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): February 27, 2014

_________________________

SEARS HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	000-51217		20-1920798
(State or Other Jurisdiction of Incorporation)	(Commission File Number)		(IRS Employer 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):

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

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

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

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

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Section 2 - Financial Information

Item 2.02	Results of Operations and Financial Condition.
	On February 27, 2014, the Registrant issued a press release regarding its fourth quarter 2013 and full year 2013 results. The press release is attached hereto as Exhibit 99.1.

Section 8 - Other Events

Item 8.01	Other Events.
	On February 27, 2014, the Chairman and Chief Executive Officer 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.
	(d) Exhibits
	Exhibit 99.1 - Press release dated February 27, 2014, furnished pursuant to Item 2.02.
	Exhibit 99.2 - Letter from the Chairman and Chief Executive Officer dated February 27, 2014.

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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/ Robert A. Riecker
	Robert A. Riecker
	Vice President, Controller and Chief Accounting Officer

Date: February 27, 2014

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Exhibit Index

99.1 Press release dated February 27, 2014, furnished pursuant to Item 2.02.

99.2 Letter from the Chairman and Chief Executive Officer dated February 27, 2014.

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EX-99.1

Exhibit 99.1

NEWS MEDIA CONTACT:

Sears Holdings Public Relations

(847) 286-8371

FOR IMMEDIATE RELEASE:

February 27, 2014

SEARS HOLDINGS REPORTS FOURTH QUARTER AND FULL YEAR 2013 RESULTS

HOFFMAN ESTATES, Ill. - Sears Holdings Corporation (NASDAQ: SHLD) today announced financial results for its fourth quarter and full year ended February 1, 2014. Net loss attributable to Holdings' shareholders was $358 million and $1.4 billion ($3.37 and $12.87 loss per diluted share), respectively, for the fourth quarter and full year of 2013. This compares to net loss attributable to Holdings' shareholders of $489 million and $930 million ($4.61 and $8.78 loss per diluted share), respectively, for the prior year fourth quarter and full year. Adjusted EBITDA was $12 million and $(337) million, respectively, for the fourth quarter and full year of 2013. Adjusted EBITDA for the prior year fourth quarter and full year was $429 million and $536 million, respectively. Net loss attributable to Holdings’ shareholders and Adjusted EBITDA amounts for the fourth quarter and full year were both in line with our guidance provided on January 9, 2014.

"During 2013, we made progress in our continuing transformation into a member-centric retailer leveraging Shop Your Way and integrated retail, which we believe will position us for enhanced growth and profitability to create long-term shareholder value," said Edward S. Lampert, Sears Holdings' Chairman and Chief Executive Officer. "Our full year results are impacted during this transformation as we continue supporting traditional promotional programs and marketing expenditures while we invest in our Shop Your Way program and integrated retail strategy. We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the Company."

Mr. Lampert continued, "Our focus on serving our members through an integrated platform that is most convenient for them - whether in store, at home, or on the go - is resulting in improved member engagement, which is a key component of our member strategy. For the full year 2013, sales derived from Shop Your Way members grew to 69% of total Sears Full-line and Kmart sales, up from 59% last year. Our online and multi-channel businesses grew 10% over the prior full year. The investments we made throughout 2013 are enabling us to learn more about how our members want to shop so that we can develop deeper relationships with them and provide them with access to the widest possible assortment of products and services. Looking ahead, we will continue to enhance our financial flexibility to support and drive our transformation. While transformations of this size are challenging, and our financial results do not currently reflect our progress in member engagement, we believe the changes we are making through Shop Your Way and integrated retail will benefit us in the changing retail landscape."

Highlights of our transformation to a member-centric integrated retailer include:

• Increased sales from Shop Your Way members in Sears Full-line and Kmart stores to 72%, up from 58% during the fourth quarter last year, and 69%, up from 59% for the full year

• Grew 10% in our online and multi-channel sales over the prior full year

• Launched Adam Levine and Nicki Minaj in 500 Kmart stores and on shopyourway.com/kmart.com

• Generated $2.0 billion of liquidity during fiscal year versus objective of $500 million through $1.0 billion in proceeds from real estate and $1.0 billion in five-year term loan

• Reduced inventory at our peak by $620 million versus objective of $500 million

• Reduced our fixed expenses by approximately $200 million, in line with our stated objectives

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Financial Summary

Fourth Quarter and Full Year Revenues and Comparable Store Sales

Revenues decreased $1.7 billion to $10.6 billion for the quarter ended February 1, 2014, as compared to revenues of $12.3 billion for the quarter ended February 2, 2013. The revenue decrease was primarily due to lower domestic comparable store sales, which accounted for approximately $600 million of the decline, as well as the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for approximately $320 million of the decline. The fourth quarter of 2012 also benefited from revenues of approximately $500 million due to the 53rd week. Sears Canada had a 6.4% decline in comparable store sales during the fourth quarter of 2013, which accounted for approximately $60 million of the decline, and revenues included a decrease of $85 million due to foreign currency exchange rates.

Revenues decreased $3.7 billion to $36.2 billion for the year ended February 1, 2014, as compared to revenues of $39.9 billion last year. The revenue decrease was primarily due to the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for approximately $1.1 billion of the decline, as well as lower domestic comparable store sales, which accounted for approximately $1.0 billion of the decline. Revenues for the year were also impacted by approximately $490 million attributable to the separation of Sears Hometown and Outlet Stores, Inc. ("SHO"), which occurred in the third quarter of 2012. The full year of 2012 also benefited from the above noted revenue attributable to the 53rd week. Sears Canada had a 2.7% decline in comparable store sales during the full year of 2013, which accounted for approximately $85 million of the decline, and revenues included a decrease of $157 million due to foreign currency exchange rates.

For the quarter, domestic comparable store sales declined 6.4%, comprised of decreases of 5.1% at Kmart and 7.8% at Sears Domestic. We had reported in our January 9th release that quarter-to-date comparable store sales were down 7.4%, so we did see an improvement in our comparable store sales through the month of January, and are seeing positive domestic comparable store sales for the month of February for Sears Full-line and Kmart formats combined. The decline at Kmart reflects declines in a majority of categories, most notably consumer electronics, grocery & household, toys and drugstore. The decline at Sears Domestic reflects decreases in most categories including the consumer electronics, tools and home appliances categories. These declines were partially offset by an increase experienced in the lawn & garden category.

For the year, domestic comparable store sales declined 3.8%, comprised of decreases of 3.6% at Kmart and 4.1% at Sears Domestic. The decline at Kmart reflects declines in a majority of categories, most notably grocery & household, consumer electronics, drugstore and toys. The decline at Sears Domestic reflects decreases in most categories including the home appliances, consumer electronics, tools and lawn & garden categories, as well as declines at Sears Auto Centers, partially offset by increases in the home and footwear categories.

Operating Performance

For the quarter, our gross margin decreased $681 million to $2.5 billion in 2013 due to the above noted decline in sales, as well as a decline in gross margin rate.

The gross margin rate for both Kmart and Sears Domestic continued to be impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way points, during the quarter. As compared to the prior year, Kmart's gross margin rate for the fourth quarter declined 190 basis points, with decreases experienced in a majority of categories, particularly pharmacy, home and apparel. Sears Domestic's gross margin rate declined 290 basis points for the quarter with decreases experienced in the home appliances and apparel categories. Sears Canada's gross margin rate declined 180 basis points for the fourth quarter due to reduced margins in home furnishings, fitness, home decor, electronics, footwear and children's wear.

Selling and administrative expenses decreased $669 million in the fourth quarter of 2013 compared to the prior year quarter and included significant items such as expenses related to domestic pension plans, store closings and severance of $114 million and $545 million for 2013 and 2012, respectively. Excluding these items, selling and administrative expenses declined $238 million primarily due to a decrease in payroll expense.

We reported an operating loss of $132 million and $622 million for the fourth quarter of 2013 and 2012, respectively. Operating loss for the fourth quarter of 2013 and 2012 included significant items which aggregated to operating income of $1 million and operating expense of $863 million, respectively. See the attached schedule,

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"Adjusted Earnings per Share," for a reconciliation from GAAP to as adjusted amounts, including adjusted earnings per diluted share.

For the year, our gross margin decreased $1.8 billion to $8.8 billion in 2013 due to the above noted decline in sales, as well as a decline in gross margin rate. Gross margin included expenses of $57 million and $35 million in 2013 and 2012, respectively, related to store closings while 2012 also included gross margin of $432 million from SHO. Excluding these items, gross margin decreased $1.3 billion.

The gross margin rate for both Kmart and Sears Domestic for the year were impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way points. As compared to the prior year, Kmart's gross margin rate for 2013 declined 170 basis points, with decreases experienced in a majority of categories, particularly apparel and grocery & household. Sears Domestic's gross margin rate declined 260 basis points in 2013 due to selling merchandise to SHO at cost pursuant to the terms of the separation as expected and previously disclosed, which accounted for approximately 120 basis points of the decline. Sears Domestic also experienced margin decreases in the home appliances and apparel categories. Sears Canada's gross margin rate declined 190 basis points in 2013 due to an increase in inventory reserve requirements.

For the year, selling and administrative expenses decreased $1.3 billion in 2013 compared to the prior year and included several significant items. Excluding these items, selling and administrative expenses declined $431 million primarily due to a decrease in payroll expense.

We reported an operating loss of $927 million and $838 million for the full year of 2013 and 2012, respectively. Operating loss for 2013 and 2012 included significant items which aggregate to operating income of $68 million and operating expense of $622 million, respectively. See the attached schedule, "Adjusted Earnings per Share," for a reconciliation from GAAP to as adjusted amounts, including adjusted earnings per diluted share.

Our effective tax rate for 2013 was 14.8% compared to 4.4% in 2012. Our tax rate in 2013 continues to reflect the effect of not recognizing the benefit of current period losses in certain domestic jurisdictions where it is not more likely than not that such benefits would be realized. The 2013 rate was impacted unfavorably by an additional valuation allowance on state separate entity deferred tax assets and favorably for the lower tax on the Sears Canada gain on sales of assets, federal and state tax audit settlements and statute expirations. In addition, the 2013 rate included a partial tax benefit on the loss from continuing operations, which was exactly offset by income tax expense on other comprehensive income.

Financial Position

Rob Schriesheim, Sears Holdings' Chief Financial Officer, said, "We have proven that we are an asset rich enterprise with multiple levers at our disposal to maintain what we believe to be substantial financial flexibility to both meet all of our financial obligations, as well as fund our transformation. We have demonstrated our ability and willingness to monetize assets as we redeploy capital in support of our transformation to a member-centric model leveraging our integrated retail and our Shop Your Way platforms."

"More specifically, in the past two years we have generated approximately $4.0 billion from actions, including inventory, real estate, asset reconfigurations and a continuing adjustment of our store base. We believe that we are executing on a clear plan to increase financial flexibility, further de-risk our balance sheet and create shareholder value and expect to continue with these types of activities during 2014. As previously announced, we are evaluating the separation of our Lands' End business through a spin-off to shareholders and have made filings with the SEC to accomplish this through a pro rata distribution to our shareholders. We are also considering strategic alternatives for our Sears Auto Centers business, subject to board approval and other conditions. We expect that through these actions and through working with the board and management of Sears Canada to increase the value of our investment, which has a current market value of about $620 million, and realize significant cash proceeds, we will raise in excess of $1.0 billion in proceeds to Sears Holdings in 2014, creating value and helping to fund our transformation. We also continue to reduce unprofitable stores as leases expire and in some cases accelerate closings when circumstances dictate," added Mr. Schriesheim.

We had cash balances of $1.0 billion at February 1, 2014 ($577 million domestic and $461 million at Sears Canada) as compared to $618 million ($380 million domestic and $238 million at Sears Canada) at February 2, 2013. During the fourth quarter of 2013, we received cash proceeds of approximately $700 million Canadian related to the

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previously announced Sears Canada transactions. The increase in cash during 2013 primarily reflects cash proceeds of approximately $1.0 billion, which includes the above noted $700 million, from the sales of properties and investments, which were partially offset by operating losses. Significant uses of our cash during 2013 included contributions to our pension and post-retirement benefit plans of $426 million, capital expenditures of $329 million, interest of $206 million and taxes of $21 million.

Merchandise inventories at February 1, 2014 were $7.0 billion, as compared to $7.6 billion at February 2, 2013. Domestic inventory decreased by approximately $355 million to $6.4 billion at February 1, 2014 driven by both improved productivity and store closures. Sears Domestic inventory decreased in a majority of categories, with the most notable decreases in the apparel and jewelry categories. Kmart inventory decreased in a majority of categories with the most notable decreases in the consumer electronics, grocery & household, jewelry and toys categories.

We had short term borrowings of $1.3 billion ($1.3 billion domestic credit facility and $9 million commercial paper) at the end of 2013 compared to $1.1 billion ($749 million domestic credit facility and $345 million commercial paper) last year. The increase in domestic credit facility borrowings in 2013 is due to lower commercial paper borrowings and increased domestic cash balances.  

At year end, the amount available to borrow under our domestic committed $3.275 billion credit facility was $549 million, which reflects the effect of our springing fixed charge coverage ratio covenant and the borrowing base limitation. The total consolidated amount available to borrow was $885 million ($549 million domestic plus, prior to taking into consideration possible reserves, $336 million at Sears Canada) at February 1, 2014. The Company can issue up to $500 million of commercial paper. In addition, we are permitted to incur up to $760 million in second lien debt, subject to borrowing base requirements.

Total long-term debt (long-term debt and capital lease obligations) was $2.9 billion at February 1, 2014, compared to $2.0 billion at February 2, 2013. The increase in borrowings was due to the issuance of a $1.0 billion term loan.

Our domestic pension obligation decreased approximately $600 million from $2.1 billion at the end of 2012. The reduction in the unfunded liability was due to favorable return on plan assets and an increased discount rate. Based on the current regulatory environment, we anticipate making contributions of approximately $485 million in 2014.

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Adjusted EBITDA

	Quarters Ended						Years Ended
millions	February 1, 2014			February 2, 2013			February 1, 2014			February 2, 2013
Net loss attributable to SHC per statement of operations	$	(358	)	$	(489	)	$	(1,365	)	$	(930	)
Income (loss) attributable to noncontrolling interests	208			(128		)	249			(124		)
Income tax expense (benefit)	125			(9		)	144			44
Interest expense	73			68			254			267
Interest and investment income	(178		)	(66		)	(207		)	(94		)
Other (income) loss	(2		)	2			(2		)	(1		)
Operating loss	(132		)	(622		)	(927		)	(838		)
Depreciation and amortization	173			205			732			830
Gain on sales of assets	(391		)	(32		)	(667		)	(468		)
Before excluded items	(350		)	(449		)	(862		)	(476		)
Domestic pension expense	40			41			162			165
Closed store reserve and severance	103			50			130			140
Impairment charges	219			330			233			330
Pension settlements	—			455			—			455
Transaction costs	—			2			—			12
Adjusted EBITDA	12			429			(337		)	626
SHO separation	—			—			—			(90		)
Adjusted EBITDA as defined	$	12		$	429		$	(337	)	$	536
% to revenues	0.1		%	3.5		%	(0.9		)%	1.4		%

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Adjusted EBITDA for our segments was as follows:

	Quarters Ended
	Adjusted EBITDA					% To Revenues
millions	February 1, 2014			February 2, 2013		February 1, 2014		February 2, 2013
Kmart	$	40		$	168	1.0	%	3.6	%
Sears Domestic	(52		)	197		(0.9	)%	3.2	%
Sears Canada	24			64		2.2	%	4.9	%
Total Adjusted EBITDA	$	12		$	429	0.1	%	3.5	%

	Years Ended
	Adjusted EBITDA					% To Revenues
millions	February 1, 2014			February 2, 2013		February 1, 2014		February 2, 2013
Kmart	$	(129	)	$	201	(1.0	)%	1.4	%
Sears Domestic	(211		)	266		(1.1	)%	1.4	%
Sears Canada	3			69		0.1	%	1.6	%
Total Adjusted EBITDA	$	(337	)	$	536	(0.9	)%	1.4	%

In addition to our net loss determined in accordance with Generally Accepted Accounting Principles ("GAAP"), for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement. Adjusted EBITDA is computed as net loss attributable to Sears Holdings Corporation appearing on the statements of operations excluding (income) loss attributable to noncontrolling interests, income tax (expense) benefit, interest expense, interest and investment income, other income (loss), depreciation and amortization and gain on sales of assets. In addition, it is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of ongoing operating performance, and useful to the investors, because:

• EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs;

• Management considers gains/(losses) on the sale of assets to result from investing decisions rather than ongoing operations; and

• Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results, including the results of SHO that were included in our results of operations prior to the separation. Adjustments to EBITDA include impairment charges related to fixed assets and intangible assets, closed store and severance charges, domestic pension expense and the SHO separation. We have adjusted our results for these items to make our statements more comparable and therefore more useful to investors as the items are not representative of our ongoing operations and reflect past investment decisions.

We also believe that our use of Adjusted EPS provides an appropriate measure for investors to use in assessing our performance across periods, given that this measure provides an adjustment for certain significant items which may vary significantly from period to period, improving the comparability of year-to-year results and is therefore representative of our ongoing performance. Therefore, we have adjusted our results for them to make our statements more useful and comparable. However, we do not, and do not recommend that you, solely use Adjusted EPS to

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assess our financial and earnings performance. We also use, and recommend that you use, diluted earnings per share in addition to Adjusted EPS in assessing our earnings performance.

In addition to the significant items included in the Adjusted EBITDA calculation, Adjusted EPS includes other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results.

Lands' End

The preliminary, unaudited fourth quarter and full year 2013 results for Lands' End and corresponding fourth quarter and full year 2012 results were as follows:

	Quarters Ended				Years Ended
millions	January 31, 2014		February 1, 2013		January 31, 2014		February 1, 2013
Merchandise sales and services	$	530	$	546	$	1,563	$	1,586
Net income	$	46	$	26	$	79	$	50
Adjusted EBITDA	$	80	$	49	$	150	$	108

The fourth quarter and full year 2013 results are preliminary and subject to change. Please see the Lands' End Adjusted EBITDA schedule for a reconciliation of Adjusted EBITDA to the corresponding GAAP results.

Forward-Looking Statements

Results are preliminary and unaudited. This press release contains forward-looking statements about our expectations for the fourth quarter of fiscal 2013, our transformation through our integrated retail strategy, our objectives with respect to the generation of additional liquidity, our plans to redeploy our capital, possible transactions discussed elsewhere in this press release and other matters. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement our integrated retail strategy; our ability to successfully implement initiatives to improve our liquidity through inventory management and other actions; competitive conditions in the retail and related services industries; worldwide economic conditions and business uncertainty, including the availability of consumer and commercial credit, changes in consumer confidence and spending, the impact of rising fuel prices, and changes in vendor relationships; our ability to complete possible transactions with respect to Lands' End and/or Sears Auto Centers on terms that are acceptable to us, on intended timetables or at all and the impact of the evaluation and/or completion of those transactions on our other businesses or third party relationships; our ability to successfully achieve our plans to generate liquidity, reduce inventory and reduce fixed costs; conditions and possible limits, including borrowing base limits, on our access to capital markets and other financing sources, including additional second lien financings, with respect to which we do not have commitments from lenders; vendors' lack of willingness to provide acceptable payment terms or otherwise restricting financing to purchase inventory or services; the impact of seasonal buying patterns, including seasonal fluctuations due to weather conditions, which are difficult to forecast with certainty; our dependence on sources outside the United States for significant amounts of our merchandise; our extensive reliance on computer systems, including legacy systems, to implement our integrated retail strategy, process transactions, summarize results and manage our business, which may be subject to disruptions or security breaches; our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business and the transfer of significant internal historical knowledge of such parties; impairment charges for goodwill and intangible assets or fixed-asset impairment for long-lived assets; our ability to attract, motivate and retain key executives and other associates; our ability to protect or preserve the image of our brands; the outcome of pending and/or future legal proceedings, including product liability claims and proceedings with respect to which the parties have reached a

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preliminary settlement; and the timing and amount of required pension plan funding; and other risks, uncertainties and factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available.

About Sears Holdings Corporation

Sears Holdings Corporation (NASDAQ: SHLD) is a leading integrated retailer with more than 2,400 full-line and specialty retail stores in the United States and Canada and the home of Shop Your Way^sm, a social shopping experience where members have the ability to earn points and receive benefits across a wide variety of physical and digital formats through ShopYourWay.com and mobile apps. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, fitness equipment and automotive repair and maintenance. Key proprietary brands include Kenmore^®, Craftsman^® and DieHard^®, with a broad apparel offering, including such well-known labels as Lands' End^®, the Kardashian Kollection^®, Jaclyn Smith® and Joe Boxer®, as well as Sofia by Sofia Vergara^TM and The Country Living Home Collection^TM. We are the nation's largest provider of home services, with more than 14 million service and installation calls made annually, and have a long-established commitment to those who serve in the military through initiatives like the Heroes at Home® program. We have been named the 2011 Mobile Retailer of the Year, Recipient of the 2013 Energy Star® “Partner of the Year - Sustained Excellence Award” for Product Retailing and Energy Management and one of the Top 20 Best Places to Work for Recent Grads. Sears Holdings Corporation operates through its subsidiaries, including Sears, Roebuck and Co. and Kmart Corporation. For more information, visit Sears Holdings' website at www.searsholdings.com. Twitter: @searsholdings | Facebook: http://www.facebook.com/SHCCareers.

* * * * *

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Sears Holdings Corporation
Consolidated Statements of Operations
(Unaudited)
	Amounts are Preliminary and Subject to Change
		Quarters Ended						Years Ended
	millions, except per share data	February 1, 2014			February 2, 2013			February 1, 2014			February 2, 2013
REVENUES
	Merchandise sales and services	$	10,593		$	12,260		$	36,188		$	39,854
COSTS AND EXPENSES
	Cost of sales, buying and occupancy	8,111			9,097			27,433			29,340
	Gross margin dollars	2,482			3,163			8,755			10,514
	Gross margin rate	23.4		%	25.8		%	24.2		%	26.4		%
	Selling and administrative	2,613			3,282			9,384			10,660
	Selling and administrative expense as a percentage of total revenues	24.7		%	26.8		%	25.9		%	26.7		%
	Depreciation and amortization	173			205			732			830
	Impairment charges	219			330			233			330
	Gain on sales of assets	(391		)	(32		)	(667		)	(468		)
	Total costs and expenses	10,725			12,882			37,115			40,692
Operating loss		(132		)	(622		)	(927		)	(838		)
Interest expense		(73		)	(68		)	(254		)	(267		)
Interest and investment income		178			66			207			94
Other income (loss)		2			(2		)	2			1
Loss before income taxes		(25		)	(626		)	(972		)	(1,010		)
Income tax (expense) benefit		(125		)	9			(144		)	(44		)
Net loss		(150		)	(617		)	(1,116		)	(1,054		)
(Income) loss attributable to noncontrolling interests		(208		)	128			(249		)	124
NET LOSS ATTRIBUTABLE TO HOLDINGS' SHAREHOLDERS		$	(358	)	$	(489	)	$	(1,365	)	$	(930	)
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO HOLDINGS SHAREHOLDERS:
	Diluted loss per share	$	(3.37	)	$	(4.61	)	$	(12.87	)	$	(8.78	)
	Diluted weighted average common shares outstanding	106.2			106.0			106.1			105.9

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Sears Holdings Corporation
Condensed Consolidated Balance Sheets
Amounts are Preliminary and Subject to Change
	Unaudited
millions	February 1, 2014		February 2, 2013
ASSETS
Current assets
Cash and cash equivalents	$	1,028	$	609
Restricted cash	10		9
Accounts receivable	553		635
Merchandise inventories	7,034		7,558
Prepaid expenses and other current assets	334		454
Total current assets	8,959		9,265
Property and equipment, net	5,394		6,053
Goodwill	379		379
Trade names and other intangible assets	2,850		2,881
Other assets	679		762
TOTAL ASSETS	$	18,261	$	19,340
LIABILITIES
Current liabilities
Short-term borrowings	$	1,332	$	1,094
Current portion of long-term debt and capitalized lease obligations	83		83
Merchandise payables	2,496		2,761
Unearned revenues	900		931
Other taxes	460		480
Short-term deferred tax liabilities	387		382
Other current liabilities	2,527		2,683
Total current liabilities	8,185		8,414
Long-term debt and capitalized lease obligations	2,834		1,943
Pension and postretirement benefits	1,942		2,730
Long-term deferred tax liabilities	1,109		955
Other long-term liabilities	2,008		2,126
Total Liabilities	16,078		16,168
Total Equity	2,183		3,172
TOTAL LIABILITIES AND EQUITY	$	18,261	$	19,340
Total common shares outstanding	106.4		106.4

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Sears Holdings Corporation

Segment Results

(Unaudited)

Amounts are Preliminary and Subject to Change

	Quarter Ended February 1, 2014
millions, except store data	Kmart			Sears Domestic			Sears Canada			Sears Holdings
Merchandise sales and services	$	4,007		$	5,489		$	1,097		$	10,593
Cost of sales, buying and occupancy	3,145			4,161			805			8,111
Gross margin dollars	862			1,328			292			2,482
Gross margin rate	21.5		%	24.2		%	26.6		%	23.4		%
Selling and administrative	878			1,416			319			2,613
Selling and administrative expense as a percentage of total revenues	21.9		%	25.8		%	29.1		%	24.7		%
Depreciation and amortization	32			121			20			173
Impairment charges	67			140			12			219
Gain on sales of assets	(19		)	(15		)	(357		)	(391		)
Total costs and expenses	4,103			5,823			799			10,725
Operating income (loss)	$	(96	)	$	(334	)	$	298		$	(132	)
Number of:
Kmart Stores	1,152			—			—			1,152
Full-Line Stores	—			778			118			896
Specialty Stores	—			50			331			381
Total Stores	1,152			828			449			2,429
	Quarter Ended February 2, 2013
millions, except store data	Kmart			Sears Domestic			Sears Canada			Sears Holdings
Merchandise sales and services	$	4,697		$	6,253		$	1,310		$	12,260
Cost of sales, buying and occupancy	3,598			4,561			938			9,097
Gross margin dollars	1,099			1,692			372			3,163
Gross margin rate	23.4		%	27.1		%	28.4		%	25.8		%
Selling and administrative	969			1,987			326			3,282
Selling and administrative expense as a percentage of total revenues	20.6		%	31.8		%	24.9		%	26.8		%
Depreciation and amortization	37			141			27			205
Impairment charges	10			25			295			330
Gain on sales of assets	(20		)	(11		)	(1		)	(32		)
Total costs and expenses	4,594			6,703			1,585			12,882
Operating income (loss)	$	103		$	(450	)	$	(275	)	$	(622	)
Number of:
Kmart Stores	1,221			—			—			1,221
Full-Line Stores	—			798			118			916
Specialty Stores	—			54			357			411
Total Stores	1,221			852			475			2,548

11

Sears Holdings Corporation
Segment Results
(Unaudited)
Amounts are Preliminary and Subject to Change
	Year Ended February 1, 2014
millions, except store data	Kmart			Sears Domestic			Sears Canada			Sears Holdings
Merchandise sales and services	$	13,194		$	19,198		$	3,796		$	36,188
Cost of sales, buying and occupancy	10,329			14,324			2,780			27,433
Gross margin dollars	2,865			4,874			1,016			8,755
Gross margin rate	21.7		%	25.4		%	26.8		%	24.2		%
Selling and administrative	3,083			5,216			1,085			9,384
Selling and administrative expense as a percentage of total revenues	23.4		%	27.2		%	28.6		%	25.9		%
Depreciation and amortization	129			511			92			732
Impairment charges	70			150			13			233
Gain on sales of assets	(66		)	(63		)	(538		)	(667		)
Total costs and expenses	13,545			20,138			3,432			37,115
Operating income (loss)	$	(351	)	$	(940	)	$	364		$	(927	)
Number of:
Kmart Stores	1,152			—			—			1,152
Full-Line Stores	—			778			118			896
Specialty Stores	—			50			331			381
Total Stores	1,152			828			449			2,429
	Year Ended February 2, 2013
millions, except store data	Kmart			Sears Domestic			Sears Canada			Sears Holdings
Merchandise sales and services	$	14,567		$	20,977		$	4,310		$	39,854
Cost of sales, buying and occupancy	11,158			15,107			3,075			29,340
Gross margin dollars	3,409			5,870			1,235			10,514
Gross margin rate	23.4		%	28.0		%	28.7		%	26.4		%
Selling and administrative	3,284			6,184			1,192			10,660
Selling and administrative expense as a percentage of total revenues	22.5		%	29.5		%	27.7		%	26.7		%
Depreciation and amortization	147			578			105			830
Impairment charges	10			25			295			330
Gain on sales of assets	(37		)	(261		)	(170		)	(468		)
Total costs and expenses	14,562			21,633			4,497			40,692
Operating income (loss)	$	5		$	(656	)	$	(187	)	$	(838	)
Number of:
Kmart Stores	1,221			—			—			1,221
Full-Line Stores	—			798			118			916
Specialty Stores	—			54			357			411
Total Stores	1,221			852			475			2,548

12

Sears Holdings Corporation
Adjusted EBITDA
Amounts are Preliminary and Subject to Change
	Quarters Ended
millions	February 1, 2014												February 2, 2013
	Kmart			Sears Domestic			Sears Canada			Sears Holdings			Kmart			Sears Domestic			Sears Canada			Sears Holdings
Operating income (loss) per statement of operations	$	(96	)	$	(334	)	$	298		$	(132	)	$	103		$	(450	)	$	(275	)	$	(622	)
Depreciation and amortization	32			121			20			173			37			141			27			205
Gain on sales of assets	(19		)	(15		)	(357		)	(391		)	(20		)	(11		)	(1		)	(32		)
Before excluded items	(83		)	(228		)	(39		)	(350		)	120			(320		)	(249		)	(449		)
Domestic pension expense	—			40			—			40			—			41			—			41
Closed store reserve and severance	56			(4		)	51			103			38			(3		)	15			50
Impairment charges	67			140			12			219			10			25			295			330
Transaction costs	—			—			—			—			—			2			—			2
Pension settlements	—			—			—			—			—			452			3			455
Adjusted EBITDA as defined	$	40		$	(52	)	$	24		$	12		$	168		$	197		$	64		$	429
% to revenues	1.0		%	(0.9		)%	2.2		%	0.1		%	3.6		%	3.2		%	4.9		%	3.5		%
	Years Ended
millions	February 1, 2014												February 2, 2013
	Kmart			Sears Domestic			Sears Canada			Sears Holdings			Kmart			Sears Domestic			Sears Canada			Sears Holdings
Operating income (loss) per statement of operations	$	(351	)	$	(940	)	$	364		$	(927	)	$	5		$	(656	)	$	(187	)	$	(838	)
Depreciation and amortization	129			511			92			732			147			578			105			830
Gain on sales of assets	(66		)	(63		)	(538		)	(667		)	(37		)	(261		)	(170		)	(468		)
Before excluded items	(288		)	(492		)	(82		)	(862		)	115			(339		)	(252		)	(476		)
Domestic pension expense	—			162			—			162			—			165			—			165
Closed store reserve and severance	89			(31		)	72			130			76			44			20			140
Impairment charges	70			150			13			233			10			25			295			330
Transaction costs	—			—			—			—			—			9			3			12
Pension settlements	—			—			—			—			—			452			3			455
Adjusted EBITDA	(129		)	(211		)	3			(337		)	201			356			69			626
SHO Separation	—			—			—			—			—			(90		)	—			(90		)
Adjusted EBITDA as defined	$	(129	)	$	(211	)	$	3		$	(337	)	$	201		$	266		$	69		$	536
% to revenues	(1.0		)%	(1.1		)%	0.1		%	(0.9		)%	1.4		%	1.4		%	1.6		%	1.4		%

13

Sears Holdings Corporation

Adjusted Earnings per Share

Amounts are Preliminary and Subject to Change

	Quarter Ended February 1, 2014
millions, except per share data	GAAP			Domestic Pension Expense			Closed Store Reserve, Store Impairments and Severance			Gain on Sales of Assets			Gain on Sale of Canadian Joint Venture			Tax Matters		As Adjusted
Gross margin impact	$	2,482		$	—		$	29		$	—		$	—		$	—	$	2,511
Selling and administrative impact	2,613			(40		)	(74		)	—			—			—		2,499
Depreciation and amortization impact	173			—			(6		)	—			—			—		167
Impairment charges impact	219			—			(219		)	—			—			—		—
Gain on sales of assets impact	(391		)	—			—			369			—			—		(22		)
Operating loss impact	(132		)	40			328			(369		)	—			—		(133		)
Interest and investment income impact	178			—			—			—			(163		)	—		15
Income tax expense impact	(125		)	(15		)	(123		)	139			61			134		71
Income attributable to noncontrolling interests impact	(208		)	—			(31		)	175			80			—		16
After tax and noncontrolling interests impact	(358		)	25			174			(55		)	(22		)	134		(102		)
Diluted loss per share impact	$	(3.37	)	$	0.24		$	1.64		$	(0.52	)	$	(0.21	)	$	1.26	$	(0.96	)

	Quarter Ended February 2, 2013
millions, except per share data	GAAP			Domestic Pension Expense			Closed Store Reserve, Store Impairments and Severance			Gain on Sales of Assets			Transaction Costs			Goodwill Impairment			Pension Settlements			Gain on Sale of Canadian Joint Venture			Tax Matters			As Adjusted
Gross margin impact	$	3,163		$	—		$	3		$	—		$	—		$	—		$	—		$	—		$	—		$	3,166
Selling and administrative impact	3,282			(41		)	(47		)	—			(2		)	—			(455		)	—			—			2,737
Depreciation and amortization impact	205			—			(6		)	—			—			—			—			—			—			199
Impairment charges impact	330			—			(35		)	—			—			(295		)	—			—			—			—
Gain on sales of assets impact	(32		)	—			—			21			—			—			—			—			—			(11		)
Operating loss impact	(622		)	41			91			(21		)	2			295			455			—			—			241
Interest and investment income impact	66			—			—			—			—			—			—			(25		)	—			41
Income tax benefit impact	9			(15		)	(35		)	8			(1		)	—			—			9			(55		)	(80		)
Loss attributable to noncontrolling interests impact	128			—			(7		)	—			—			(145		)	(1		)	12			—			(13		)
After tax and noncontrolling interests impact	(489		)	26			49			(13		)	1			150			454			(4		)	(55		)	119
Diluted loss per share impact	$	(4.61	)	$	0.25		$	0.46		$	(0.12	)	$	0.01		$	1.41		$	4.28		$	(0.04	)	$	(0.52	)	$	1.12

14

Sears Holdings Corporation

Adjusted Earnings per Share

Amounts are Preliminary and Subject to Change

	Year Ended February 1, 2014
millions, except per share data	GAAP			Domestic Pension Expense			Closed Store Reserve, Store Impairments and Severance			Gain on Sales of Assets			Gain on Sale of Canadian Joint Venture			Tax Matters		As Adjusted
Gross margin impact	$	8,755		$	—		$	57		$	—		$	—		$	—	$	8,812
Selling and administrative impact	9,384			(162		)	(73		)	—			—			—		9,149
Depreciation and amortization impact	732			—			(11		)	—			—			—		721
Impairment charges impact	233			—			(233		)	—			—			—		—
Gain on sales of assets impact	(667		)	—			—			604			—			—		(63		)
Operating loss impact	(927		)	162			374			(604		)	—			—		(995		)
Interest and investment income impact	207			—			—			—			(163		)	—		44
Income tax expense impact	(144		)	(60		)	(141		)	228			61			507		451
Income attributable to noncontrolling interests impact	(249		)	—			(42		)	263			80			—		52
After tax and noncontrolling interests impact	(1,365		)	102			191			(113		)	(22		)	507		(700		)
Diluted loss per share impact	$	(12.87	)	$	0.96		$	1.80		$	(1.06	)	$	(0.21	)	$	4.78	$	(6.60	)

	Year Ended February 2, 2013
millions, except per share data	GAAP			Domestic Pension Expense			Closed Store Reserve, Store Impairments and Severance			Gain on Sales of Assets			Transaction Costs			Goodwill Impairment			Pension Settlements			Gain on Sale of Canadian Joint Venture			Tax Matters		As Adjusted - Reported			SHO Separation			As Adjusted
Gross margin impact	$	10,514		$	—		$	35		$	—		$	—		$	—		$	—		$	—		$	—	$	10,549		$	(432	)	$	10,117
Selling and administrative impact	10,660			(165		)	(105		)	—			(12		)	—			(455		)	—			—		9,923			(343		)	9,580
Depreciation and amortization impact	830			—			(22		)	—			—			—			—			—			—		808			(6		)	802
Impairment charges impact	330			—			(35		)	—			—			(295		)	—			—			—		—			—			—
Gain on sales of assets impact	(468		)	—			—			419			—			—			—			—			—		(49		)	—			(49		)
Operating loss impact	(838		)	165			197			(419		)	12			295			455			—			—		(133		)	(83		)	(216		)
Interest and investment income impact	94			—			—			—			—			—			—			(25		)	—		69			—			69
Income tax expense impact	(44		)	(62		)	(74		)	157			(5		)	—			—			9			143		124			33			157
Loss attributable to noncontrolling interests impact	124			—			(7		)	8			—			(145		)	(1		)	12			—		(9		)	—			(9		)
After tax and noncontrolling interests impact	(930		)	103			116			(254		)	7			150			454			(4		)	143		(215		)	(51		)	(266		)
Diluted loss per share impact	$	(8.78	)	$	0.97		$	1.09		$	(2.40	)	$	0.07		$	1.42		$	4.29		$	(0.04	)	$	1.35	$	(2.03	)	$	(0.48	)	$	(2.51	)

15

Lands' End

Adjusted EBITDA

Amounts are Preliminary and Subject to Change

	Quarters Ended						Years Ended
millions	January 31, 2014			February 1, 2013			January 31, 2014			February 1, 2013
Net income	$	46		$	26		$	79		$	50
Income tax expense	28			16			49			32
Operating income	74			42			128			82
Depreciation and amortization	6			6			22			23
Before excluded items	80			48			150			105
Restructuring costs	—			1			—			3
Adjusted EBITDA	$	80		$	49		$	150		$	108
% to revenues	15.1		%	9.0		%	9.6		%	6.8		%

16

EX-99.2

Exhibit 99.2

February 27, 2014

To Our Shareholders, Associates and Members:

I am writing to you after my first full year serving as both your Chairman and Chief Executive Officer.

While our financial results remain challenged, 2013 may have been the year that justifies why so many people across Sears Holdings have been working for several years on our transformation from a traditional, store-based retailer to a membership company that serves its members across an integrated retail platform.

Furthermore, if the way the entire American retail industry ended 2013 is any indication, I believe 2014 may well be a year in which Sears Holdings begins to clearly demonstrate the advantages of this transformation.

That may sound odd given our financial results, but this letter will detail why I believe that. To be clear, it is not because our performance is where we need it to be. It isn’t. But not only do I believe that we are headed in the right direction in important ways, I believe the entire retail industry is headed to where we already are.

LOOKING BACK AT 2013

First, the financials. Net loss attributable to Sears Holdings’ shareholders was $358 million and $1.4 billion, respectively, for the fourth quarter and full year of 2013. This compares to net loss attributable to Sears Holdings’ shareholders of $489 million and $930 million, respectively, for the prior year fourth quarter and full year. Adjusted EBITDA was $12 million and $(337) million, respectively, for the fourth quarter and full year of 2013. Adjusted EBITDA for the prior year fourth quarter and full year was $429 million and $536 million, respectively.

The fact that none of this is new news—our performance is in line with the guidance we provided back on January 9, 2014—only slightly mitigates the impact of these numbers.

Nevertheless, 2013—especially the tough-to-terrible holiday season for Sears Holdings and for so many other retailers—brought into stark relief just how irrevocably retail has changed. And, 2013 highlights just how important all of our work is to transform Sears and Kmart from traditional brick-and-mortar stores that

simply sell products into an integrated platform. We build relationships with our members, anticipate their needs and serve them in the manner most convenient for them – whether in store, at home or on-the-go. This change is resulting in improved member engagement, which is not only a key component of our member strategy, but in my view may prove to be most important in the year ahead.

RETAIL TRANSFORMATION MOVING FROM OUR RHETORIC TO WIDELY RECOGNIZED REALITY

On January 17, 2014, The Wall Street Journal ran a prominently placed story suggesting that beyond all of the retailers reporting poorer profits,

“(T)here is a deeper malaise at work: A long-term change in shopper habits has reduced store traffic—perhaps permanently—and shifted pricing power away from malls and big-box retailers... Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three... Meanwhile, online stores have further sharpened purchase decisions and prices, leading some shoppers to come into the stores only when they can cherry pick discounted items.”

All of these dynamics are ones for which Sears Holdings has been preparing for years. Readers of these annual letters have time and again heard about how the strategy we have been pursuing is positioning us to help our Shop Your Way members manage their lives better through their relationship with us. As I have described before, the five key pillars of our strategy are:

1. Creating lasting relationships with members by empowering them to manage their lives

2. Attaining best-in-class productivity and efficiency

3. Building our brands

4. Reinventing the company continuously through technology and innovation

5. Reinforcing “The SHC Way” by living our values every day

Our two key platforms—Shop Your Way Rewards and Integrated Retail—continue to become more prominent both in how we run the company and in how we serve our members. Some larger retailers and some specialized retailers continue to perform relatively better than the rest, but even they aren’t immune to the drastic shifts in customer behavior and the competitive landscape.

Certain key metrics we follow show us that our execution of our core member-centric strategy is enabling us to increase engagement with our members. Sales

from Shop Your Way members comprised 72 percent of all sales in Sears Full-line and Kmart stores in the fourth quarter of 2013, up from 58 percent during the fourth quarter of 2012. Overall, Shop Your Way members made up 69 percent of our sales in 2013, up from 59 percent for all of 2012.

Others in our industry are struggling to figure out how to adjust their business models to deal with the combination of changing consumer behavior and intense business model competition. We believe that these Shop Your Way results show that even with the challenging results across the industry and in our stores, our integrated retail strategies give us the opportunity to address this changed consumer behavior and to evolve our business model.

More importantly, many of the changes that other retailers are making to survive today follow innovations that were either pioneered or significantly advanced in Sears and Kmart locations, like converting physical stores to be able to fulfill online orders and emphasizing ship-to-store and ship-from-store programs.

These are areas where much of our investment has been focused over the years, despite the widespread and, we believe, incorrect belief among many outside commentators that what our stores need most are hundreds of millions of dollars more in décor and fixtures. We believe that the developments in the entire retail industry validate our decisions to shift much of our investment instead to digital and integrated retail.

OUR WORK IN 2013

In 2013, we continued our efforts to simplify and focus our company, while simultaneously creating long-term value for our shareholders. We announced that we are evaluating the separation of our Lands’ End business through a spinoff to shareholders and have made filings with the SEC to accomplish this through a pro rata distribution to our shareholders. We also are considering strategic alternatives for our Sears Auto Center business, subject to board approval and other conditions. We expect that through these actions, and through working with the Sears Canada board and management with a goal of increasing and realizing the value of our investment in Sears Canada, we will raise in excess of $1 billion in proceeds to Sears Holdings in 2014, creating value and helping to fund our transformation.

We generated $2 billion of liquidity during 2013 versus an objective of $500 million through $1 billion in proceeds from real estate and $1 billion in a five-year term loan. We reduced inventory at our peak by $620 million versus an objective of $500 million. We also reduced our fixed expenses by approximately $200 million, in line with our stated objective.

We continue to look for opportunities to generate more productivity and create value from our vast real estate portfolio. This will require a combination of improving our operating performance and working with other retailers and brands to find opportunities, whether through leasing arrangements, in-store shops or property sales. This may also include a variety of financing arrangements that improve our overall capital structure.

Through our efforts over the past several years and through other initiatives, we believe we have demonstrated the financial flexibility we have to fund our transformation and to create long-term shareholder value. We have met our maturing obligations (in particular the pension funding that I have discussed in the past, made worse by a Federal Reserve policy of artificially depressing long-term interest rates) and we believe we have positioned ourselves to give our transformation time to bear fruit.

HOW 2013 SETS US UP FOR 2014

The specific and highly disappointing way that 2013 ended and 2014 began for many American retail companies is what gives me the most confidence in Sears Holdings’ long-term strategy and direction.

Over the course of the 2013 holiday season, many retailers—including and especially Amazon—competed intensely on the basis of price. As a result, many retailers reported disappointing sales and profits for the important fourth quarter of the year.

We also competed on speed and this is where I think the seeds of Sears Holdings’ competitive advantage may take root.

In 2013, Christmas Day fell on Wednesday. Most retailers—us included—couldn’t promise in-time delivery of gifts purchased online the weekend before Christmas. Amazon, however, let customers order up through 11 p.m. Monday for in-time delivery.

Then some of the gifts didn’t get there before Christmas. Why they didn’t get there doesn’t matter as much as the fact that they didn’t.

The fact that many of us are not generating enough profit to meet the needs and expectations of our associates and our shareholders doesn’t really matter to customers.

The fact that the industry as a whole has failed to keep the promises it made to those customers matters a lot.

Worse, it puts all of retail into a broader context of failing to meet consumers’ expectations.

Our focus on serving members through Shop Your Way and integrating retail experiences positions us to help our members manage their lives, build relationships and transform our company.

2014 AND THE ROAD AHEAD: NEW MEMBER OFFERINGS

In one of my first letters to you as Chairman of Sears Holdings, back in 2005, I wrote “Our goal is to make our products, brands and services more responsive to the needs of our customers and to build a long-term trusting relationship with our customers.”

We have been focused on building long-term trust for nearly a decade, which becomes even more impactful in an era in which customers have shopping choices beyond physical stores and are wary of retailers in general. We ask our members what they want and we listen to their responses. We try hard to anticipate their needs. Our associates have done amazing work in this area and I once again want to thank them for their efforts.

One of the newest member experiences we’ve developed comes from this process. In-vehicle pickup allows members to notify us when they have arrived at our stores through the Shop Your Way app, and then have their purchases delivered directly to their cars. We anticipate that experiences like this will become even more popular. Importantly, it’s an option we provide our members because it’s something they’ve told us they want.

We made a choice several years ago to focus Sears Holdings on becoming a member-centric company built on the five strategic pillars noted above. Our strategy has evolved further as the retail industry has changed and our ability to compete—with fewer stores, with less space per store and with a marketplace of products—has become more clear. It is up to us to execute on this strategy and to restore profitability to the company.

Many longtime readers of these letters will notice that this one is a bit shorter than usual. That’s by design. In recent months, we have launched ways to update you more often at blog.searsholdings.com and, personally, at edwardslampert.com.

We periodically will update you on our continued transformation and breaking news. We clearly can’t react to everything that is said about us or report every development, but we want to try to keep our shareholders and associates informed of what we are doing in the context of the significant changes occurring in our company and in the retail industry.

Along with this letter, please take a few moments to review the slide presentation and listen to the prepared remarks we’ve posted at searsholdings.com for the fourth quarter and full year 2013 results.

Finally, I again want to thank our associates for all of their hard work and our shareholders for their confidence and patience.

Respectfully,

Edward S. Lampert

Cautionary Statement Regarding Forward-Looking Statements: Certain statements contained in this letter contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that use words and phrases such as the company “anticipates,” "believes," "continue," "expects," "intends," "plans," "transform," "going to be" and similar expressions or future or conditional verbs such as "will," "may," and "could" are generally forward-looking in nature and not historical facts and are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement our integrated retail strategy; our ability to successfully implement initiatives to improve our liquidity through inventory management and other actions; competitive conditions in the retail and related services industries; worldwide economic conditions and business uncertainty, including the availability of consumer and commercial credit, changes in consumer confidence and spending, the impact of rising fuel prices, and changes in vendor relationships; our ability to complete possible transactions with respect to Lands' End and/or Sears Auto Centers on terms that are acceptable to us, on intended timetables or at all and the impact of the evaluation and/or completion of those transactions on our other businesses or third party relationships; our ability to successfully achieve our plans to generate liquidity, reduce inventory and reduce fixed costs; conditions and possible limits, including borrowing base limits, on our access to capital markets and other financing sources, including additional second lien financings, with respect to which we do not have commitments from lenders; vendors' lack of willingness to provide acceptable payment terms or otherwise restricting financing to purchase inventory or services; the impact of seasonal buying patterns, including seasonal fluctuations due to weather conditions, which are difficult to forecast with certainty; our dependence on sources outside the United States for significant amounts of our merchandise; our extensive reliance on computer systems, including legacy systems, to implement our integrated retail strategy, process transactions, summarize results and manage our business, which may be subject to disruptions or security

breaches; our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business and the transfer of significant internal historical knowledge of such parties; impairment charges for goodwill and intangible assets or fixed-asset impairment for long-lived assets; our ability to attract, motivate and retain key executives and other associates; our ability to protect or preserve the image of our brands; the outcome of pending and/or future legal proceedings, including product liability claims and proceedings with respect to which the parties have reached a preliminary settlement; and the timing and amount of required pension plan funding; and other risks, uncertainties and factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available.