencies calculated on the TSYS system due to differences in methodology.
For a description of the anticipated effects on delinquency rates of the TSYS
conversion, see Sears quarterly report on Form 10-Q dated May 14, 1998.
