8-K

UNITED STATES
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): June 7, 2005

SEARS HOLDINGS CORPORATION

(Exact name of registrant as specified in charter)

Delaware	000-51217	20-1920798
(State or Other Jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation)		Identification No.)

3333 Beverly Road
Hoffman Estates, Illinois	60179
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (847) 286-2500

(Former name or former address, if changed since last report): Not Applicable

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 -	Financial Information
Item 2.02.	Results of Operations and Financial Condition.
	On June 7, 2005, the Registrant issued a press release regarding its first quarter 2005 earnings. The press release is attached hereto as Exhibit 99.1.
Section 7 -	Regulation FD
Item 7.01	Regulation FD Disclosure.
	On June 7, 2005 the Chairman of the Registrant issued a letter to shareholders. The letter will be available on the Registrant’s website, www.searsholdings.com, and is attached hereto as Exhibit 99.2.
Section 9 -	Financial Statements and Exhibits
Item 9.01	Financial Statements and Exhibits.
	(c) Exhibits
	Exhibit 99.1 – Press release dated June 7, 2005, furnished pursuant to Item 2.02.
	Exhibit 99.2 – Letter from the Chairman dated June 7, 2005, furnished pursuant to Item 7.01.

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 HOLDINGS CORPORATION
By:	/s/ William K. Phelan
	William K. Phelan
	Vice President and Controller

Date: June 7, 2005

Exhibit Index

99.1	Press release dated June 7, 2005.
99.2	Letter from the Chairman dated June 7, 2005.

EX-99.1

EXHIBIT 99.1

NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371

FOR IMMEDIATE RELEASE:
June 7, 2005

SEARS HOLDINGS CORPORATION REPORTS
FIRST QUARTER 2005 RESULTS

     HOFFMAN ESTATES, Ill. – Sears Holdings Corporation (Nasdaq: SHLD), issued its financial statements for the quarter ended April 30, 2005. Sears Holdings (“Holdings”) was created in connection with the merger of Kmart Holding Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”) which was completed on March 24, 2005. Sears Holdings is the nation’s third largest broadline retailer with approximately 2,300 full-line and 1,200 specialty retail stores in the United States operating through Kmart and Sears and 340 full-line and specialty stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 54%-owned subsidiary.

The Statement of Operations included below for the 13 weeks ended April 30, 2005 includes all 13 weeks of Kmart’s results of operations but only Sears results of operations for the approximately five-week long period of March 25, 2005 forward. The Company therefore believes the results of operations are not representative of the on-going results for Holdings. As a result, the Company has included pro forma results that include Sears for the full 13 weeks. The Company has also provided its calculation of Pro Forma Adjusted EBITDA for Holdings, including a breakdown of Pro Forma Adjusted EBITDA between its domestic and Canadian operations. Reconciliation of the pro forma results of operations to the GAAP results of operations has also been included.

Financial Position

     As of April 30, 2005, Holdings had approximately $30 billion of assets and $11 billion of equity, as follows:

	April 30,		April 28,		Jan. 26,
(in billions)	2005		2004 (1)		2005 (1)
Total assets	$	30.6	$	6.3	$	8.7
Total liabilities		19.4		4.0		4.2
Shareholders’ equity	$	11.2	$	2.3	$	4.5

⁽¹⁾ For accounting purposes, the business combination was treated as a purchase of Sears by Kmart. As such, the historical financial statements of Kmart become the historical financial statements for Holdings.

Holdings ended the first quarter with $1.6 billion of cash and cash equivalents. Prior to the consummation of the merger, Kmart and Sears had approximately $7.4 billion of cash and cash equivalents in aggregate. The decrease in cash reflects the $5.4 billion paid to former Sears shareholders and option holders in connection with the merger and the repayment of $346 million of commercial paper borrowings. In addition to the $1.6 billion of cash on hand, Holdings has access to a $4 billion credit facility that is secured by domestic inventory and credit card accounts receivable.

Holdings’ inventory level at April 30, 2005 was approximately $9.5 billion, an increase of $6.1 billion over the prior year as a result of the merger. The current year inventory balance includes a purchase accounting step up adjustment of $48 million on Sears inventory above its FIFO value. As of the prior year period, the combined inventory on a FIFO basis of Sears and Kmart was approximately $9.7 billion. The merchandise payable balance is $3.7 billion at April 30, 2005 as compared to $3.9 billion for Sears and Kmart combined as of April 28, 2004.

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During the first quarter of 2005, Holdings spent $66 million on capital expenditures as compared to $55 million and $88 million spent by Kmart and Sears, respectively, during the same 13-week period in the prior year. The current year spending of $66 million excludes approximately $40 million of capital expenditures made by Sears during the period January 30, 2005 through March 24, 2005 (pre-merger period).

Same Store Sales Performance

Comparable store sales and total sales at Kmart decreased 3.7% and 2.3%, respectively, for the 13 weeks ended April 30, 2005 as compared to the 13 weeks ended April 28, 2004. The decline in same-store and total sales is due to lower transaction volumes, the impact of poor weather conditions on the Company’s seasonal product lines, and the impact of ongoing construction activity in stores which are converting to the Sears Essentials format. Total sales benefited from an additional $153 million of sales as a result of three additional days in the current quarter due to the Company’s change in fiscal year end from the last Wednesday in January to the Saturday closest to January 31st. However, total sales were negatively impacted by a reduction in the total number of operating Kmart stores, which more than offset the additional three days of revenue.

Merchandise sales and services revenues at Sears Domestic increased 0.5% for the 13-week period ended April 30, 2005 versus the 13 week-period ended May 1, 2004. The slight increase was due to strong home services sales partially offset by a 3.1% decrease in domestic comparable store sales. Within domestic sales, cooler than anticipated weather conditions caused declines in certain seasonal businesses, including lawn and garden and seasonal apparel categories. These declines were partially offset by modest gains within the footwear and automotive categories. Lower sales have also resulted from efforts initiated in 2005 to reduce reliance on certain promotional events and strategies historically executed to drive transactional volumes at the expense of lower margin rates.

Statements of Operations

Holdings’ Statements of Operations for the first quarter are as follows:

	13 Weeks Ended
	April 30,			April 28,
(in millions, except per share amounts)	2005			2004
Total revenues	$	7,626		$	4,627
Cost of sales, buying and occupancy		5,655			3,545
Selling and administrative		1,719			945
Depreciation and amortization		107			4
Gain on sales of assets		(6	)		(32	)
Total costs and expenses		7,475			4,462
Operating income		151			165
Interest expense, net		(42	)		(28	)
Bankruptcy-related recoveries		17			7
Other income		9			3
Income before income taxes, minority interest and cumulative effect of change in accounting principle		135			147
Income taxes		52			56
Minority interest		2			—
Income before change in accounting principle	$	81		$	91
Cumulative effect of change in accounting principle		(90	)		—
Net (loss) income	$	(9	)	$	91
Per share (diluted basis)
Earnings per share before change in accounting principle	$	0.65		$	0.94
Cumulative effect of change in accounting principle		(0.72	)		—
(Loss) earnings per share	$	(0.07	)	$	0.94
Diluted weighted average shares outstanding		124.8			100.3

A $90 million after-tax charge was recorded as a cumulative effect of change in accounting in the first quarter of 2005 resulting from the Company’s decision to change its method of accounting for certain indirect overhead costs included in inventory.

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Pro Forma Results

The statement of operations for the 13 weeks ended April 30, 2005 is not representative of the on-going results for Holdings as it only includes Sears results of operations from March 25, 2005 forward. Had the Sears results for the full quarter been included, Holdings’ revenues would have been approximately $5 billion higher. Therefore, the Company believes that an understanding of trends and on-going performance is not complete without presenting results on a pro forma basis that include Sears results for a full 13-week period.

The following pro forma statements of operations summarize the results of Holdings assuming that the merger occurred at the beginning of 2004:

	13 Weeks Ended
(in millions)	April 30, 2005			April 28, 2004
	Pro Forma (1)			Pro Forma
Total revenues	$	12,763		$	12,769
Cost of sales, buying and occupancy		9,327			9,422
Gross margin rate		26.4	%		25.7	%
Selling and administrative		3,060			2,968
Selling and administrative expense as a percentage of total revenues		24.0	%		23.2	%
Depreciation and amortization		283			283
Gain on sales of assets		(7	)		(36	)
Total costs and expenses		12,663			12,637
Operating income		100			132
Interest expense		(75	)		(95	)
Bankruptcy-related recoveries		17			7
Other income		19			25
Income before income taxes, minority interest		61			69
Percent to revenues		0.5	%		0.5	%
Income taxes (benefit)		41			28
Minority interest and extraordinary item		8			3
Income before cumulative effect of change in accounting principle		12			38
Cumulative effect of change in accounting principle		(90	)		—
NET INCOME	$	(78	)	$	38

⁽¹⁾ Includes $34 million of transaction costs and $3 million of integration costs related to the merger.

The pro forma information is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of 2004 or that may result in the future. The pro forma information has not been adjusted to reflect any operating efficiencies that may be realized as a result of the merger.

Pro Forma Adjusted EBITDA

For purposes of evaluating operating performance, Holdings’ management uses a Pro Forma Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Pro Forma Adjusted EBITDA”) measurement computed as operating income on the statement of operations less depreciation and amortization and gains/(losses) on sale of assets. In addition, it is adjusted to exclude certain merger-related costs. Pro Forma Adjusted EBITDA is used by management to evaluate the relative operating performance of its businesses for comparable periods. Pro Forma Adjusted EBITDA should not be used by investors as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company’s business.

While Pro Forma Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

1.   EBITDA excludes the effect of financing and investing activities by eliminating the effect of interest and depreciation costs.

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2.   Management considers gains (losses) on the sale of assets to result from investing decisions rather than ongoing operations.

For the quarter, Pro Forma Adjusted EBITDA is determined as follows:

	2005			2004
Operating income per pro forma statement of operations	$	100		$	132
Plus depreciation and amortization		283			283
Less gain on sale of assets		(7	)		(36	)
Before excluded items		376			379
Merger-related items:
Merger transaction costs		34			—
Merger integration costs		3			—
Pro Forma Adjusted EBITDA as defined	$	413		$	379
% to pro forma revenues		3.2	%		3.0	%

Pro Forma Adjusted EBITDA for the Company’s domestic (United States operations) and Sears Canada operations is as follows:

	Pro Forma Adjusted EBITDA				% to Pro Forma Revenues
	2005		2004		2005			2004
Domestic operations	$	364	$	327		3.1	%		2.8	%
Sears Canada		49		52		4.6	%		5.2	%
Total Adjusted Pro Forma EBITDA	$	413	$	379		3.2	%		3.0	%

* * * * * * * * * * * * * * * * *

For a detailed discussion of Holdings’ financial results, please see Holdings’ Form 10-Q which has been filed with the Securities and Exchange Commission and posted to the Company’s website at www.searsholdings.com.

About Sears Holdings Corporation

     Sears Holdings Corporation is the nation’s third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The company is the nation’s largest provider of home services, with more than 14 million service calls made annually. For more information, visit Sears Holdings’ website at www.searsholdings.com.

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PRO FORMA RECONCILIATIONS

The following tables provide a reconciliation from the as reported results to the pro forma results presented above for Sears Holdings for the 13-week periods ended April 30, 2005 and May 1, 2004, respectively.

Sears Holdings

	2005												2004
				Pre-												Pre-
				merger												Merger
	As			Activity			Purchase			Pro			As			Activity			Purchase			Pro
	reported			(1)			Acctng			forma			reported			(1)			Acctng			forma
Merchandise sales and services	$	7,617		$	5,051		$	—		$	12,668		$	4,627		$	8,055		$	—		$	12,682
Credit and financial products revenues		9			86			—			95			—			87			—			87
Total revenue		7,626			5,137			—			12,763			4,627			8,142			—			12,769
Cost of sales, buying and occupancy		5,655			3,672						9,327			3,545			5,877			—			9,422
Gross margin rate		25.8	%		27.3	%					26.4	%		23.4	%		27.0	%					25.7	%
Selling and administrative		1,719			1,330			11	(2)		3,060			945			2,005			18	(2)		2,968
Selling and administrative as % of total revenues		22.5	%		25.9	%					24.0	%		20.4	%		24.6	%					23.2	%
Depreciation and amortization		107			147			29	(3)		283			4			232			47	(3)		283
Gain on sales of assets		(6	)		(1	)		—			(7	)		(32	)		(4	)		—			(36	)
Total costs and expenses		7,475			5,148			40			12,663			4,462			8,110			65			12,638
Operating income (loss)		151			(11	)		(40	)		100			165			32			(65	)		132
Interest (expense) income, net		(42	)		(35	)		2	(4)		(75	)		(28	)		(70	)		3	(4)		(95	)
Bankruptcy-related recoveries		17			—			—			17			7			—			—			7
Other income		9			10			—			19			3			22			—			25
Income before income taxes, minority interest and cumulative effect of change in accounting principle		135			(36	)		(38	)		61			147			(16	)		(62	)		69
Income tax expense (benefit)		52			4			(15	)(5)		41			56			(6	)		(22	)(5)		28
Minority interest		2			6			—			8			—			3			—			3
Income before cumulative effect of change in accounting principle		81			(46	)		(23	)		12			91			(13	)		(40	)		38
Cumulative effect of change in accounting principle, net of tax		(90	)		—			—			(90	)		—			—			—			—
NET (LOSS) INCOME	$	(9	)	$	(46	)	$	(23	)	$	(78	)	$	91		$	(13	)	$	(40	)	$	38
(Loss) earnings per share – diluted	$	(0.07	)							$	(0.48	)	$	0.94								$	0.23
Earnings per share before cumulative effect of change in accounting principle – diluted	$	0.65								$	0.07		$	0.94								$	0.23

(1)	Represents the 2005 results of operations for the period January 30, 2005 through March 24, 2005 for Sears Domestic and the period January 2, 2005 through March 24, 2005 for Sears Canada and the 2004 results of operations for the period February 1, 2004 through May 1, 2004 for Sears Domestic and the period January 4, 2004 through April 3, 2004 for Sears Canada.
(2)	Represents an increase to selling and administrative expense resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value.
(3)	Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable intangible assets based on the adjustment of such assets to fair value.
(4)	Represents a decrease to interest expense resulting from the adjustment to Sears debt based on the adjustments of such liabilities to fair value.
(5)	Represents the aggregate pro forma statutory income tax effect (38%) of notes (2) through (4) above.

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The following table reconciles Pro Forma Adjusted EBITDA to net income as reported.

	2005			2004
Pro Forma Adjusted EBITDA	$	413		$	379
Merger-related items:
Merger transaction costs		(34	)		—
Merger integration costs		(3	)		—
Pro Forma adjusted EBITDA after merger-related items		376			379
Depreciation and amortization		(283	)		(283	)
Less gain on sale of assets		7			36
Pro Forma operating income		100			132
Interest expense, net		(75	)		(95	)
Bankruptcy-related recoveries		17			7
Other income		19			25
Income tax expense		(41	)		(28	)
Minority interest expense		(8	)		(3	)
Change in accounting principle		(90	)		—
Pro Forma net income		(78	)		38
Less pre-merger activity		46			13
Less effect of purchase accounting adjustments		23			40
Net income as reported	$	(9	)	$	91

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EX-99.2

Exhibit 99.2

June 7, 2005

To Our Shareholders:

I am pleased to present our results for the first quarter of the 2005 fiscal year, which is our first quarter doing business as Sears Holdings, and to share with you some of our business philosophy and guiding principles. Over the past two years, first as Kmart and now as Sears Holdings, we have been working to rebuild our company and to restore it to a position of preeminence among corporations in the United States. We believe we have made significant initial strides in building the foundation for the future success of the company.

Since the merger was announced on November 17, 2004, almost seven months ago, we have been evaluating our management and associates, making decisions on how to implement our business strategies most effectively, and selecting leaders who we believe will enable us to realize our ambitions for Sears Holdings. We are pleased that both Sears and Kmart bring to the new company a significant number of talented people, and we will work continually to build a stronger and deeper organization.

A Learning Company. In our interaction with our suppliers, customers and associates, we will work to become better at listening and learning. First, we need to learn continually from our customers how we can serve them profitably. Second, we need to take advantage of the wealth of information that our suppliers have about our customers to shape our offerings. Third, and perhaps most important, we are fortunate that so many of our associates interact with our customers directly in the stores, on-line, by phone and, when we are delivering, installing and servicing products, in their homes. Our associates have an invaluable wealth of knowledge that can serve as a focal point to deepen our customer relationships.

In order to capitalize on the ideas and insights from our associates throughout the company, we must become more nimble, more responsive, and more adept at using technology to improve our internal communications. We must create a flatter organization in which communication does not flow up through hierarchical reporting relationships, but across the company so that good ideas can be acted upon quickly and so that we make decisions based on the benefits to the company and its customers as a whole. This will require organizational and behavioral change, but I am personally committed to building a responsive and nimble organization and insisting upon an open-minded learning culture.

I want to thank our hard working and talented associates for embracing these changes. Change is never easy. As competition has intensified and as new technologies create new forms of competition both from traditional and non-traditional sources, companies that can adapt to continuous change will fare better than those that cannot.

Ownership Culture. Your board of directors holds a very significant ownership position in the company. Specifically, over 40% of the company’s outstanding shares are owned by your directors and their related entities. We believe it is of the utmost importance that the board of directors participates in the future of the company by making a very substantial financial commitment to the company’s success and that the directors do so on the same basis as all other shareholders. Therefore, our compensation for non-management directors does not include stock options or other stock awards.

In addition, we have structured executive compensation in a manner that ties executive pay packages to the operating performance of the company and not to stock price performance. We believe that if we set the appropriate objectives and goals for management, they will focus on opportunities that will drive long-term value for shareholders.

Expense and Capital Allocation Discipline. A natural corollary to an ownership culture is one with strong discipline around expenses and capital allocation. We have instituted a process to review

and approve inventory levels, open to buy authorizations, company expenses and capital allocation. The top executives of the company are focused on ensuring that we invest capital where the returns appropriately compensate the company for the relevant risks. We are encouraging our associates to do more with less and to treat the company’s money as they would their own. We have been pleased with the initial success of these initiatives and with the receptivity of our associates to this cultural change. Evidence of this discipline can already be seen in the reduction in capital expenditures in the 13 week period from $143 million for Kmart and Sears combined last year to $106 million for Sears Holdings during the corresponding period this year.

Our capital allocation discipline certainly does not preclude investing capital in our core business. In fact, we must ensure that we utilize capital where the returns are attractive, and we believe that Sears Holdings offers substantial opportunities for us to invest our capital at high risk-adjusted returns. We believe that the conversion of certain Kmart stores to Sears Essentials stores and the remodeling of other Kmart stores are examples of these attractive investments. We will evaluate these investments against other opportunities, based on our expectations regarding return on capital and execution risk.

In addition, we will opportunistically pursue investments in, and acquisitions of, other companies, joint ventures and strategic alliances. We believe that we will have significant opportunities in the years ahead to create value through a combination of better operating performance and disciplined use of our capital and balance sheet.

Operational Initiatives. We have begun the conversion and remodeling of our Kmart stores. Some stores have become Sears Essentials stores; others have been remodeled as Kmart stores with upgraded merchandise presentations and new products from Kenmore and Craftsman. We will evaluate the success of these investments and make adjustments quickly as we learn from the customer reaction and financial results of their performance. We expect to make mistakes as a company going forward, but we will acknowledge these mistakes, correct them and learn from them. We will encourage experimentation and faster decision-making as we strive to make Sears Holdings a much easier company with which to do business from the perspective of our suppliers and vendors.

At the same time, we will partner with our suppliers to help differentiate our company and to improve our profitability and return on investment. In the past, too often our predecessor companies pursued higher sales and accepted lower profits to meet objectives that, we believe, did not increase the value of the companies. We will need to focus our management, our associates and our vendors on the goals of creating value rather than solely building market share or sales. We feel that our focus on value creation has allowed us to make great strides in the past couple of years at Kmart.

Capital Structure. We have a strong balance sheet and sufficient credit available to fund our businesses. We have significantly reduced the amount of short-term commercial paper outstanding because the company’s debt is currently rated as non-investment grade. We will seek to persuade the rating agencies that this rating underestimates the financial strength, the asset values and the operating performance of the company. If our results bear out our beliefs, we will request the rating agencies to quickly and significantly upgrade our credit rating.

We must work to generate cash more consistently. Historically, a disproportionate amount of our company’s earnings and cash flow have come in the fourth quarter of the year, a period that includes the Thanksgiving and year-end holidays. While we expect that this will continue, we must work to improve our performance during the rest of the year with the goal of generating significant cash flow throughout the year.

We have announced that we are exploring options to divest our Orchard Supply Hardware business, based on our belief that allowing that business to grow and to be funded outside of our

company would enhance its growth prospects and value creation opportunities. However, we will only complete this initiative if we are able to receive appropriate value for the business.

Shareholder Communication. Finally, my hope is that our 10-Qs, annual reports, proxy statements and press releases will provide a significant amount of valuable information to our owners, both to inform you of the results of the company as well as to help you evaluate our future possibilities. These will be the primary way we communicate with shareholders. We believe that management will optimize the company’s performance by an unwavering focus on managing the business, serving our customers, and working to constantly improve operations. As a related operating principle, we believe that substantial amounts of time spent on investor relations activities such as roadshows and investor conferences distract and detract from accomplishing our fundamental objective of creating value for all our owners. Of course, the proof is in the performance, but we believe that having large shareholders overseeing a company can help focus management on running the business for the long term benefit of all shareholders.

Edward S. Lampert
Chairman of the Board