EX-99.1 2 exhibit991-q42013shcearnin.htm PRESS RELEASE Exhibit 99.1 - Q4 2013 SHC Earnings Release


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



1


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,

2


"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

3


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.

4


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
%

5


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

6


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

7


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 Waysm, 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 VergaraTM and The Country Living Home CollectionTM. 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.


* * * * *

8


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




9


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




10


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