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): August 29, 2013

SEARS HOMETOWN AND OUTLET STORES, INC.

(Exact name of registrant as specified in charter)

Delaware	001-35641	80-0808358
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
5500 Trillium Boulevard, Suite 501 Hoffman Estates, Illinois		60192
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (847) 286-7000

(Former name or former address, if changed since last report):

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

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

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

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

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

Item 1.01 Entry into a Material Definitive Agreement.

On August 29, 2013 the Company entered into an amendment (the “Amendment”) to its Credit Agreement dated as of October 11, 2012 among the Company, its subsidiaries, Bank of America, N.A., as Agent, Swing Line Lender, and L/C Issuer, and the other lenders party thereto (the “Senior ABL Facility”). The Amendment eliminates, effective August 29, 2013, the Company's negative covenant in Section 7.06 of the Senior ABL Facility that provides that the Company will not, among other things, declare any cash dividend or repurchase any of the Company's common stock, in each case prior to October 12, 2013. The Amendment does not eliminate the Company's other negative covenants in Section 7.06 of the Senior ABL Facility which, among other things, state that the Company may declare and pay cash dividends to its stockholders and may repurchase its common stock only if the following conditions are satisfied: either (a) (i) no specified default then exists or would arise as a result of the declaration or payment of the cash dividend or as a result of the stock repurchase, (ii) the Company and its subsidiaries that are also borrowers have demonstrated to the reasonable satisfaction of the agent for the lenders that monthly availability (as determined in accordance with the Senior ABL Facility), immediately following the declaration and payment of the cash dividend or the stock repurchase and as projected on a pro forma basis for the twelve months following and after giving effect to the declaration and payment of the cash dividend or the stock purchase, would be at least equal to the greater of (x) 25% of the Loan Cap (which is the lesser of (A) the aggregate commitments of the lenders and (B) the borrowing base) and (y) $25,000,000, and (iii) after giving pro forma effect to the declaration and payment of the cash dividend or the stock repurchase as if it constituted a specified debt service charge, the specified consolidated fixed charge coverage ratio, as calculated on a trailing twelve months basis, would be equal to or greater than 1.1:1.0, or (b) (i) no specified default then exists or would arise as a result of the declaration or payment of the cash dividend or the stock repurchase, (ii) payment of the cash dividend or the stock repurchase is not made with the proceeds of any credit extension under the Senior ABL Facility, (iii) during the 120-day period prior to declaration and payment of the cash dividend or the stock repurchase, no credit extension was outstanding under the Senior ABL Facility, and (iv) the Company demonstrates to the reasonable satisfaction of the agent for the lenders that, on a pro forma and projected basis, no credit extensions would be outstanding under the Senior ABL Facility for the 120-day period following the declaration and payment of the cash dividend or the stock repurchase.

The above description of the Amendment is qualified in its entirety by reference to the complete text of the Amendment filed as Exhibit 10.1 hereto, which is hereby incorporated herein by reference. The above description of the Senior ABL Facility is qualified in its entirety by reference to the complete text of the Senior ABL Facility, which is filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 15, 2012 and which is hereby incorporated herein by reference.

Item 2.02 Results of Operations and Financial Condition.

On August 30, 2013 the Company issued a news release regarding its second quarter earnings for the 2013 fiscal year. The news release is attached hereto as Exhibit 99.1.

Item 8.01 Other Events.

On August 28, 2013 the Company's Board of Directors authorized a $25 million repurchase program for the Company's outstanding common stock. The timing and amount of repurchases will depend on various factors, including market conditions, the Company's capital position and internal cash generation, and other factors. The Company's repurchase program does not include specific price targets, may be executed through open-market, privately negotiated, and other transactions that may be available, and may include utilization of Rule 10b5-1 programs. The repurchase program does not obligate the Company to repurchase any dollar amount, or any number of shares, of the Company's common stock. The repurchase program does not have a termination date, and the Company may suspend or terminate the repurchase program at any time.

All shares of common stock repurchased by the Company pursuant to the repurchase program will be retired and resume the status of authorized and unissued shares of common stock.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

The Exhibits listed in the accompanying "Exhibit Index" have been filed as part of this Current Report on Form 8-K.

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 HOMETOWN AND OUTLET STORES, INC.
By:	/s/ Steven D. Barnhart
	Steven D. Barnhart
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

Date: August 29, 2013

1

EXHIBIT INDEX

Exhibit	Description of Document
10.1	First Amendment to Credit Agreement, dated August 29, 2013, among Sears Authorized Hometown Stores, LLC and the other borrowers named therein, as borrowers, Sears Hometown and Outlet Stores, Inc., as parent and a guarantor, Troy Coolidge No. 6, LLC, as a guarantor, Bank of America, N.A., as Agent, Swing Line Lender, and L/C Issuer, and other lenders party thereto, as lenders.
99.1	News release dated August 30, 2013.

2

EX-10.1

Exhibit 10.1

EXECUTION COPY

FIRST AMENDMENT TO CREDIT AGREEMENT

This First Amendment to Credit Agreement (this “Amendment”) is made as of this 29^th day of August, 2013, by and among:

SEARS AUTHORIZED HOMETOWN STORES, LLC, a Delaware limited liability company, for itself and as agent (in such capacity, the “Lead Borrower”) for the other Borrowers party hereto;

the BORROWERS party hereto;

the GUARANTORS party hereto;

the LENDERS party hereto; and

BANK OF AMERICA, N.A., as Agent, Swing Line Lender and L/C Issuer;

in consideration of the mutual covenants herein contained and benefits to be derived herefrom.

W I T N E S S E T H:

WHEREAS, reference is made to that certain Credit Agreement, dated as of October 11, 2012 (as amended, amended and restated, modified, supplemented or restated and in effect from time to time, the “Credit Agreement”), by and among (i) the Borrowers, (ii) the Guarantors, (iii) the Lenders party thereto (the “Lenders”), and (iv) Bank of America, N.A., as Agent, Swing Line Lender and L/C Issuer; and

WHEREAS, the parties hereto have agreed to amend certain provisions of the Credit Agreement as set forth herein.

NOW, THEREFORE, it is hereby agreed as follows:

1. Definitions. All capitalized terms used herein and not otherwise defined shall have the same meaning herein as in the Credit Agreement.

2. Amendment to Article VII of Credit Agreement. The provisions of Section 7.06 of the Credit Agreement are hereby amended by deleting the phrase “following the first anniversary of the Closing Date,” from clause (d) thereof.

3. Ratification of Loan Documents. Except as otherwise expressly provided herein, all terms and conditions of the Credit Agreement and the other Loan Documents remain in full force and effect. The Loan Parties hereby ratify, confirm, and reaffirm that all representations and warranties of the Loan Parties contained in the Credit Agreement or any other Loan Document are true and correct in all material respects on and as of the date hereof, except (i) to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date, and (ii) in the case of any representation and warranty qualified by materiality, in which case

1

they are true and correct in all respects. The Guarantors hereby acknowledge, confirm and agree that the Guaranteed Obligations of the Guarantors under, and as defined in, the Guaranty and Security Agreement include, without limitation, all Obligations of the Borrowers at any time and from time to time outstanding under the Credit Agreement and the other Loan Documents, as such Obligations have been amended pursuant to this Amendment. The Loan Parties hereby acknowledge, confirm and agree that the Security Documents and any and all Collateral previously pledged to the Agent, for the benefit of the Credit Parties, pursuant thereto, shall continue to secure all Secured Obligations (as defined in the Guaranty and Security Agreement) at any time and from time to time outstanding under the Credit Agreement and the other Loan Documents.

4. Conditions to Effectiveness. This Amendment shall not be effective until each of the following conditions precedent has been fulfilled to the reasonable satisfaction of the Agent:

(a) The Agent shall have received counterparts of this Amendment duly executed and delivered by each of the parties hereto.

(b) All corporate or other organizational action on the part of the Loan Parties necessary for the valid execution, delivery and performance by the Loan Parties of this Amendment shall have been duly and effectively taken and evidence thereof reasonably satisfactory to the Agent shall have been provided to the Agent.

(c) All outstanding Credit Party Expenses (including, without limitation, in respect of the preparation, negotiation, administration, management, execution and delivery of this Amendment and any related documents, instruments and agreements), to the extent invoiced to the Lead Borrower, shall have been paid.

(d) No Default or Event of Default shall have occurred and be continuing.

(e) The Agent shall have received such additional documents, instruments, and agreements as any Agent may have reasonably requested prior to the date hereof in connection with the transactions contemplated hereby.

5. Representations and Warranties. The Parent and the Borrowers, on behalf of each Loan Party, represent and warrant to the Agent, the L/C Issuer and the Lenders that:

(a) The execution, delivery and performance by each Loan Party of this Amendment and the other Loan Documents executed in connection herewith and the performance of each Loan Party’s obligations hereunder and thereunder have been duly authorized by all necessary corporate or other organizational action, do not and shall not: (i) contravene the terms of any of such Person's Organization Documents; (ii) conflict with or result in any breach, termination, or contravention of, or constitute a default under, or require any payment to be made under (x) any Material Contract or any Material Indebtedness to which such Person is a party, or (y) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; (iii) result in or require the creation of any Lien

2

upon any asset of any Loan Party (other than Liens in favor of the Agent under the Security Documents and Liens permitted by Section 7.01 of the Credit Agreement); or (iv) violate any Law.

(b) No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Amendment or any other Loan Document executed in connection herewith to which it is a party, except for such as have been obtained or made and are in full force and effect.

(c) No Default or Event of Default has occurred and is continuing.

6. Miscellaneous.

(a) This Amendment may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopy or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

(b) This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Amendment and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page of this Amendment by telecopy, pdf or other electronic transmission shall be as effective as delivery of a manually executed counterpart of this Amendment.

(c) If any provision of this Amendment is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(d) The Loan Parties represent and warrant that they have consulted with independent legal counsel of their selection in connection with this Amendment and are not relying on any representations or warranties of the Agent or the Lenders or their counsel in entering into this Amendment.

3

(e) THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[SIGNATURE PAGES FOLLOW]

4

IN WITNESS WHEREOF, the parties have hereunto caused this Amendment to be executed and their seals to be hereto affixed as of the date first above written.

SEARS AUTHORIZED HOMETOWN STORES, LLC, as Lead Borrower and as a Borrower

By:    /s/ Steven D. Barnhart

Name:    Steven D. Barnhart

Title:    Senior Vice President and Treasurer

SEARS HOME APPLIANCE SHOWROOMS, LLC, as a Borrower

By:    /s/ Steven D. Barnhart

Name:    Steven D. Barnhart

Title: Senior Vice President, Chief Financial Officer and Treasurer

SEARS OUTLET STORES, L.L.C., as a Borrower

By:    /s/ Steven D. Barnhart

Name:    Steven D. Barnhart

Title:    Senior Vice President and Treasurer

SEARS HOMETOWN AND OUTLET STORES, INC., as Parent and as a Guarantor

By:    /s/ Steven D. Barnhart

Name:    Steven D. Barnhart

Title: Senior Vice President and Chief Financial Officer

Signature Page to First Amendment to Credit Agreement

TROY COOLIDGE NO. 6, LLC., as a Guarantor

By:    Sears Outlet Stores, L.L.C., its sole member

By:    /s/ Steven D. Barnhart

Name:    Steven D. Barnhart

Title:    Senior Vice President and Treasurer

Signature Page to First Amendment to Credit Agreement

BANK OF AMERICA, N.A., as Agent, L/C Issuer, Swing Line Lender and as a Lender

By:     /s/ Brian Lindblom

Name: Brian Lindblom

Title:     Vice President

Signature Page to First Amendment to Credit Agreement

CIT FINANCE LLC, as a Lender

By:     /s/ Renee Singer

Name: Renee Singer

Title:     Managing Director

Signature Page to First Amendment to Credit Agreement

SIEMENS FINANCIAL SERVICES, INC., as a Lender

By:     /s/ Sharon Prusakonski

Name: Sharon Prusakonski

Title:     V.P.

By:     /s/ Maria Levy

Name: Maria Levy

Title:     V.P.

Signature Page to First Amendment to Credit Agreement

SOVEREIGN BANK N.A., as a Lender

By:     /s/ Gilbert Torres

Name: Gilbert Torres

Title:     Senior Vice President

Signature Page to First Amendment to Credit Agreement

CAPITAL ONE LEVERAGE FINANCE CORP., as a Lender

By:     /s/ Michael S. Burns

Name: Michael S. Burns

Title:     Senior Vice President

Signature Page to First Amendment to Credit Agreement

KEYBANK NATIONAL ASSOCIATION, as a Lender

By:     /s/ Andrew Blickensderfer

Name: Andrew Blickensderfer

Title:     Assistant Vice President

Signature Page to First Amendment to Credit Agreement

PEOPLE’S UNITED BANK, as a Lender

By:     /s/ Paul E. Flynn

Name: Paul E. Flynn

Title:     EVP

Signature Page to First Amendment to Credit Agreement

BARCLAYS BANK PLC, as a Lender

By:     /s/ Ronnie Glenn

Name: Ronnie Glenn

Title:     Vice President

Signature Page to First Amendment to Credit Agreement

EX-99.1

Exhibit 99.1

INVESTOR RELATIONS CONTACT:

Steven D. Barnhart,

Senior Vice President and Chief Financial Officer

847-286-8700

FOR IMMEDIATE RELEASE:

August 30, 2013

SEARS HOMETOWN AND OUTLET STORES, INC. REPORTS SECOND QUARTER 2013 RESULTS AND ANNOUNCES STOCK REPURCHASE PROGRAM

HOFFMAN ESTATES, Ill. - Sears Hometown and Outlet Stores, Inc. (NASDAQ: SHOS) today reported results for its quarter ended August 3, 2013 and announced that its Board of Directors approved a stock repurchase program.

Results for the second quarter included:

• Operating income decreased 54% to $15.4 million compared to $33.7 million in the prior year

• Net income attributable to stockholders decreased 57% to $9.1 million ($0.40 income per diluted share) compared to $21.1 million ($0.91 income per diluted share) in the prior year

• Adjusted EBITDA decreased 52% to $17.5 million compared to $36.7 million in the prior year

• Comparable store sales increased 1.4% versus the prior year

Year-to-date results through the second quarter included:

• Operating income decreased 41% to $40.1 million compared to $68.2 million in the prior year

• Net income attributable to stockholders decreased 42% to $24.1 million ($1.04 income per diluted share) compared to $41.7 million ($1.80 income per diluted share) in the prior year

• Adjusted EBITDA decreased 39% to $44.5 million compared to $73.5 million in the prior year

• Comparable store sales decreased 1.8% versus the prior year

Bruce Johnson, Chief Executive Officer and President, said, "Second quarter net sales growth of 1.9% reflected comparable store growth of 1.4%, plus the benefit of new store openings. We saw increased sales in most categories, including double-digit growth in lawn and garden and growth in comparable store sales in home appliances. Margins declined, primarily due to an unfavorable product mix in Outlet, our response to an increasingly competitive appliance retail landscape, and lower initial franchise revenues. We are adjusting pricing/promotional plans, enhancing Outlet sourcing capabilities, and focusing on higher margin categories and product lines to improve profitability. Profitability was also affected by $6.4 million of expenses incurred as a result of operating as an independent public company, which expenses were not incurred in the prior year."

Second Quarter Results

We operate through two segments--our Sears Hometown and Hardware segment ("Hometown") and our Sears Outlet segment ("Outlet").

Net sales in the second quarter of 2013 increased $12.4 million, or 1.9%, to $656.9 million from the second quarter of 2012. This increase was driven primarily by a 1.4% increase in comparable store sales and new stores (net of closures). Partially offsetting these increases were lower initial franchise revenues (which were $1.8 million in the second quarter of 2013 compared to $4.6 million in the second quarter of 2012), lower Outlet apparel liquidation revenues, and an unfavorable impact of the calendar shift due to the 53rd week in 2012.

The comparable store sales increase of 1.4% was comprised of a 0.4% decrease in Hometown and a 8.2% increase in Outlet. The 1.4% increase was primarily driven by increased sales in lawn and garden and home appliances partially offset by consumer-electronics comparable sales that were down over 50% (following a planned exit of the business in the majority of Hometown stores), and lower apparel sales in Outlet.

We recorded operating income of $15.4 million and $33.7 million in the second quarters of 2013 and 2012, respectively. The $18.3 million decrease in operating income was driven by a decrease in gross margin rate and an increase in selling and administrative expenses partially offset by higher sales. Included in these impacts on year-over-year operating income were an estimated $6.4 million of higher operating costs in the second quarter of 2013 incurred as a result of operating as an independent

public company since our separation from Sears Holdings Corporation ("Sears Holdings") in October 2012 (the "Separation").

Gross margin was $148.4 million, or 22.6% of net sales, in the second quarter of 2013 compared to $160.0 million, or 24.8% of net sales, in the second quarter of 2012. The decrease in gross margin rate was primarily driven by (1) lower margins on merchandise sales, (2) $3.6 million of Outlet distribution center costs that were separated from selling store costs and were reflected in selling and administrative expense in 2012, (3) $2.8 million of lower initial franchise revenues, (4) lower Outlet merchandise-liquidation income, (5) an $0.8 million benefit in the second quarter of 2012 from the impact of store closing reserves established in 2011 (which benefit did not recur in the second quarter of 2013), and (6) $0.6 million primarily consisting of additional occupancy costs incurred as a result of operating as an independent company since the Separation. These decreases were partially offset by lower occupancy costs resulting from the conversion of Company-owned stores to franchisee-owned stores, a favorable impact on the overall gross margin rate resulting from increased protection agreement revenues, and the pass-through by Sears Holdings of higher cash discounts on Sears Holdings' purchases of merchandise sold to us.

Selling and administrative expenses increased to $130.9 million, or 19.9% of net sales, in the second quarter of 2013 from $124.1 million, or 19.3% of net sales, in the prior year quarter. The increase was primarily due to higher owner commissions in both Hometown and Outlet (primarily related to the conversion of Company-owned stores to franchisee-owned stores) and an estimated $5.8 million of higher operating costs incurred as a result of operating as an independent company. These increases were partially offset by (1) $3.6 million in Outlet distribution-center costs that were separated from selling store costs and were reflected in selling and administrative expense in the second quarter of 2012 and reflected in gross margin in the second quarter of 2013, (2) a reduction in payroll and benefits related to the franchise conversions, and (3) a $0.8 million store closing reserve taken in the second quarter of 2012.

Financial Position

We had cash and cash equivalents of $23.8 million as of August 3, 2013, $0.6 million as of July 28, 2012, and $20.1 million as of February 2, 2013. Availability as of August 3, 2013 under our Credit Agreement, dated as of October 11, 2012, among the Company, its subsidiaries, Bank of America, N.A., and other lenders (the “Senior ABL Facility”) was $211.7 million with $34.9 million drawn and $3.4 million of letters of credit outstanding under the facility. Through the second quarter of 2013, we financed our operations and investments primarily with short-term borrowings under the Senior ABL Facility. Our primary need for liquidity was to fund inventory purchases and capital expenditures and for general corporate purposes.

Total merchandise inventories were $445.6 million at August 3, 2013 and $404.0 million at July 28, 2012. Merchandise inventories increased primarily due to (1) planned higher inventory in home appliances, (2) an increase in the number of stores, (3) assortment expansion in tools and mattresses, (4) higher air conditioner and dehumidifier inventory resulting from softer sales in the second quarter of 2013, (5) seasonal purchases of mowers and patio furniture along with late-season tractor receipts in lawn and garden and (6) an increase in the cost of KENMORE® and CRAFTSMAN® merchandise purchased from Sears Holdings resulting from a post-Separation change in the treatment of warranty costs. Post-Separation, Kenmore and Craftsman products are purchased with warranty included, which results in a higher product cost but eliminates any later warranty costs. The higher product cost and the warranty savings are expected to be comparable. The inventory increases were partially offset by a reduction in consumer electronics resulting from the exit of this category in the majority of Hometown stores and lower apparel inventory in Outlet due to a decline in receipts compared to the prior year.

Adjusted EBITDA

In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance

we generally use Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or “Adjusted EBITDA.” Following the Separation our management has used Adjusted EBITDA to evaluate the operating performance of our business for comparable periods. While Adjusted EBITDA is a non-GAAP measurement, management believes that it can be an important indicator of operating performance because it excludes (1) the effects of financing and investing activities by eliminating interest and depreciation costs and (2) store closing charges and severance costs that may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. During our fiscal quarters ended August 3, 2013 and July 28, 2012 we incurred zero and $0.8 million of store closing charges and severance costs, respectively. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as Adjusted EBITDA excludes a number of important cash and non-cash recurring items. Adjusted EBITDA should not be considered as a substitute for GAAP measurements.

The following table presents a reconciliation of Adjusted EBITDA to Net income, the most comparable GAAP measure,

for each of the periods indicated:

	13 Weeks Ended						26 Weeks Ended
Thousands	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
Net income	$	9,135		$	21,067		$	24,132		$	41,660
Income tax expense	6,073			13,606			15,621			27,060
Other income	(431		)	(988		)	(846		)	(1,214		)
Interest expense	642			—			1,231			669
Operating income	15,419			33,685			40,138			68,175
Depreciation	2,050			2,228			4,392			4,533
Store closing charges and severance costs	—			797			—			797
Adjusted EBITDA	$	17,469		$	36,710		$	44,530		$	73,505

Stock Repurchase Program

The Company announced that its Board of Directors authorized a $25 million repurchase program for the Company's outstanding common stock. The timing and amount of repurchases will depend on various factors, including market conditions, the Company's capital position and internal cash generation, and other factors. The Company's repurchase program does not include specific price targets, may be executed through open-market, privately negotiated, and other transactions that may be available, and may include utilization of Rule 10b5-1 programs. The repurchase program does not obligate the Company to repurchase any dollar amount, or any number of shares, of common stock. The repurchase program does not have a termination date, and the Company may suspend or terminate the repurchase program at any time.

Shares that are repurchased by the Company pursuant to the repurchase program will be retired and resume the status of authorized and unissued shares of common stock.

Amendment to Senior ABL Facility

The Company also announced that it has entered into an amendment (the “Amendment”) to the Senior ABL Facility. The Amendment eliminates, effective August 29, 2013, the Company's negative covenant in Section 7.06 of the Senior ABL Facility that provides that the Company will not, among other things, declare any cash dividend or repurchase any of the Company's common stock, in each case prior to October 12, 2013. The Amendment does not eliminate the Company's other negative covenants in Section 7.06 of the Senior ABL Facility which, among other things, state that the Company may declare and pay cash dividends to its stockholders and may repurchase its common stock only if the following conditions are satisfied: either (a) (i) no specified default then exists or would arise as a result of the declaration or payment of the cash dividend or as a result of the stock repurchase, (ii) the Company and its subsidiaries that are also borrowers have demonstrated to the reasonable satisfaction of the agent for the lenders that monthly availability (as determined in accordance with the Senior ABL Facility), immediately following the declaration and payment of the cash dividend or the stock repurchase and as projected on a pro forma basis for the twelve months following and after giving effect to the declaration and payment of the cash dividend or the stock repurchase, would be at least equal to the greater of (x) 25% of the Loan Cap (which is the lesser of (A) the aggregate commitments of the lenders and (B) the borrowing base) and (y) $25,000,000, and (iii) after giving pro forma effect to the declaration and payment of the cash dividend or the stock repurchase as if it constituted a specified debt service charge, the specified consolidated fixed charge coverage ratio, as calculated on a trailing twelve months basis, would be equal to or greater than 1.1:1.0, or (b) (i) no specified default then exists or would arise as a result of the declaration or payment of the cash dividend or the stock repurchase, (ii) payment of the cash dividend or the stock repurchase is not made with the proceeds of any credit extension under the Senior ABL Facility, (iii) during the 120-day period prior to declaration and payment of the cash dividend or the stock repurchase, no credit extension was outstanding under the Senior ABL Facility, and (iv) the Company demonstrates to the reasonable satisfaction of the agent for the lenders that, on a pro forma and projected basis, no credit extensions would be outstanding under the Senior ABL Facility for the 120-day period following the declaration and payment of the cash dividend or the stock repurchase.

Forward-Looking Statements

This news release contains forward-looking statements (the “forward-looking statements”). The forward-looking statements are subject to significant risks and uncertainties that may cause our actual results, performance, and achievements in the future to be materially different from the future results, future performance, and future achievements expressed or implied by the forward-looking statements. Forward-looking statements include, without limitation, information concerning our future financial performance, business strategy, plans, goals and objectives. The forward-looking statements are based upon the current beliefs and expectations of our management. The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: our continued reliance on Sears Holdings Corporation ("Sears Holdings") for most products and services that are important to the successful operation of our business; our potential need to depend on Sears Holdings beyond the expiration or earlier termination by Sears Holdings of certain of our agreements with Sears Holdings; the willingness and ability of Sears Holdings to meet what we believe are Sears Holdings' contractual obligations to us; our ability to successfully resolve existing and, if any arise, future contractual disputes with Sears Holdings; our ability to offer merchandise and services that our customers want, including those under the KENMORE®, CRAFTSMAN®, and DIEHARD® brands (which brands are owned by subsidiaries of Sears Holdings); the sale by Sears Holdings and its subsidiaries to other retailers that compete with us of major home appliances and other products branded with the Kenmore, Craftsman, or DieHard brands; our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities; competitive conditions in the retail industry; worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, changes in consumer confidence, tastes, preferences and spending, and changes in vendor relationships; the fact that our past performance generally, as reflected on our historical financial statements, may not be indicative of our future performance as a result of, among other things, the consolidation of Hometown and Outlet into a single business entity, the Separation, operating as a standalone business entity, and the impact of increased costs due to a decrease in our purchasing power following the Separation and other losses of benefits associated with being wholly owned by Sears Holdings and its subsidiaries; our agreements related to the rights offering and Separation transactions and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received different terms from unaffiliated third parties; anticipated limitations and restrictions in the Senior ABL Facility and related agreements governing our indebtedness and our ability to service our indebtedness; our ability to obtain additional financing on acceptable terms; our dependence on independent dealers and independent franchisees to operate their stores profitably and in a manner consistent with our concepts and standards; our dependence on sources outside the U.S. for significant amounts of our merchandise inventories; impairment charges for goodwill or fixed-asset impairment for long-lived assets; our ability to attract, motivate and retain key executives and other employees; the impact of increased costs associated with being an independent company; our ability to maintain effective internal controls as a public company; our ability to realize the benefits that we expect to achieve from the Separation; low trading volume of our common stock due to limited liquidity or a lack of analyst coverage; the impact on our common stock and our overall performance as a result of our principal stockholders' ability to exert control over us; and other risks, uncertainties, and factors discussed in our most recent Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission. We intend the forward-looking statements to speak only as of the date of this news release, and we do not undertake to update or revise the forward-looking statements as more information becomes available.

About Sears Hometown and Outlet Stores, Inc.

Sears Hometown and Outlet Stores, Inc. is a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. Our Hometown stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, and household goods, depending on the particular format. Our Outlet stores are designed to provide our customers with in-store and online access to new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked, and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, sporting goods and tools at prices that are significantly lower than manufacturers' suggested retail prices. As of August 3, 2013, we and our dealers and franchisees operated 1,250 stores across all 50 states as well as in Puerto Rico and Bermuda. Our principal executive offices are located at 5500 Trillium Boulevard, Suite 501, Hoffman Estates, Illinois 60192 and our telephone number is (847) 286-7000.

* * * * *

Sears Hometown and Outlet Stores, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

	13 Weeks Ended						26 Weeks Ended
Thousands, except per share amounts	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
NET SALES	$	656,899		$	644,464		$	1,258,016		$	1,265,542
COSTS AND EXPENSES
Cost of sales and occupancy	508,502			484,478			955,370			946,857
Selling and administrative	130,928			124,073			258,116			245,977
Depreciation	2,050			2,228			4,392			4,533
Total costs and expenses	641,480			610,779			1,217,878			1,197,367
Operating income	15,419			33,685			40,138			68,175
Interest income (expense)	(642		)	—			(1,231		)	(669		)
Other income	431			988			846			1,214
Income before income taxes	15,208			34,673			39,753			68,720
Income tax expense	(6,073		)	(13,606		)	(15,621		)	(27,060		)
NET INCOME	$	9,135		$	21,067		$	24,132		$	41,660
NET INCOME PER COMMON SHARE
ATTRIBUTABLE TO STOCKHOLDERS
Basic:	$	0.40		$	0.91		$	1.04		$	1.80
Diluted:	$	0.40		$	0.91		$	1.04		$	1.80
Basic weighted average common shares outstanding (1)	23,100			23,100			23,100			23,100
Diluted weighted average common shares outstanding (1)	23,106			23,100			23,102			23,100

(1) 23,100,000 shares outstanding effective upon completion of the Separation are used for all periods prior to the Separation.

Sears Hometown and Outlet Stores, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

Thousands, except per share amounts	August 3, 2013		July 28, 2012		February 2, 2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	23,828	$	564	$	20,068
Accounts receivable	14,406		12,300		10,986
Merchandise inventories	445,607		404,036		428,437
Prepaid expenses and other current assets	14,213		2,051		14,321
Total current assets	498,054		418,951		473,812
PROPERTY AND EQUIPMENT, net	49,940		57,548		53,383
GOODWILL	167,000		167,000		167,000
LONG-TERM DEFERRED TAXES	66,068		—		69,001
OTHER ASSETS	26,680		26,343		22,607
TOTAL ASSETS	$	807,742	$	669,842	$	785,803
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings	$	34,900	$	—	$	20,000
Payable to Sears Holdings Corporation	77,234		—		79,491
Accounts payable	21,784		22,760		31,830
Other current liabilities	75,998		78,236		83,211
Current portion of capital lease obligations	1,230		1,711		1,463
Deferred income taxes	—		17,595		—
Total current liabilities	211,146		120,302		215,995
CAPITAL LEASE OBLIGATIONS	250		1,170		769
OTHER LONG-TERM LIABILITIES	5,652		3,809		2,752
TOTAL LIABILITIES	217,048		125,281		219,516
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: $.01 par value;	232		—		231
Authorized shares: 404,000
Issued shares: 23,189
Outstanding shares: 23,189
Capital in excess of par value	556,849		—		556,575
Retained earnings	33,613		—		9,481
Divisional Equity, prior to the Separation	—		544,561		—
TOTAL STOCKHOLDERS' EQUITY	590,694		544,561		566,287
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	807,742	$	669,842	$	785,803

Sears Hometown and Outlet Stores, Inc.

Segment Results

(Unaudited)

Hometown
	13 Weeks Ended						26 Weeks Ended
Thousands, except for number of stores	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
Net sales	$	503,934		$	508,376		$	948,737		$	988,233
Comparable store sales %	(0.4		)%	(0.7		)%	(3.6		)%	(0.3		)%
Cost of sales and occupancy	388,505			387,321			722,389			749,907
Gross margin dollars	115,429			121,055			226,348			238,326
Margin rate	22.9		%	23.8		%	23.9		%	24.1		%
Selling and administrative	104,215			96,836			204,356			193,250
Selling and administrative expense as a percentage of net sales	20.7		%	19.0		%	21.5		%	19.6		%
Depreciation	745			791			1,611			1,626
Total costs and expenses	493,465			484,948			928,356			944,783
Operating income	$	10,469		$	23,428		$	20,381		$	43,450
Total Hometown stores	1,121			1,105			1,121			1,105
Outlet
	13 Weeks Ended						26 Weeks Ended
Thousands, except for number of stores	August 3, 2013			July 28, 2012			August 3, 2013			July 28, 2012
Net sales	$	152,965		$	136,088		$	309,279		$	277,309
Comparable store sales %	8.2		%	(3.3		)%	4.7		%	1.2		%
Cost of sales and occupancy	119,997			97,157			232,981			196,950
Gross margin dollars	32,968			38,931			76,298			80,359
Margin rate	21.6		%	28.6		%	24.7		%	29.0		%
Selling and administrative	26,713			27,237			53,760			52,727
Selling and administrative expense as a percentage of net sales	17.5		%	20.0		%	17.4		%	19.0		%
Depreciation	1,305			1,437			2,781			2,907
Total costs and expenses	148,015			125,831			289,522			252,584
Operating income	$	4,950		$	10,257		$	19,757		$	24,725
Total Outlet stores	129			123			129			123