10-Q/A

UNITEDSTATES

SECURITIESANDEXCHANGECOMMISSION

WASHINGTON, DC 20549

_______________________________________________

FORM 10-Q/A

(Amendment No. 1)

_______________________________________________ 

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED JULY 29, 2017

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35641

_______________________________________________

SEARS HOMETOWN AND OUTLET STORES, INC.

(Exact Name of Registrant as Specified in Its Charter)

_______________________________________________

DELAWARE	80-0808358
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. 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

_______________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer (Do not check if a smaller reporting company)	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of September 7, 2017 the registrant had 22,702,132 shares of common stock, par value $0.01 per share, outstanding.

EXPLANATORY NOTE

This Form 10-Q/A (Amendment No. 1) (this "Amended Report") is being filed to correct a formulaic error in the Company's Quarterly Report on Form 10-Q for the period ended July 29, 2017 filed with the Securities and Exchange Commission on September 6, 2017 (the "Original Report").

In the Original Report, Part I, Item 1, Note 12 - STORE CLOSING CHARGES to the Condensed Consolidated Financial Statements included a rollforward table of closed store reserves for the first and second quarters of 2017. The Company has determined that the ending balances of the closed store reserves as of April 28, 2017 and July 29, 2017 as detailed in the table were incorrect due to a formulaic error. As a result, Note 12 - STORE CLOSING CHARGES has been revised (and follows below) to correct the ending balances of the closed store reserves as of April 28, 2017 and July 29, 2017. The Company does not believe that the Company’s Condensed Consolidated Financial Statements included in the Original Report were materially misstated as a result of the formulaic error.

In accordance with Rule 12b-15 of the Securities and Exchange Commission this Amended Report contains only the following: (1) the cover page; (2) Item 1 of Part I, of which only Note 12 is being amended; and (3) Item 6 of Part II to reflect updated Exhibits 31.1, 31.2, and 32 to this Amended Report. This Amended Report does not reflect events occurring after the filing of the Original Report and does not modify or update the disclosures therein other than the changes as noted above. Accordingly, this Amended Report should be read in conjunction with the Original Report.

SEARS HOMETOWN AND OUTLET STORES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

13 and 26 Weeks Ended July 29, 2017 and July 30, 2016

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations (Unaudited) for the 13 and 26 Weeks ended July 29, 2017 and July 30, 2016	1
	Condensed Consolidated Balance Sheets (Unaudited) at July 29, 2017, July 30, 2016 and January 28, 2017	2
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 26 Weeks Ended July 29, 2017 and July 30, 2016	3
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the 26 Weeks Ended July 29, 2017 and July 30, 2016	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 6.	Exhibits	18

SEARS HOMETOWN AND OUTLET STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

	13 Weeks Ended						26 Weeks Ended
Thousands, except per share amounts	July 29, 2017			July 30, 2016			July 29, 2017			July 30, 2016
NET SALES	$	489,985		$	556,388		$	938,218		$	1,093,369
COSTS AND EXPENSES
Cost of sales and occupancy	397,637			441,508			752,115			862,298
Selling and administrative	115,208			118,808			226,089			236,800
Depreciation and amortization	4,704			3,293			6,908			6,550
Gain on sale of assets	—			(25,269		)	—			(25,269		)
Total costs and expenses	517,549			538,340			985,112			1,080,379
Operating (loss) income	(27,564		)	18,048			(46,894		)	12,990
Interest expense	(1,874		)	(886		)	(3,465		)	(1,652		)
Other income	231			378			550			775
(Loss) earnings before income taxes	(29,207		)	17,540			(49,809		)	12,113
Income tax expense	(239		)	(6,898		)	(1,071		)	(5,042		)
NET (LOSS) INCOME	$	(29,446	)	$	10,642		$	(50,880	)	$	7,071
NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
Basic:	$	(1.30	)	$	0.47		$	(2.24	)	$	0.31
Diluted:	$	(1.30	)	$	0.47		$	(2.24	)	$	0.31
Basic weighted average common shares outstanding	22,702			22,696			22,702			22,681
Diluted weighted average common shares outstanding	22,702			22,699			22,702			22,682

See Notes to Condensed Consolidated Financial Statements.

1

SEARS HOMETOWN AND OUTLET STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Thousands	July 29, 2017		July 30, 2016		January 28, 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	18,287	$	18,690	$	14,104
Accounts and franchisee receivables, net	10,920		17,017		11,448
Merchandise inventories	356,893		427,234		373,815
Prepaid expenses and other current assets	9,995		18,562		9,370
Total current assets	396,095		481,503		408,737
PROPERTY AND EQUIPMENT, net	39,236		50,898		40,935
LONG-TERM DEFERRED TAXES	—		74,984		—
OTHER ASSETS, net	11,112		15,493		18,754
TOTAL ASSETS	$	446,443	$	622,878	$	468,426
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings	$	112,400	$	70,400	$	26,800
Payable to Sears Holdings Corporation	24,764		34,868		80,724
Accounts payable	11,408		38,418		17,853
Other current liabilities	75,777		66,667		70,377
Total current liabilities	224,349		210,353		195,754
OTHER LONG-TERM LIABILITIES	2,378		2,868		1,973
TOTAL LIABILITIES	226,727		213,221		197,727
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
TOTAL STOCKHOLDERS' EQUITY	219,716		409,657		270,699
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	446,443	$	622,878	$	468,426

See Notes to Condensed Consolidated Financial Statements.

2

SEARS HOMETOWN AND OUTLET STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	26 Weeks Ended
Thousands	July 29, 2017			July 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(50,880	)	$	7,071
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	6,908			6,550
Share-based compensation	(103		)	77
Deferred income taxes	—			4,158
Gain on sale of assets	—			(25,269		)
Provision for losses on franchisee receivables	5,701			(483		)
Change in operating assets and liabilities:
Accounts and franchisee receivables	676			(4,165		)
Merchandise inventories	16,922			7,612
Payable to Sears Holdings Corporation	(55,960		)	(19,258		)
Accounts payable	(6,445		)	(1,344		)
Closing store accrual	1,714			105
Other operating assets and liabilities, net	4,781			3,725
Net cash used in operating activities	(76,686		)	(21,221		)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets	—			26,073
Purchases of property and equipment	(4,641		)	(6,838		)
Net cash (used in) provided by investing activities	(4,641		)	19,235
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings	85,600			2,100
Net (payments) borrowings of capital lease obligations	(90		)	332
Net cash provided by financing activities	85,510			2,432
NET CHANGE IN CASH AND CASH EQUIVALENTS	4,183			446
CASH AND CASH EQUIVALENTS—Beginning of period	14,104			18,244
CASH AND CASH EQUIVALENTS—End of period	$	18,287		$	18,690
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	3,480		$	1,678
Cash paid (refunded) for income taxes	$	572		$	(1,845	)

See Notes to Condensed Consolidated Financial Statements.

3

SEARS HOMETOWN AND OUTLET STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

Thousands	Number of Shares of Common Stock		Common Stock/Par Value		Capital in Excess of Par Value			Accumulated Deficit			Total Stockholders' Equity
Balance at January 30, 2016	22,722		$	227	$	555,372		$	(153,090	)	$	402,509
Net income	—		—		—			7,071			7,071
Share-based compensation	(6	)	—		77			—			77
Balance at July 30, 2016	22,716		$	227	$	555,449		$	(146,019	)	$	409,657
Balance at January 28, 2017	22,716		$	227	$	555,481		$	(285,009	)	$	270,699
Net loss	—		—		—			(50,880		)	(50,880		)
Share-based compensation	(14	)	—		(103		)	—			(103		)
Balance at July 29, 2017	22,702		$	227	$	555,378		$	(335,889	)	$	219,716

See Notes to Condensed Consolidated Financial Statements.

4

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—BACKGROUND AND BASIS OF PRESENTATION

Background

Sears Hometown and Outlet Stores, Inc. is a national retailer primarily focused on selling home appliances, lawn and garden equipment, and tools. As of July 29, 2017 the Company or its dealers and franchisees operated a total of 932 stores across all 50 states and in Puerto Rico and Bermuda. In these notes and elsewhere in this Quarterly Report on Form 10-Q the terms “we,” “us,” “our,” “SHO,” and the “Company” refer to Sears Hometown and Outlet Stores, Inc. and its subsidiaries.

Our common stock trades on the NASDAQ Stock Market under the trading symbol “SHOS.”

The Separation

The Company separated from Sears Holdings Corporation (“Sears Holdings”) in October 2012 (the “Separation”). To our knowledge Sears Holdings does not own any shares of our common stock. The Company has specified rights to use the "Sears" name under a license agreement from Sears Holdings.

Basis of Presentation

These unaudited Condensed Consolidated Financial Statements include the accounts of Sears Hometown and Outlet Stores, Inc. and its subsidiaries, all of which are wholly owned. These unaudited Condensed Consolidated Financial Statements do not include all of the information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the 13 and 26 weeks ended July 29, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year. These financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the "2016 10-K").

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

Our second fiscal-quarter end is the Saturday closest to July 31 each year.  Our fiscal-year end is the Saturday closest to January 31 each year.

Reclassifications- certain amounts have been reclassified in order to conform to the current period presentation.

Variable Interest Entities and Consolidation

The Financial Accounting Standards Board ("FASB") has issued guidance on variable interest entities and consolidation for determining whether an entity is a variable interest entity ("VIE") as well as the methods permitted for determining the primary beneficiary of a variable interest entity. In addition, this guidance requires ongoing reassessments as to whether a reporting company is the primary beneficiary of a variable interest entity and disclosures regarding the reporting company’s involvement with a variable interest entity.

On an ongoing basis the Company evaluates its business relationships, such as those with its independent dealers, independent franchisees, and suppliers, to identify potential variable interest entities. Generally, these businesses either qualify for a scope exception under the consolidation guidance or, where a variable interest exists, the Company does not possess the power to direct the activities that most significantly impact the economic performance of these businesses. The Company has not consolidated any of such entities in the periods presented.

Fair Value of Financial Instruments

We determine the fair value of financial instruments in accordance with standards pertaining to fair value measurements. Such standards define fair value and establish a framework for measuring fair value under GAAP. Under fair value measurement accounting standards, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. We report the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by accounting standards for fair value measurements, which prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:

Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide ongoing pricing information.

5

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable for the asset or liability, such as interest-rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risks, and default rates.

Level 3 inputs—unobservable inputs for the asset or liability.

Cash and cash equivalents, merchandise payables, accrued expenses (level 1), accounts and franchisee notes receivable, and short-term debt (level 2) are reflected in the Condensed Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. For short-term debt, the variable interest rates are a significant input in our fair value assessments. The carrying value of long-term notes receivable approximates fair value.

We measure certain non-financial assets and liabilities, including long-lived assets, at fair value on a nonrecurring basis.

The Company was not required to measure any other significant non-financial asset or liability at fair value as ofJuly 29, 2017.

Recent Accounting Pronouncements

ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business"

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business". This ASU is meant to clarify the definition of a business to add guidance when determining when an acquisition or disposal should be accounted for as a sale of assets or business. This ASU provides a more robust framework to use in determining when a set of assets or activities should be classified as a business, providing more consistency in accounting for business or asset acquisitions. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those periods. The ASU will be applied prospectively.

ASU 2016-15 "Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments"

In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments". This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted and is to be applied retrospectively using a transition method for each period presented. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. This guidance is not expected to have a material impact on our consolidated financial statements.

ASU 2016-02 "Leases (Topic 842)"

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This amendment created a new Topic under the accounting standards codification to account for the provisions of the ASU. This amendment is meant to provide transparency and to improve comparability between entities. The ASU requires companies to record an asset and liability on the balance sheet for leases that were formerly designated as operating leases as well as leases designated as financing leases. The provisions of the ASU predominately change the recognition of leases for lessees, but the provisions do not substantially change the accounting for lessors. This ASU will supersede the provisions of Topic 840 Leases.

The liability recorded for a lease is generally intended to recognize the present value of lease payments and the asset as a right to use the underlying asset for the lease, including optional periods if it is reasonably certain the option will be exercised. If a lease term is less than twelve months, a company is allowed to elect not to record the asset and liability. Expense related to these leases are to be amortized straight-line over the expected term of the lease.

Additionally, the provisions of this ASU provide additional guidance on separating lease terms from maintenance and other type of provisions that provide a good or service, accounting for sale-leaseback provisions, and leveraged leases.

These updates are required to be applied under a modified retrospective approach from the beginning of the earlier period presented. The modified approach provides optional practical expedients that may be elected, which will allow companies to continue to account for leases under the previous guidance for leases that commenced prior to the effective date. Reporting in the cash flow statement remains virtually unchanged. Additional qualitative and quantitative disclosures are required.

6

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The provisions of this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those periods. Early adoption is allowed. We have just commenced the process for evaluating the impact of this ASU on our financial statements, and therefore it's impact has not yet been determined. However, upon adoption, we expect that the right of use asset and the lease liability will be recognized in the balance sheets in amounts that will be material.

ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)"

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)".The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The new revenue recognition guidance more closely aligns U.S. GAAP with International Financial Reporting Standards ("IFRS"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB issued ASU 2015-14: Accounting for Revenue from Contracts with Customers (Topic 606)" The amended guidance deferred the effective date of ASU 2014-9 to annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods within those fiscal years. In addition, four other ASUs have been issued amending and clarifying ASU 2014-09 and must be adopted concurrently.

• ASU 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

• ASU 2016-10 "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

• ASU 2016-12 "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients"

• ASU 2016-20 "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

This update can either be applied under a cumulative effect or retrospective method. We are in the process of reviewing customer contracts and agreements to determine the potential effects of the standard based on our revenue streams and current revenue recognition practices. Following review of customer contracts and agreements, we will summarize contract terms, reference the findings to the applicable new guidance, determine the financial statement impact, and then update policies and controls to ensure application of the new provisions will be applied consistently throughout the Company. As we are still in the process of completing our full assessment of the impact expected from adoption of this standard, we have not yet determined the materiality of the resulting differences in the timing of revenue recognition. The Company expects to adopt the provisions of this standard using the modified retrospective approach, which requires a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption. The Company will adopt ASU 2014-09 effective February 4, 2018.

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SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2—ACCOUNTS AND FRANCHISEE RECEIVABLES AND OTHER ASSETS

Accounts and franchisee receivables and other assets consist of the following:

Thousands	July 29, 2017			July 30, 2016			January 28, 2017
Short-term franchisee receivables	$	1,584		$	2,262		$	1,920
Miscellaneous receivables	10,363			16,018			10,475
Long-term franchisee receivables	11,260			20,971			18,406
Other assets	5,851			3,822			7,643
Allowance for losses on short-term franchisee receivables (1)	(1,027		)	(1,263		)	(947		)
Allowance for losses on long-term franchisee receivables (1)	(5,999		)	(9,300		)	(7,295		)
Net accounts and franchisee receivables and other assets	$	22,032		$	32,510		$	30,202

(1) The Company recognizes an allowance for losses on franchisee receivables (which consist primarily of franchisee promissory notes) in an amount equal to estimated probable losses net of recoveries. The allowance is based on an analysis of expected future write-offs and existing economic conditions and an assessment of specific identifiable franchisee promissory notes and other franchisee receivables considered at risk or uncollectible. The expense associated with the allowance for losses on franchisee receivables is recognized as selling and administrative expense. Most of our franchisee promissory notes authorize us to deduct debt service from our commissions otherwise due and payable to the franchisees, and we routinely make those deductions to the extent of available commissions payable.

NOTE 3—ALLOWANCE FOR LOSSES ON FRANCHISEE RECEIVABLES

The allowance for losses on franchisee receivables consists of the following as of:

	26 Weeks Ended
Thousands	July 29, 2017			July 30, 2016
Allowance for losses on franchisee receivables, beginning of period	$	8,242		$	12,141
Provisions (recoveries) during the period	5,701			(483		)
Write off of franchisee receivables against the allowance	(6,917		)	(1,220		)
Other	—			125
Allowance for losses on franchisee receivables, end of period	$	7,026		$	10,563

During the 13 weeks ended July 29, 2017, the Company and a franchisee entered into agreements that terminated all of the franchisee's franchise agreements and sublease arrangements for 14 franchised locations (except with respect to one location as to which the Company would either assume the lease or enter into a lease directly with the landlord). The agreements provided that the franchisee transferred ownership of all assets, management of stores, and certain rights to property leases (in one instance pursuant to an Occupancy Agreement). The assets the Company purchased included all store furniture, fixtures, and equipment. As of the transaction date, the franchisee was the obligor on promissory notes to the Company with a total carrying value, net of reserves, of $5.5 million. As part of the transaction, the Company waived the remaining unpaid principal on these promissory notes and received a new promissory note from the franchisee in the amount of $1.5 million, which is payable in installments through December 11, 2022. During the 13 weeks ended July 29, 2017, the Company recognized a loss of $5.5 million on the transaction.

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SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4—OTHER CURRENT AND LONG-TERM LIABILITIES

Other current and long-term liabilities consist of the following:

Thousands	July 29, 2017		July 30, 2016		January 28, 2017
Customer deposits	$	19,645	$	25,350	$	19,943
Sales and other taxes	11,256		11,753		11,380
Accrued expenses	30,923		26,335		27,602
Payroll and related items	6,958		5,203		5,766
Store closing costs	9,373		894		7,659
Total Other current and long-term liabilities	$	78,155	$	69,535	$	72,350

NOTE 5—INCOME TAXES

SHO and Sears Holdings entered into a Tax Sharing Agreement that governs the rights and obligations of the parties with respect to pre-Separation and post-Separation tax matters. Under the Tax Sharing Agreement, Sears Holdings generally is responsible for any federal, state, or foreign income tax liability relating to tax periods ending on or before the Separation. For all periods after the Separation, the Company generally is responsible for any federal, state, or foreign tax liability. Current income taxes payable for any federal, state, or foreign income tax returns is reported in the period incurred.

We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. The Company is present in a large number of taxable jurisdictions and, at any point in time, can have tax audits underway at various stages of completion in one or more of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closings of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. For the 13 and 26 Weeks ended July 29, 2017 and July 30, 2016, no unrecognized tax benefits have been identified and reflected in the Condensed Consolidated Financial Statements.

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. As no unrecognized tax benefits have been identified and reflected in the Condensed Consolidated Financial Statements, no interest or penalties related to unrecognized tax benefits are reflected in the Condensed Consolidated Balance Sheets or Statements of Operations.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize the benefit of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss for the three years ended January 28, 2017. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future income. On the basis of this analysis, management has established a full valuation allowance to offset the net deferred tax assets that are not expected to be realized. Management will continue to evaluate objective and subjective evidence for changes in circumstances that cause a change in judgment about the realizability of the deferred tax assets.

We file federal, state, and city income tax returns in the United States and foreign tax returns in Puerto Rico. The U.S. Internal Revenue Service has commenced an audit of the Company's federal income tax return for the year ended January 30, 2016. SHO was also a part of the Sears Holdings' combined state returns for the years ended February 2, 2013 and February 1, 2014. Currently, the Company is under audit in one state for the years ended February 2, 2013 and February 1, 2014 as part of the Sears Holdings' combined return audits.

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SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6—RELATED-PARTY AGREEMENTS AND TRANSACTIONS

According to publicly available information ESL Investments, Inc. and investment affiliates including Edward S. Lampert (collectively, "ESL") beneficially own approximately 57% of our outstanding shares of common stock and approximately 49% of Sears Holdings' outstanding shares of common stock (the latter percentage amount excludes shares that may be acquired within 60 days upon the exercise of warrants to purchase shares). Mr. Lampert is the Chairman of the Board and Chief Executive Officer of Sears Holdings.

SHO and Sears Holdings (and in some circumstances, its subsidiaries) have entered into various agreements (as amended, the "SHO-Sears Holdings Agreements") that, among other things, (1) govern specified aspects of our relationship with Sears Holdings, (2) establish terms under which subsidiaries of Sears Holdings provide services to us, and (3) establish terms pursuant to which subsidiaries of Sears Holdings obtain merchandise inventories for us. The terms of the SHO-Sears Holdings Agreements were agreed to prior to the Separation (except for amendments entered into after the Separation that were approved by the Audit Committee of SHO's Board of Directors) in the context of a parent-subsidiary relationship and in the overall context of the Separation. The costs and allocations charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company itself providing the applicable services. The Company has engaged in frequent discussions, and has resolved disputes, with Sears Holdings about the terms and conditions of the SHO-Sears Holdings Agreements, the business relationships that are reflected in the SHO-Sears Holdings Agreements, and the details of these business relationships, many of which details had not been addressed by the terms and conditions of the SHO-Sears Holdings Agreements or, if addressed, in the past were, and in the future could be, in dispute as to their meaning or application in the context of the existing business relationships. Many of these discussions have resulted in adjustments to the relationships that the Company believes together are in Company's best interests. On May 11, 2016, SHO and Sears Holdings entered into amendments to most of the SHO-Sears Holdings Agreements. The amendments are referred to in our Current Report on Form 8-K (File No. 001-35641) filed with the Securities and Exchange Commission on May 17, 2016. We also filed a Current Report on Form 8-K (File No. 001-35641) with the Securities and Exchange Commission on March 9, 2017 regarding the Amendment to Amended and Restated Merchandising Agreement dated as of March 8, 2017 among the Company, Sears Holdings, and Stanley Black & Decker. Inc.

The following is a summary of the nature of the related-party transactions between SHO and Sears Holdings:

• SHO receives commissions from Sears Holdings for specified online sales, sales of extended service contracts, and sales of delivery and handling services, and commissions relating to the use in our stores of credit cards branded with the Sears name. For specified transactions SHO pays commissions to Sears Holdings.

• We obtain a significant amount of our merchandise inventories from Sears Holdings.

• We pay royalties related to our sale of products branded with the KENMORE®, CRAFTSMAN®, and DIEHARD® marks (which marks are owned by, or licensed to, subsidiaries of Sears Holdings, together the "KCD Marks"). The royalty rates vary but none exceeds 6%.

• We pay fees for participation in Sears Holdings' SHOP YOUR WAY REWARDS® program.

• We pay fees to Sears Holdings for logistics, handling, warehouse, and transportation services, which fees are based generally on merchandise inventory units.

• Sears Holdings provides the Company with specified corporate services. These services include accounting and finance, and information technology, among other services. Sears Holdings charges the Company for these corporate services based on actual usage or pro rata charges based upon sales or other measurements.

• Sears Holdings leases stores and distribution/repair facilities to the Company, for which the Company pays rent and related occupancy charges to Sears Holdings.

The following table summarizes the results of the transactions with Sears Holdings reflected in the Company’s Condensed Consolidated Financial Statements:

	13 Weeks Ended				26 Weeks Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Thousands
Net Commissions from Sears Holdings	$	18,448	$	22,818	$	35,485	$	44,392
Purchases related to cost of sales and occupancy	268,584		302,554		533,114		616,088
Services included in selling and administrative expense	17,370		18,864		33,903		40,312

10

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We incur payables to Sears Holdings for merchandise inventory purchases and service and occupancy charges (net of commissions) based on the SHO-Sears Holdings Agreements.  Amounts due to or from Sears Holdings are non-interest bearing and, except as provided in the following sentences of this paragraph, are settled on a net basis and have payment terms of 10 days after the invoice date. In accordance with the SHO–Sears Holdings Agreements and at the request of Sears Holdings, the Company can pay invoices on two or three-day terms and receive a deduction on invoices for early–payment discounts of 37 to 43 basis points, respectively. The Company can, in its sole discretion, revert to ten–day, no–discount payment terms at any time upon notice to Sears Holdings. The discount received for payments made on accelerated terms, net of incremental interest expense, results in a net financial benefit to the Company. During 2017, the Company paid most invoices on either two or three–day terms and received discounts of $1.4 million and $2.0 million, for the 13 and 26 weeks ended July 29, 2017, respectively, which is reflected in the Condensed Consolidated Statements of Operations. During 2016, the Company began paying invoices on accelerated terms on May 1, 2016 and received discounts of $1.0 million during both the 13 and 26 weeks ended July 30, 2016, which is reflected in the Condensed Consolidated Statements of Operations.

We recorded real estate occupancy payments of $0.3 million and $0.6 million for the 13 and 26 weeks ended July 29, 2017, respectively, and $0.2 million and $0.4 million for the 13 and 26 weeks ended July 30, 2016, respectively, to Seritage Growth Properties, a real estate investment trust. Edward S. Lampert is the Chairman of the Board of Trustees of Seritage.

NOTE 7—FINANCING ARRANGEMENTS

In October 2012 the Company entered into a Credit Agreement with a syndicate of lenders, including Bank of America, N.A., as administrative agent, which provided (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million (the “Prior Facility”). Under the Prior Facility the Company initially borrowed $100 million which was used to pay a cash dividend to Sears Holdings prior to the Separation.

On November 1, 2016 the Company and its primary operating subsidiaries, entered into an Amended and Restated Credit Agreement with a syndicate of lenders, including Bank of America, N.A., as administrative agent and collateral agent, which provides (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million (the “Senior ABL Facility”). The Senior ABL Facility, which amended and restated the Prior Facility in its entirety, provides for extended revolving credit commitments in an aggregate amount equal to $170 million (the “Extended Revolving Credit Commitments”) and non-extended revolving credit commitments in an aggregate amount equal to $80 million (the “Non-Extended Revolving Credit Commitments”). The Extended Revolving Credit Commitments will mature on the earlier of (1) February 29, 2020 and (2) six months prior to the expiration of specified agreements entered into with Sears Holdings and its subsidiaries in connection with the Separation (the “Subject Agreements”) unless they are extended to a date later than February 29, 2020 or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility. The Non-Extended Revolving Credit Commitments will mature on the earlier of (1) October 11, 2017 and (2) six months prior to the expiration of the Subject Agreements unless they are extended to a date later than October 11, 2017 or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility. Costs related to and incurred for the November 1, 2016 refinancing totaled approximately $5.4 million, of which $4.4 million is remaining and is included in Prepaid and Other current assets on the Condensed Consolidated Balance Sheet as of July 29, 2017 and is being amortized over the remaining term of the Senior ABL Facility.

As of July 29, 2017 we had $112.4 million outstanding under the Senior ABL Facility, which approximated the fair value of these borrowings. Up to $75 million of the Senior ABL Facility is available for the issuance of letters of credit and up to $25 million is available for swingline loans. The Senior ABL Facility permits us to request commitment increases in an aggregate principal amount of up to $100 million. Availability under the Senior ABL Facility as of July 29, 2017 was $86.8 million, with $6.1 million of letters of credit outstanding under the facility. If the Non-Extended Revolving Credit Commitments had matured prior to the end of the second quarter of 2017, our availability under the Senior ABL Facility would have been approximately $52 million as of July 29, 2017.

In the first quarter of 2017, we resumed our agreement with Sears Holdings whereby SHO paid Sears Holdings' invoices for merchandise and services on accelerated terms in exchange for a 37 to 43 basis-point cash discount depending on the number of days we paid before the invoice due date. The Senior ABL Facility borrowings increased by approximately $23 million as of July 29, 2017, as a result of our accelerated payments. The discounts we received for the accelerated payments, less the incremental interest expense, resulted in a net financial benefit to the Company. During 2017, the Company paid most invoices on either two or three–day terms and received discounts totaling $1.4 million and $2.0 million for the 13 and 26 weeks ended July 29, 2017, respectively, which are reflected in the Condensed Consolidated Statements of Operations. During 2016, the Company began

11

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

paying invoices on accelerated terms on May 1, 2016 and received discounts totaling $1.0 million during both the 13 and 26 weeks ended July 30, 2016, which are reflected in the Condensed Consolidated Statements of Operations.

The principal terms of the Senior ABL Facility are summarized below.

Prepayments

The Senior ABL Facility is subject to mandatory prepayment in amounts equal to the amount by which the outstanding extensions of credit exceed the lesser of the borrowing base and the commitments then in effect.

Security and Guarantees

The Senior ABL Facility is secured by a first lien security interest on substantially all the assets of the Company and its subsidiaries, including, without limitation, accounts receivable, inventory, general intangibles, investment property, equipment,

cash, cash equivalents, deposit accounts and securities accounts, as well as certain other assets (other than intellectual property and fee-owned interests in real property) ancillary to any of the foregoing and all proceeds of any of the foregoing, including cash proceeds and the proceeds of applicable insurance. The Senior ABL Facility is guaranteed by the Company and each of its existing and future direct and indirect wholly owned domestic subsidiaries (other than specified immaterial subsidiaries).

Interest; Fees

The interest rates per annum applicable to the loans under the Senior ABL Facility are based on a fluctuating rate of interest measured by reference to, at the Company’s election, either (1) an adjusted London inter-bank offered rate (LIBOR) plus a borrowing margin ranging from (x) 3.50% to 4.50%, in the case of the Extended Revolving Credit Commitments or (y) 2.00% to 2.50%, in the case of the Non-Extended Revolving Credit Commitments (which the blended rate was approximately 4.52% at July 29, 2017), and in each case based on availability under the Senior ABL Facility, or (2) an alternate base rate plus a borrowing margin, ranging from (x) 2.50% to 3.50%, in the case of the Extended Revolving Credit Commitments or (y) 1.00% to 1.50%, in the case of the Non-Extended Revolving Credit Commitments (which the blended rate was approximately 6.52% at July 29, 2017), and in each case based on availability under the Senior ABL Facility.

Customary fees are payable in respect of the Senior ABL Facility, including letter of credit fees and commitment fees.

Covenants

The Senior ABL Facility includes a number of negative covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries (including the guarantors) to, subject to certain exceptions, incur additional indebtedness (including guarantees), grant liens, make investments, make prepayments on other indebtedness, and engage in mergers or change the nature of the business of the Company and its subsidiaries (including the guarantors). In addition, upon excess availability falling below a specified level (which has not occurred), the Company is required to comply with a minimum fixed charge coverage ratio. The Senior ABL Facility also limits SHO’s ability to declare and pay cash dividends and to repurchase its common stock. The Senior ABL Facility would not have permitted us to pay cash dividends or repurchase our common stock as of July 29, 2017.

The Senior ABL Facility also contains affirmative covenants, including financial and other reporting requirements. As of July 29, 2017, SHO was in compliance with all covenants under the Senior ABL Facility.

Events of Default

The Senior ABL Facility includes customary and other events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments, change of control, failure to perform a “Material Contract” (which includes specified SHO-Sears Holdings Agreements) to the extent required to maintain it in full force and effect, failure to enforce a Material Contract in accordance with its terms, or termination by Sears Holdings of specified “Separation Agreements” (which include specified SHO-Sears Holdings Agreements).

12

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8—SUMMARY OF SEGMENT DATA

The Hometown reportable segment consists of the aggregation of our Hometown Stores, Hardware Stores, and Home Appliance Showrooms business formats described in “Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations-Executive Overview" of this Quarterly Report on Form 10-Q. The Outlet reportable segment also represents a business format. These segments are evaluated by our Chief Operating Decision Maker to make decisions about resource allocation and to assess performance. Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the U.S. Sales categories include appliances, lawn and garden, tools and paint, and other (which includes initial franchise revenue).

	13 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	222,513		$	116,655		$	339,168
Lawn and garden	81,237			5,697			86,934
Tools and paint	24,536			3,386			27,922
Other	19,354			16,607			35,961
Total	347,640			142,345			489,985
Costs and expenses
Cost of sales and occupancy	280,126			117,511			397,637
Selling and administrative	75,759			39,449			115,208
Depreciation and amortization	1,890			2,814			4,704
Total	357,775			159,774			517,549
Operating loss	$	(10,135	)	$	(17,429	)	$	(27,564	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	1,096		$	1,469		$	2,565

	13 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	259,446		$	129,719		$	389,165
Lawn and garden	91,196			6,871			98,067
Tools and paint	31,369			4,355			35,724
Other	14,603			18,829			33,432
Total	396,614			159,774			556,388
Costs and expenses
Cost of sales and occupancy	313,231			128,277			441,508
Selling and administrative	83,554			35,254			118,808
Depreciation and amortization	1,507			1,786			3,293
Gain on sale of asset	—			(25,269		)	(25,269		)
Total	398,292			140,048			538,340
Operating income (loss)	$	(1,678	)	$	19,726		$	18,048
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	3,268		$	1,280		$	4,548

13

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	26 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	420,239		$	242,520		662,759
Lawn and garden	144,800			11,292			156,092
Tools and paint	49,823			7,266			57,089
Other	29,992			32,286			62,278
Total	644,854			293,364			938,218
Costs and expenses
Cost of sales and occupancy	510,000			242,115			752,115
Selling and administrative	150,176			75,913			226,089
Depreciation and amortization	2,745			4,163			6,908
Total	662,921			322,191			985,112
Operating loss	$	(18,067	)	$	(28,827	)	$	(46,894	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	2,351		$	2,290		$	4,641

	26 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	490,380		$	271,767		$	762,147
Lawn and garden	169,613			11,559			181,172
Tools and paint	67,486			8,969			76,455
Other	35,714			37,881			73,595
Total	763,193			330,176			1,093,369
Costs and expenses
Cost of sales and occupancy	597,369			264,929			862,298
Selling and administrative	164,407			72,393			236,800
Depreciation and amortization	3,076			3,474			6,550
Gain on the sale of assets	—			(25,269		)	(25,269		)
Total	764,852			315,527			1,080,379
Operating income (loss)	$	(1,659	)	$	14,649		$	12,990
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	4,574		$	2,264		$	6,838

NOTE 9—COMMITMENTS AND CONTINGENCIES

We are subject to various legal and governmental proceedings arising out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management would not have a material adverse effect on our business, financial position, results of operations, or cash flows.

14

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10— (LOSS) EARNINGS PER COMMON SHARE

Basic earnings per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for each period. Diluted income per common share also includes the dilutive effect of potential common shares. In the periods where the Company records a net loss the diluted per share amount is equal to the basic per share amount.

The following table sets forth the components used to calculate basic and diluted loss per share attributable to our stockholders.

	13 Weeks Ended					26 Weeks Ended
	July 29, 2017			July 30, 2016		July 29, 2017			July 30, 2016
Thousands except income per common share
Basic weighted average shares	22,702			22,696		22,702			22,681
Diluted weighted average shares	22,702			22,699		22,702			22,682
Net (loss) income	$	(29,446	)	$	10,642	$	(50,880	)	$	7,071
(Loss) income per common share:
Basic	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31
Diluted	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31

For the 13 and 26 weeks ended July 30, 2016, 14,000 unvested shares of restricted stock were excluded from the computation of diluted earnings per share due to the anti-dilutive effect of the unvested shares.

NOTE 11—EQUITY

Stock-Based Compensation

Four million shares of the Company's common stock are reserved for issuance under the Company's Amended and Restated 2012 Stock Plan (the "Plan").

A total of 89,221 shares of restricted stock were granted under the Plan in 2013 (the "2013 Grants") to a group of eligible individuals (as defined in the Plan) and 14,000 shares of restricted stock were granted under the Plan to an eligible individual in 2015 (the "2015 Grant"). As of May 16, 2016, 52,691 shares of restricted stock comprising the 2013 Grants had been forfeited. On that date the remaining 36,530 shares of restricted stock comprising the 2013 Grants vested in accordance with the terms and conditions of the governing restricted-stock agreements and the Plan. The 14,000 shares of restricted stock comprising the 2015 Grant were forfeited in the first quarter of 2017.

In 2015 the Company granted a total of 159,475 stock units under the Plan to a group of eligible individuals, all of whom were employees of the Company at the time of the grants. As of July 29, 2017, 34,091 stock units had been forfeited. The remaining 125,384 stock units will vest, if at all, on April 13, 2018 in accordance with and subject to the terms and conditions of governing stock-unit agreements, including forfeiture conditions, and the Plan. The fair value of these awards will vary based on changes in our stock price at each reporting period.

During the first quarter of 2017 the Company granted a total of 222,788 stock units under the Plan to a group of eligible individuals, all of whom were employees of the Company at the time of the grants. As of July 29, 2017, 33,333 of these stock units had been forfeited. The remaining 189,455 stock units will vest, if at all, in three substantially equal installments on January 30 in 2018, 2019, and 2020 in accordance with and subject to the terms and conditions of governing stock unit agreements, including forfeiture conditions, and the Plan.

15

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The shares of restricted stock referred to above in this Note 11 constituted outstanding shares of the Company's common stock. The recipients of the restricted stock grants had full voting and dividend rights with respect to, but were unable to transfer or pledge, their shares of restricted stock prior to the applicable vesting dates. The stock units referred to above in this Note 11, which are payable solely in cash based on the Nasdaq closing price of our common stock at the applicable vesting dates, do not constitute outstanding shares of the Company's common stock. The recipients of the stock unit grants have, with respect to their stock units, no rights to receive the Company's common stock or other securities of the Company, no rights as a stockholder of the Company, no dividend rights, and no voting rights.

We are authorized to grant stock options and to make other awards (in addition to restricted stock and stock units) to eligible participants pursuant to the Plan. The Company has made no stock-option awards under the Plan. Except for the grants of restricted stock and stock units referred to above in this Note 11, the Company has not made any grant or award under the Plan. We do not currently have a broad-based program that provides for awards under the Plan on an annual basis.

We account for stock-based compensation using the fair value method in accordance with accounting standards regarding share-based payment transactions. During the 26 weeks ended July 29, 2017, we recorded $0.1 million in total compensation income for 314,839 stock units. At July 29, 2017 we had $0.8 million in total unrecognized compensation cost related to the remaining unvested stock units, which we expect to recognize over the next approximately 2.5 years.

Changes during 2017 with respect to the 2015 Grant are noted below.

	26 Weeks Ended July 29, 2017
(Shares in Thousands)	Shares		Weighted-Average Fair Value Per Share on Date of Grant
Balance at January 28, 2017	14		$	9.38
Granted	—		—
Vested	—		—
Forfeited	(14	)	9.38
Balance at July 29, 2017	—		$	—

Share Repurchase Program

During 2013 the Company's Board of Directors authorized a $25 million repurchase program for the Company's outstanding shares of common stock. The timing and amount of repurchases 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 plans. 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. See Note 7 to these Condensed Consolidated Financial Statements regarding the Senior ABL Facility's limits on SHO’s ability to repurchase its common stock. 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.

No shares were repurchased during the 13 and 26 weeks ended July 29, 2017. At July 29, 2017, we had approximately $12.5 million of remaining authorization under the repurchase program.

16

SEARS HOMETOWN AND OUTLET STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12—STORE CLOSING CHARGES

Closed Store Charges

We continue to take proactive steps to make the best use of capital by closing unprofitable stores. The Company closed 70 and 79 Hometown store locations during the 13 and 26 weeks ended July 29, 2017, respectively. In addition, the Company closed 11 and 12 Outlet store locations during the 13 and 26 weeks ended July 29, 2017, respectively.

In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which we no longer expect to receive any economic benefit are accrued as of when we ceased to use the leased space and have been reduced for estimated sublease income.

Store closing costs for the 13 and 26 weeks ended July 29, 2017 were as follows:

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
13 weeks ended July 29, 2017	$	9,397	$	1,796	$	979	$	386	$	12,558

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
26 weeks ended July 29, 2017	$	8,447	$	1,796	$	979	$	386	$	11,608

(1)	Recorded within cost of sales and occupancy in the Condensed Consolidated Statements of Operations. Lease termination costs are net of estimated sublease income, and include the reversal of closed store reserves when a lease agreement is terminated for an amount less than the remaining reserve established for the store.
(2)	Recorded within depreciation and amortization in the Condensed Consolidated Statements of Operations.
(3)	Recorded within selling and administrative in the Condensed Consolidated Statements of Operations.

Closed Store Reserve

Store closing reserves at July 29, 2017 and January 28, 2017 are shown in the table below. Store closing reserves of $9.4 million,$0.8 million, and $7.7 million are included within other current liabilities in the Condensed Consolidated Balance Sheets at July 29, 2017, July 30, 2016 and January 28, 2017, respectively.

Thousands	Total
Balance at January 28, 2017	$	7,659
Store closing benefit	(950		)
Payments/utilization	(2,490		)
Balance at April 29, 2017	$	4,219
Store closing costs	9,783
Payments/utilization	(4,629		)
Balance at July 29, 2017	$	9,373

17

Item 6. Exhibits

The Exhibits listed in the accompanying “Exhibit Index” have been filed as part of this Quarterly Report on Form 10-Q.

18

SIGNATURE

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/ E. J. BIRD
Name:	E. J. Bird
Title:	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Date:	September 7, 2017

19

SEARS HOMETOWN AND OUTLET STORES, INC.

EXHIBIT INDEX

Exhibit Number	Exhibit Description
3.1	Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
3.2	Certificate of Amendment of Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.2 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
3.3	Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed December 9, 2013 (File No. 001-35641)).
10.1(1)	Amendment No. 8 to Services Agreement dated July 10, 2017 between the registrant and Sears Holdings Management Corporation.
10.2(1)	Amendment No. 2 to Amended and Restated Merchandising Agreement dated as of July 10, 2017 among (1) the registrant, Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C. and (2) Sears Holdings Corporation, Sears, Roebuck and Co., and Kmart Corporation.
10.3(1)(2)	Purchase Agreement for Excess and Salvage Merchandise dated July 17, 2017 between Innovel Solutions, Inc. (a wholly owned subsidiary of Sears Holdings Corporation) and the registrant.
10.4(1)	Amendment No. 1 to Store License Agreement effective as of July 10, 2017 between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC.
10.5	Cash Incentive Agreement between the registrant and Michael A. Gray dated May 24, 2017 (incorporated by reference to Exhibit 10.2 to the registrant's Current Report on Form 8-K filed May 26, 2017 (File No. 001-35641)).
31.1(1)	Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
31.2(1)	Certification of Chief Financial Officer Required Under Rule 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
32(1)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only).
101(3)	The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Statements of Operations (Unaudited) for the 13 and 26 Weeks Ended July 29, 2017 and July 30, 2016; (ii) the Condensed Consolidated Balance Sheets (Unaudited) at July 29, 2017, July 30, 2016, and January 28, 2017; (iii) the Condensed Consolidated Statements of Cash Flows (Unaudited) for the 26 Weeks Ended July 29, 2017 and July 30, 2016; (iv) the Condensed Combined Statements of Stockholders' Equity (Unaudited) for the 26 Weeks Ended July 29, 2017 and July 30, 2016; and (v) the Notes to the Condensed Consolidated Financial Statements (Unaudited).

(1) Filed herewith.

(2) Specified terms of this Exhibit have been omitted and separately filed by the registrant with the Securities and Exchange Commission pursuant to the registrant's request for confidential treatment.

(3) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

20

EX-10.1

Exhibit 10.1

Amendment No. 8 to Services Agreement

July 10, 2017

This is the Amendment No. 8 to Services Agreement (this “Amendment”) between Sears Holdings Management Corporation (“SHMC”) and Sears Hometown and Outlet Stores, Inc. (“SHO”). This Amendment amends the Services Agreement between SHMC and SHO dated August 8, 2012, as amended (the “Services Agreement”). Capitalized terms used but not defined in this Amendment are defined in the Services Agreement. The effective date of this Amendment (“Effective Date”) will be July 2, 2017.

Terms and Conditions

For and in consideration of the undertakings and commitments in this Amendment the receipt and sufficiency of which SHMC and SHO acknowledge, and intending to be legally bound, SHMC and SHO agree as follows:

1. Amendments. The following amendments to Appendix 1.01-C of the Services Agreement will take effect on the Effective Date.

A. In Paragraph 7, “Domestic Transportation,” under “Transportation” in Table I to Attachment II, the first paragraph in the right-hand column (“Fees”) is deleted and replaced with:

Inbound Freight is charged as set forth in Section 1 (International Transportation: Ocean Carriers) above. Outbound Freight is charged consistent with Service Provider’s existing Cube Mile Allocation Model attached as Exhibit A.

B. Paragraphs 1, 3, and 8 of “Billing Methodology” of Table I to Attachment II are amended and restated in their entirety as follows:

1.Logistics Billing Methodology

•Variable handling expense billing

◦ Rates for the RRCs are by flow path and by product size (Small, Medium, Large and Extra Large). Each Div-Line is placed into a size group at the beginning of the year based on prior year’s average inbound carton cube for that Div-Line.

◦ Rates for the DDCs are by flow path and division.

◦ SHO will be billed based on disbursement volume out of the distribution centers.

•Fixed handling expense billing

◦ Fixed handling expense represents the portion of logistics costs (excluding storage costs) that does not vary with volume.

◦ Subject to the next sentence, fixed handling expense will be allocated to SHO based on SHO’s percentage of SHC total variable handling expense (determined by SHC in the ordinary course of business consistent with its past accounting practices) for the prior fiscal year and Service Provider and SHO will work together in Good Faith to minimize fixed handling expense. SHO’s fixed handling expense for the remainder of fiscal year 2017 determined in accordance with the preceding sentence will be billed monthly and will not exceed the amount of $938,589 per month .

•Storage billing

◦ Cost is based on usage of DC inventory space.

◦ SHO will be billed based on cubic feet of RRC inventory space and square feet of DDC inventory space.

◦ Cubic feet of RRC space is allocated to SHO based on SHO percentage of total line-level disbursements from the RRC.

Exhibit 10.1

◦ Square foot space of DDC usage is allocated to SHO based on SHO percentage of total division-level disbursements from the DDC

There are, as of the Effective Date, no charges for RDC services to SHO. SHO will be charged variable handling rates for RDC services for merchandise shipped directly from an RDC to a SHO store, if an RDC stocked item is requested.

Variable Handling Billing and Storage Billing are listed in Exhibit 2.

3. Billing of Overhead Expenses

• SHO will be billed 5.12% of the total SHC logistics overhead expenses (determined by SHC in the ordinary course of business consistent with its past accounting practices), which, for the remainder of fiscal year 2017 will be billed monthly and will not exceed the amount of $82,033 per month .

8.Puerto Rico Warehousing - SHO will be billed 10.8% of total SHC Puerto Rico warehousing costs (determined by SHC in the ordinary course of business consistent with its past accounting practices) annually but in no event will SHO be billed more than $800,000 annually (which for the remainder of fiscal year 2017 will not exceed $15,384.62 per fiscal week).

C. Paragraph 1 of “Billing Methodology” of Table II to Attachment II is amended and restated in its entirety as follows:

1. Logistics Billing Methodology

• Variable handling expense billing

◦ Rates for the RRCs are by flow path and by product size (Small, Medium, Large and Extra Large). Each Div-Line is placed into a size group at the beginning of the year based on prior year’s average inbound carton cube for that Div-Line.

◦ Rates for the DDCs are by flow path and division.

◦ SHO will be billed based on disbursement volume out of the distribution centers.

• Fixed handling expense billing

◦ Fixed handling expense represents the portion of logistics costs (excluding storage costs) that does not vary with volume.

◦ Fixed handling expense will be allocated to SHO based on SHO’s percentage of SHC total variable handling expense (determined by SHC in the ordinary course of business consistent with its past accounting practices) for the prior fiscal year and SHO will work together in Good Faith to minimize fixed handling expense.

• Storage billing

◦ Cost is based on usage of DC inventory space.

◦ SHO will be billed based on cubic feet of RRC inventory space and square feet of DDC inventory space.

◦ Cubic feet of RRC space is allocated to SHO based on SHO percentage of total line-level disbursements from the RRC.

◦ Square foot space of DDC usage is allocated to SHO based on SHO percentage of total division-level disbursements from the DDC.

D. The table entitled“Fixed Handling Billing” of Exhibit 2 to Attachment II is deleted in its entirety.

E. The table entitled “Logistics Overhead Billing Rate” of Exhibit 2 to Attachment II is deleted in its entirety.

F. Exhibit A to this Amendment is added as Exhibit A to Attachment II.

Exhibit 10.1

2. No Other Amendments, Etc. Except as expressly amended herein, the Services Agreement shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the parties’ choice of Illinois law (pursuant to Section 6.19(a) of the Services Agreement), which also applies to this Amendment.

Sears Holdings Management Corporation By: /s/ROBERT PHELAN Robert Phelan Senior Vice President Sears Hometown and Outlet Stores, Inc. By: /s/WILL POWELL Will Powell Chief Executive Officer and President

Exhibit 10.1

Exhibit A

Service Provider’s Existing Cube Mile Allocation Model

EX-10.2

Exhibit 10.2

Amendment No. 2 to Amended and Restated Merchandising Agreement

This Amendment No. 2 (“Amendment”), dated as of July 10, 2017, is entered into by and between (1) Sears, Roebuck and Co., a New York corporation (“SRC”), Kmart Corporation, a Michigan corporation (“Kmart” and, together with SRC, “Seller”) and Sears Holdings Corporation, a Delaware corporation (“SHC”) and (2) Sears Hometown and Outlet Stores, Inc., a Delaware corporation (“SHOS”), Sears Authorized Hometown Stores, LLC, a Delaware limited liability company (“SAHS”) and Sears Outlet Stores, L.L.C., a Delaware limited liability company (“Outlet Co.” and, together with SHOS and SAHS, “Buyer”), to further amend the Amended and Restated Merchandising Agreement, retroactive to May 1, 2016, as amended by the Amendment to Amended and Restated Merchandising Agreement, dated as of March 8, 2017, by and between Seller, SHC and Buyer (the “Agreement”). SHC, Seller and SHO are hereinafter referred to individually as a “Party” and collectively as the “Parties.” Defined terms used herein but not otherwise defined shall have the meanings ascribed to them in the Agreement.

WHEREAS, the Parties desire to amend the Agreement to clarify certain terms as provided therein.

NOW THEREFORE, in consideration of the above premises and the mutual covenants herein, the Parties agree as follows:

1. Amendments. The Agreement shall be amended to add at the end of Section 19 of the Agreement the following:

“Seller and any of its Affiliates may, at any time after the closing of a Sears Store, open, own or operate one or more new stores in the trade area of the closed Sears Store (each a “Replacement Store”), free of the restrictions, if any, in Section 9(c)(i)(A) and Section 9(c)(i)(B) (but subject to the next sentence). Seller and its Affiliates may not open, own or operate a store that is substantially similar to a Sears Outlet Store format as of June 20, 2017. SHO acknowledges and agrees that the store located at 3400 S College Ave, Fort Collins, Coloradoconstitutes a Replacement Store.

2. No Other Amendments. Except as expressly amended herein, the Agreement shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the Parties’ choice of law (pursuant to Section 22(t) of the Agreement) which also applies to this Amendment.

Signature Page Follows

Exhibit 10.2

IN WITNESS WHEREOF, the Parties have duly executed this Amendment No. 2 to the Amended and Restated Merchandising Agreement as of the date first written above.

SEARS, ROEBUCK AND CO.
By:	/s/ ROBERT J. PHELAN
	Senior Vice President-Finance
KMART CORPORATION
By:	/s/ ROBERT J. PHELAN
	Senior Vice President-Finance
SEARS HOLDINGS CORPORATION
By:	s/ ROBERT J. PHELAN
	Senior Vice President-Finance
SEARS HOMETOWN AND OUTLET STORES, INC.
By:	/s/ WILL POWELL
	Chief Executive Officer and President
SEARS AUTHORIZED HOMETOWN STORES, LLC
By:	/s/ WILL POWELL
	President
SEARS OUTLET STORES, L.L.C.
By:	/s/ WILL POWELL
	President

EX-10.3

Exhibit 10.3

The use of “[***]” in this Exhibit indicates that a confidential portion has been omitted pursuant to a request for confidential treatment and the omitted material has been filed separately with the Securities and Exchange Commission.

PURCHASE AGREEMENT FOR EXCESS AND SALVAGE MERCHANDISE

Under this Agreement Innovel Solutions, Inc. (“Innovel”) is selling excess and salvage merchandise products to Sears Hometown and Outlet Stores, Inc. (“Purchaser”), located at 5500 Trillium Blvd., Ste. 501, Hoffman Estates, IL 60192. The parties agree that all purchases of Product by Purchaser from Innovel are governed by this Agreement and the parties agree to comply with all of the following terms and conditions.

Purpose. This Agreement is to provide for the sale by Innovel of damaged, returned, or distressed merchandise that Innovel receives in the course of its operations as a third party logistics services company (“Product”). Product does not include merchandise items that result from the retail operations of Sears, Roebuck and Co. or Kmart Corporation. This Agreement and Product excludes any merchandise branded as Kenmore^®, Craftsman^®, or DieHard^®.

1. Purchases. For each purchase, Purchaser shall issue a purchase order reasonably describing the Product to be purchased, the place and date of delivery, and the price. All Product shall be sold to Purchaser at a price equal to [***]% of the MSRP (or [***]% off of the MSRP) of the Product.

2. Payment terms. Innovel shall invoice Purchaser for the Product in each shipment, at the time the shipment is received by Purchaser at Purchaser’s designated delivery point. Purchaser shall pay all undisputed amounts invoiced for Products delivered to Purchaser within ten (10) days of Purchaser’s receipt of the invoice. Purchaser shall make all payments for the Product to "Innovel Solutions, Inc." by wire transfer or intercompany transfer. The party raising a dispute relating to an amount on an invoice must do so within thirty (30) days of receipt of the invoice and the parties will use good faith efforts to resolve any such disputes promptly.

3. All Sales “As Is”. Innovel sells the Product “as is” and “where is.” Innovel disclaims all warranties associated with all Product, express or implied, of any nature or type whatsoever, including any warranties of merchantability and fitness for a particular purpose, except warranty of title. Furthermore, Innovel disclaims any liability for any indirect, incidental, or consequential damages, resulting from the use, sale, or purchase of any of the Product or from the refusal of Innovel to sell to Purchaser under this Agreement. For the avoidance of doubt, the foregoing does not limit or waive Purchaser’s rights to separately seek warranty coverage for Products for itself and/or its customers from the manufacturers of such Products.

4. Term and Termination. The term of this Agreement starts on the Effective Date stated below and ends one year thereafter. This Agreement may be terminated immediately by Innovel or Purchaser with or without cause by providing 90 days prior written notice to the other. This Agreement will, if not terminated under this preceding sentence, automatically renew for successive one year periods until terminated.

5. Taxes. Purchaser shall pay all taxes, tariffs, duties and expenses that result from any sales transactions occurring under this Agreement (excluding taxes on Innovel’s income).

6. Title and risk of loss. Title and risk of loss will pass to Purchaser upon receipt by Purchaser or its carrier at Innovel’s dock. Purchaser shall at its own expense arrange for shipping and transportation and any further sale of all Product, including, without limitation, payment of all transportation and related costs, shipping document preparation, proper packaging and labeling, and compliance with all laws, rules and regulations, including, without limitation, those relating to export of goods. Purchaser must assert any claim for shortage of Product to Innovel no more than 30 days after delivery (or scheduled delivery, if delivery was not made) of the Product to Purchaser. Innovel will have no liability for any such claims received after such 30 day period.

7. Unsaleable Product. Purchaser is not required to purchase any Product that it deems “unsaleable.” If Purchaser receives Product that it deems unsaleable, it will notify Innovel promptly (but in no event more than three (3) business days after receipt of the Products at Purchaser’s designated point of delivery). If Purchaser deems Product to be unsaleable, Purchaser shall keep the unsaleable Product (without paying for such Product) and arrange for the local disposition of the Product.

Exhibit 10.3

The use of “[***]” in this Exhibit indicates that a confidential portion has been omitted pursuant to a request for confidential treatment and the omitted material has been filed separately with the Securities and Exchange Commission.

8. Sale of Product. Except for any manufacturer’s warranty that Purchaser has been authorized by the Product manufacturer to provide to a buyer upon Purchaser’s resale of the Product, Purchaser will clearly communicate to buyers that the Product is not subject to a manufacturer’s warranty. Purchaser shall not identify Innovel as its source of the Product, except in response to disclosure ordered by a court of competent jurisdiction or a request by a governmental body.

9. Non-exclusive. Purchaser acknowledges and agrees that any purchase of Product is on a nonexclusive basis and subject to availability. Purchaser acknowledges that Innovel is not required to sell any minimum quantities of Product to Purchaser and Purchaser is not required to purchase any minimum quantities of Product from Innovel. Nothing in the Agreement creates any obligation or liability upon Innovel to offer any particular kinds, quantities, or quality of merchandise for sale to Purchaser. Consideration for this Agreement is in Innovel’s promise to offer to sell at least $100 worth of Product to Purchaser, and Purchaser’s promise to offer to purchase at least $100 worth of Product from Innovel.

10. Attorneys Fees. If either party violates these terms and conditions and initiates a legal action to enforce its rights under this Agreement, the substantially prevailing party will be entitled to recover its reasonable attorneys' fees, costs and expenses from such action.

11. Miscellaneous

a. Purchaser shall maintain in strict confidence and not disclose to any third parties, any information relating to the price and other terms related to the purchase of Product.

b. This Agreement and all sales made under this Agreement are governed by Illinois law, without regard to conflict of law or other legal principles (of Illinois or any other jurisdiction) that would apply the laws of any jurisdiction other than Illinois. Purchaser may not assign this agreement without the express, written permission of Innovel, and any attempted assignment in violation of this provision is void.

c. Innovel will not be liable for any delay in or the impairment of performance resulting in whole or in part from Acts of God, labor disruptions, shortages, inability to produce product, supplies of raw materials, weather conditions, war or any other circumstances or causes beyond the control of Innovel.

d. The parties agree that this is an arms-length Agreement, and that its terms are to be construed with equal bearing on each party.

This Agreement is effective July 10, 2017 ("Effective Date") and supersedes all previous letters, understandings, and written or oral agreements between the parties that relate to Innovel’s sale or disposition of Product.

SIGNED, by the parties’ duly authorized representatives.

INNOVEL SOLUTIONS, INC.                SEARS HOMETOWN AND OUTLET STORES, INC.

By: /s/ CHARLES THOMAS ROSE	By: /s/ WILL POWELL
Vice President	Chief Executive Officer and President
July 10, 2017	July 17, 2017

EX-10.4

Exhibit 10.4

Amendment No. 1 to Store License Agreement

This Amendment No. 1 (“Amendment”), to that certain Store License Agreement dated August 8, 2012 (the “Agreement”) between SEARS ROEBUCK AND CO., a New York corporation (“Sears”), and SEARS AUTHORIZED HOMETOWN STORES, LLC, a Delaware limited liability company(“SAHS”), is made by the parties thereto and is effective as of July 10, 2017 (the “Amendment Date”). Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Agreement.

WHEREAS, SAHS is the registrant of the “searshometown.com” domain name (the “Domain Name”) and desires to transfer all of its right, title, and interest in and to the Domain Name to Sears.

WHEREAS, Sears desires to (1) accept the transfer of all of SAHS’s right, title, and interest of SAHS in and to the Domain Name and (2) in exchange for the transfer, amend the Agreement to grant to SAHS an exclusive license to use the Domain Name.

NOW THEREFORE, in consideration of the above premises and the mutual covenants herein, Sears and SAHS agree as follows:

1. Transfer of Domain Name. SAHS sells, transfers, and assigns to Sears all of SAHS’s right, title, and interest in and to the Domain Name and its associated domain-name registration. Sears will not make, and SAHS will not receive, any separate payment with respect to the sale and purchase of the Domain Name. Sears will be responsible for the payment of all costs and fees for the execution and the recording of the Domain Name transfer and will promptly take all actions to register Sears as the owner of the Domain Name.

2. Amendments. The Agreement shall be modified as of the Amendment Date as follows:

a.

a. Addition of Domain Name. Exhibit C of the Agreement is amended to add the Domain Name.

b. Defense and Indemnification.

i. Section 5.1 of the Agreement is amended to delete clause h. thereof and replace it with the following:

“h.    any lack of validity or enforceability of this Agreement caused by SAHS; and

i.    the operation of the Websites, including but not limited to any product sold on the Websites that was not purchased from Sears or its Affiliates.”

ii. Section 5.2 of the Agreement is amended to delete clause c. thereof and replace it with the following:

“c.     any lack of validity or enforceability of this Agreement caused by Sears; and

d.    any act or omission of Sears or its Affiliates or the Personnel of any of them in connection with Sears’ performance of this Agreement.”

Exhibit 10.4

iii. Section 5.2 of the Agreement is further amended to delete the last sentence thereof and replace it with the following:

“Sears will use counsel reasonably satisfactory to SAHS in the defense of such claims (“SAHS Claims”), and in the event of any actual or potential conflict of interest between SAHS and Sears in the defense of the SAHS Claims, SAHS may engage its own counsel. Sears will not enter into any settlement with respect to any SAHS Claim without the prior written consent of SAHS and without obtaining a release of all claims against SAHS in a form approved in writing by it. This Section 5.2 will survive any termination or expiration of this Agreement. The parties acknowledge that all indemnification obligations for SAHS Claims relating to HTS Products purchased by SAHS from Sears or its Affiliates are governed exclusively by the terms and conditions of the Merchandising Agreement.”

3. Other Agreements. The Domain Name shall constitute a Licensed Domain Name as defined in clause (d) of Part I of Appendix 1.01-D (eCommerce Services) to the Services Agreement, dated August 8, 2012, between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc. (“SHO”), as amended.

4. No Other Amendments. Except as expressly amended herein, the Agreement shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the parties’ choice of law (pursuant to Section 29.(a)of the Agreement) which also applies to this Amendment. For clarity, SAHS acknowledges that it is subject to the terms of the Amended and Restated Merchandising Agreement, dated as of May 1, 2016, between (1) Sears, Kmart Corporation, Sears Holdings Corporation and (2) SAHS, SHO and Sears Outlet Stores, L.L.C., as amended, including without limitation the terms of Section 12(iii)(B) thereof and the Stanley License (as defined therein), and nothing in this Amendment shall be deemed to waive, amend or otherwise modify such terms.

Signature Page Follows

Exhibit 10.4

SEARS, ROEBUCK AND CO.

By: Sears Holdings Management Corporation, its Agent

By: /s/ ROBERT J. PHELAN

Senior Vice President-Finance

SEARS HOLDINGS MANAGEMENT CORPORATION (solely as respects Section 3)

By: /s/ ROBERT J. PHELAN

Senior Vice President-Finance

SEARS AUTHORIZED HOMETOWN STORES, LLC

By: /s/ WILL POWELL

President

SEARS HOMETOWN AND OUTLET STORES, INC. (solely as respects Section 3)

By: /s/ WILL POWELL

Chief Executive Officer and President

EX-31.1

CERTIFICATIONS

I, Will Powell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	September 7, 2017
/s/ WILL POWELL
Will Powell
Chief Executive Officer and President
Sears Hometown and Outlet Stores, Inc.

EX-31.2

CERTIFICATIONS

I, E. J. Bird, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	September 7, 2017
/s/ E. J. BIRD
E. J. Bird
Senior Vice President and Chief Financial Officer
Sears Hometown and Outlet Stores, Inc.

EX-32

CERTIFICATION

Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

Each of the undersigned, Will Powell, Chief Executive Officer and President of Sears Hometown and Outlet Stores, Inc. (the “Company”) and E. J. Bird, Senior Vice President and Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 29, 2017 (the “Report”).

Each of the undersigned hereby certifies that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

September 7, 2017

/s/ WILL POWELL

Will Powell

Chief Executive Officer and President

/s/ E. J. BIRD

E. J. Bird

Senior Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jul. 29, 2017	Sep. 05, 2017
Document and Entity Information [Abstract]
Document Type	10-Q/A
Amendment Flag	true
Amendment Description	To revise the closed store reserve rollforward table in Note 12.
Document Period End Date	Jul. 29, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Entity Registrant Name	Sears Hometown & Outlet Stores, Inc.
Entity Central Index Key	0001548309
Current Fiscal Year End Date	--02-03
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,702,132

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Jul. 30, 2016	Jul. 29, 2017	Jul. 30, 2016
Income Statement [Abstract]
NET SALES	$ 489,985	$ 556,388	$ 938,218	$ 1,093,369
COSTS AND EXPENSES
Cost of sales and occupancy	397,637	441,508	752,115	862,298
Selling and administrative	115,208	118,808	226,089	236,800
Depreciation and amortization	4,704	3,293	6,908	6,550
Gain on sale of assets	0	(25,269)	0	(25,269)
Total costs and expenses	517,549	538,340	985,112	1,080,379
Operating (loss) income	(27,564)	18,048	(46,894)	12,990
Interest expense	(1,874)	(886)	(3,465)	(1,652)
Other income	231	378	550	775
(Loss) earnings before income taxes	(29,207)	17,540	(49,809)	12,113
Income tax expense	(239)	(6,898)	(1,071)	(5,042)
NET (LOSS) INCOME	$ (29,446)	$ 10,642	$ (50,880)	$ 7,071
NET (LOSS) INCOME PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
Basic (in dollars per share)	$ (1.30)	$ 0.47	$ (2.24)	$ 0.31
Diluted (in dollars per share)	$ (1.30)	$ 0.47	$ (2.24)	$ 0.31
Basic weighted average common shares outstanding (in shares)	22,702	22,696	22,702	22,681
Diluted weighted average common shares outstanding (in shares)	22,702	22,699	22,702	22,682

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jul. 29, 2017	Jan. 28, 2017	Jul. 30, 2016
CURRENT ASSETS
Cash and cash equivalents	$ 18,287	$ 14,104	$ 18,690
Accounts and franchisee receivables, net	10,920	11,448	17,017
Merchandise inventories	356,893	373,815	427,234
Prepaid expenses and other current assets	9,995	9,370	18,562
Total current assets	396,095	408,737	481,503
PROPERTY AND EQUIPMENT, net	39,236	40,935	50,898
LONG-TERM DEFERRED TAXES	0	0	74,984
OTHER ASSETS, net	11,112	18,754	15,493
TOTAL ASSETS	446,443	468,426	622,878
CURRENT LIABILITIES
Short-term borrowings	112,400	26,800	70,400
Payable to Sears Holdings Corporation	24,764	80,724	34,868
Accounts payable	11,408	17,853	38,418
Other current liabilities	75,777	70,377	66,667
Total current liabilities	224,349	195,754	210,353
OTHER LONG-TERM LIABILITIES	2,378	1,973	2,868
TOTAL LIABILITIES	226,727	197,727	213,221
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
TOTAL STOCKHOLDERS' EQUITY	219,716	270,699	409,657
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 446,443	$ 468,426	$ 622,878

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jul. 29, 2017	Jul. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$ (50,880)	$ 7,071
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	6,908	6,550
Share-based compensation	(103)	77
Deferred income taxes	0	4,158
Gain on sale of assets	0	(25,269)
Provision for losses on franchisee receivables	5,701	(483)
Change in operating assets and liabilities:
Accounts and franchisee receivables	676	(4,165)
Merchandise inventories	16,922	7,612
Payable to Sears Holdings Corporation	(55,960)	(19,258)
Accounts payable	(6,445)	(1,344)
Closing store accrual	1,714	105
Other operating assets and liabilities, net	4,781	3,725
Net cash used in operating activities	(76,686)	(21,221)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets	0	26,073
Purchases of property and equipment	(4,641)	(6,838)
Net cash (used in) provided by investing activities	(4,641)	19,235
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings	85,600	2,100
Net (payments) borrowings of capital lease obligations	(90)	332
Net cash provided by financing activities	85,510	2,432
NET CHANGE IN CASH AND CASH EQUIVALENTS	4,183	446
CASH AND CASH EQUIVALENTS—Beginning of period	14,104	18,244
CASH AND CASH EQUIVALENTS—End of period	18,287	18,690
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	3,480	1,678
Cash paid (refunded) for income taxes	$ 572	$ (1,845)

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Capital in Excess of Par Value	Accumulated Deficit
Beginning balance at Jan. 30, 2016	$ 402,509	$ 227	$ 555,372	$ (153,090)
Beginning balance (in shares) at Jan. 30, 2016		22,722
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	7,071			7,071
Share-based compensation	77		77
Share-based compensation (in shares)		(6)
Ending balance at Jul. 30, 2016	409,657	$ 227	555,449	(146,019)
Ending balance (in shares) at Jul. 30, 2016		22,716
Beginning balance at Jan. 28, 2017	270,699	$ 227	555,481	(285,009)
Beginning balance (in shares) at Jan. 28, 2017		22,716
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	(50,880)			(50,880)
Share-based compensation	(103)		(103)
Share-based compensation (in shares)		(14)
Ending balance at Jul. 29, 2017	$ 219,716	$ 227	$ 555,378	$ (335,889)
Ending balance (in shares) at Jul. 29, 2017		22,702

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Background and Basis of Presentation

6 Months Ended

Jul. 29, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BACKGROUND AND BASIS OF PRESENTATION

BACKGROUND AND BASIS OF PRESENTATION

Background

Sears Hometown and Outlet Stores, Inc. is a national retailer primarily focused on selling home appliances, lawn and garden equipment, and tools. As of July 29, 2017 the Company or its dealers and franchisees operated a total of 932 stores across all 50 states and in Puerto Rico and Bermuda. In these notes and elsewhere in this Quarterly Report on Form 10-Q the terms “we,” “us,” “our,” “SHO,” and the “Company” refer to Sears Hometown and Outlet Stores, Inc. and its subsidiaries.

Our common stock trades on the NASDAQ Stock Market under the trading symbol “SHOS.”

The Separation

The Company separated from Sears Holdings Corporation (“Sears Holdings”) in October 2012 (the “Separation”). To our knowledge Sears Holdings does not own any shares of our common stock. The Company has specified rights to use the "Sears" name under a license agreement from Sears Holdings.

Basis of Presentation

These unaudited Condensed Consolidated Financial Statements include the accounts of Sears Hometown and Outlet Stores, Inc. and its subsidiaries, all of which are wholly owned. These unaudited Condensed Consolidated Financial Statements do not include all of the information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the 13 and 26 weeks ended July 29, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year. These financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the "2016 10-K").

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

Our second fiscal-quarter end is the Saturday closest to July 31 each year.  Our fiscal-year end is the Saturday closest to January 31 each year.

Reclassifications- certain amounts have been reclassified in order to conform to the current period presentation.

Variable Interest Entities and Consolidation

The Financial Accounting Standards Board ("FASB") has issued guidance on variable interest entities and consolidation for determining whether an entity is a variable interest entity ("VIE") as well as the methods permitted for determining the primary beneficiary of a variable interest entity. In addition, this guidance requires ongoing reassessments as to whether a reporting company is the primary beneficiary of a variable interest entity and disclosures regarding the reporting company’s involvement with a variable interest entity.

On an ongoing basis the Company evaluates its business relationships, such as those with its independent dealers, independent franchisees, and suppliers, to identify potential variable interest entities. Generally, these businesses either qualify for a scope exception under the consolidation guidance or, where a variable interest exists, the Company does not possess the power to direct the activities that most significantly impact the economic performance of these businesses. The Company has not consolidated any of such entities in the periods presented.

Fair Value of Financial Instruments

We determine the fair value of financial instruments in accordance with standards pertaining to fair value measurements. Such standards define fair value and establish a framework for measuring fair value under GAAP. Under fair value measurement accounting standards, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. We report the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by accounting standards for fair value measurements, which prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:

Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide ongoing pricing information.

Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable for the asset or liability, such as interest-rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risks, and default rates.

Level 3 inputs—unobservable inputs for the asset or liability.

Cash and cash equivalents, merchandise payables, accrued expenses (level 1), accounts and franchisee notes receivable, and short-term debt (level 2) are reflected in the Condensed Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. For short-term debt, the variable interest rates are a significant input in our fair value assessments. The carrying value of long-term notes receivable approximates fair value.

We measure certain non-financial assets and liabilities, including long-lived assets, at fair value on a nonrecurring basis.

The Company was not required to measure any other significant non-financial asset or liability at fair value as ofJuly 29, 2017.

Recent Accounting Pronouncements

ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business"

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business". This ASU is meant to clarify the definition of a business to add guidance when determining when an acquisition or disposal should be accounted for as a sale of assets or business. This ASU provides a more robust framework to use in determining when a set of assets or activities should be classified as a business, providing more consistency in accounting for business or asset acquisitions. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those periods. The ASU will be applied prospectively.

ASU 2016-15 "Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments"

In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments". This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted and is to be applied retrospectively using a transition method for each period presented. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. This guidance is not expected to have a material impact on our consolidated financial statements.

ASU 2016-02 "Leases (Topic 842)"

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This amendment created a new Topic under the accounting standards codification to account for the provisions of the ASU. This amendment is meant to provide transparency and to improve comparability between entities. The ASU requires companies to record an asset and liability on the balance sheet for leases that were formerly designated as operating leases as well as leases designated as financing leases. The provisions of the ASU predominately change the recognition of leases for lessees, but the provisions do not substantially change the accounting for lessors. This ASU will supersede the provisions of Topic 840 Leases.

The liability recorded for a lease is generally intended to recognize the present value of lease payments and the asset as a right to use the underlying asset for the lease, including optional periods if it is reasonably certain the option will be exercised. If a lease term is less than twelve months, a company is allowed to elect not to record the asset and liability. Expense related to these leases are to be amortized straight-line over the expected term of the lease.

Additionally, the provisions of this ASU provide additional guidance on separating lease terms from maintenance and other type of provisions that provide a good or service, accounting for sale-leaseback provisions, and leveraged leases.

These updates are required to be applied under a modified retrospective approach from the beginning of the earlier period presented. The modified approach provides optional practical expedients that may be elected, which will allow companies to continue to account for leases under the previous guidance for leases that commenced prior to the effective date. Reporting in the cash flow statement remains virtually unchanged. Additional qualitative and quantitative disclosures are required.

The provisions of this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those periods. Early adoption is allowed. We have just commenced the process for evaluating the impact of this ASU on our financial statements, and therefore it's impact has not yet been determined. However, upon adoption, we expect that the right of use asset and the lease liability will be recognized in the balance sheets in amounts that will be material.

ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)"

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)".The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The new revenue recognition guidance more closely aligns U.S. GAAP with International Financial Reporting Standards ("IFRS"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB issued ASU 2015-14: Accounting for Revenue from Contracts with Customers (Topic 606)" The amended guidance deferred the effective date of ASU 2014-9 to annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods within those fiscal years. In addition, four other ASUs have been issued amending and clarifying ASU 2014-09 and must be adopted concurrently.

• ASU 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

• ASU 2016-10 "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

• ASU 2016-12 "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients"

• ASU 2016-20 "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

This update can either be applied under a cumulative effect or retrospective method. We are in the process of reviewing customer contracts and agreements to determine the potential effects of the standard based on our revenue streams and current revenue recognition practices. Following review of customer contracts and agreements, we will summarize contract terms, reference the findings to the applicable new guidance, determine the financial statement impact, and then update policies and controls to ensure application of the new provisions will be applied consistently throughout the Company. As we are still in the process of completing our full assessment of the impact expected from adoption of this standard, we have not yet determined the materiality of the resulting differences in the timing of revenue recognition. The Company expects to adopt the provisions of this standard using the modified retrospective approach, which requires a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption. The Company will adopt ASU 2014-09 effective February 4, 2018.

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Accounts and Franchisee Receivables and Other Assets

6 Months Ended

Jul. 29, 2017

Receivables [Abstract]

ACCOUNTS AND FRANCHISEE RECEIVABLES AND OTHER ASSETS

ACCOUNTS AND FRANCHISEE RECEIVABLES AND OTHER ASSETS

Accounts and franchisee receivables and other assets consist of the following:

Thousands	July 29, 2017			July 30, 2016			January 28, 2017
Short-term franchisee receivables	$	1,584		$	2,262		$	1,920
Miscellaneous receivables	10,363			16,018			10,475
Long-term franchisee receivables	11,260			20,971			18,406
Other assets	5,851			3,822			7,643
Allowance for losses on short-term franchisee receivables (1)	(1,027		)	(1,263		)	(947		)
Allowance for losses on long-term franchisee receivables (1)	(5,999		)	(9,300		)	(7,295		)
Net accounts and franchisee receivables and other assets	$	22,032		$	32,510		$	30,202

(1) The Company recognizes an allowance for losses on franchisee receivables (which consist primarily of franchisee promissory notes) in an amount equal to estimated probable losses net of recoveries. The allowance is based on an analysis of expected future write-offs and existing economic conditions and an assessment of specific identifiable franchisee promissory notes and other franchisee receivables considered at risk or uncollectible. The expense associated with the allowance for losses on franchisee receivables is recognized as selling and administrative expense. Most of our franchisee promissory notes authorize us to deduct debt service from our commissions otherwise due and payable to the franchisees, and we routinely make those deductions to the extent of available commissions payable.

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Allowance for Losses on Franchisee Receivables

6 Months Ended

Jul. 29, 2017

Receivables [Abstract]

ALLOWANCE FOR LOSSES ON FRANCHISEE RECEIVABLES

ALLOWANCE FOR LOSSES ON FRANCHISEE RECEIVABLES

The allowance for losses on franchisee receivables consists of the following as of:

	26 Weeks Ended
Thousands	July 29, 2017			July 30, 2016
Allowance for losses on franchisee receivables, beginning of period	$	8,242		$	12,141
Provisions (recoveries) during the period	5,701			(483		)
Write off of franchisee receivables against the allowance	(6,917		)	(1,220		)
Other	—			125
Allowance for losses on franchisee receivables, end of period	$	7,026		$	10,563

During the 13 weeks ended July 29, 2017, the Company and a franchisee entered into agreements that terminated all of the franchisee's franchise agreements and sublease arrangements for 14 franchised locations (except with respect to one location as to which the Company would either assume the lease or enter into a lease directly with the landlord). The agreements provided that the franchisee transferred ownership of all assets, management of stores, and certain rights to property leases (in one instance pursuant to an Occupancy Agreement). The assets the Company purchased included all store furniture, fixtures, and equipment. As of the transaction date, the franchisee was the obligor on promissory notes to the Company with a total carrying value, net of reserves, of $5.5 million. As part of the transaction, the Company waived the remaining unpaid principal on these promissory notes and received a new promissory note from the franchisee in the amount of $1.5 million, which is payable in installments through December 11, 2022. During the 13 weeks ended July 29, 2017, the Company recognized a loss of $5.5 million on the transaction.

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Other Current and Long-Term Liabilities

6 Months Ended

Jul. 29, 2017

Payables and Accruals [Abstract]

OTHER CURRENT AND LONG-TERM LIABILITIES

OTHER CURRENT AND LONG-TERM LIABILITIES

Other current and long-term liabilities consist of the following:

Thousands	July 29, 2017		July 30, 2016		January 28, 2017
Customer deposits	$	19,645	$	25,350	$	19,943
Sales and other taxes	11,256		11,753		11,380
Accrued expenses	30,923		26,335		27,602
Payroll and related items	6,958		5,203		5,766
Store closing costs	9,373		894		7,659
Total Other current and long-term liabilities	$	78,155	$	69,535	$	72,350

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Income Taxes

6 Months Ended

Jul. 29, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

SHO and Sears Holdings entered into a Tax Sharing Agreement that governs the rights and obligations of the parties with respect to pre-Separation and post-Separation tax matters. Under the Tax Sharing Agreement, Sears Holdings generally is responsible for any federal, state, or foreign income tax liability relating to tax periods ending on or before the Separation. For all periods after the Separation, the Company generally is responsible for any federal, state, or foreign tax liability. Current income taxes payable for any federal, state, or foreign income tax returns is reported in the period incurred.

We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. The Company is present in a large number of taxable jurisdictions and, at any point in time, can have tax audits underway at various stages of completion in one or more of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closings of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. For the 13 and 26 Weeks ended July 29, 2017 and July 30, 2016, no unrecognized tax benefits have been identified and reflected in the Condensed Consolidated Financial Statements.

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. As no unrecognized tax benefits have been identified and reflected in the Condensed Consolidated Financial Statements, no interest or penalties related to unrecognized tax benefits are reflected in the Condensed Consolidated Balance Sheets or Statements of Operations.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize the benefit of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss for the three years ended January 28, 2017. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future income. On the basis of this analysis, management has established a full valuation allowance to offset the net deferred tax assets that are not expected to be realized. Management will continue to evaluate objective and subjective evidence for changes in circumstances that cause a change in judgment about the realizability of the deferred tax assets.

We file federal, state, and city income tax returns in the United States and foreign tax returns in Puerto Rico. The U.S. Internal Revenue Service has commenced an audit of the Company's federal income tax return for the year ended January 30, 2016. SHO was also a part of the Sears Holdings' combined state returns for the years ended February 2, 2013 and February 1, 2014. Currently, the Company is under audit in one state for the years ended February 2, 2013 and February 1, 2014 as part of the Sears Holdings' combined return audits.

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Related Party Agreements and Transactions

6 Months Ended

Jul. 29, 2017

Related Party Transactions [Abstract]

RELATED-PARTY AGREEMENTS AND TRANSACTIONS

RELATED-PARTY AGREEMENTS AND TRANSACTIONS

According to publicly available information ESL Investments, Inc. and investment affiliates including Edward S. Lampert (collectively, "ESL") beneficially own approximately 57% of our outstanding shares of common stock and approximately 49% of Sears Holdings' outstanding shares of common stock (the latter percentage amount excludes shares that may be acquired within 60 days upon the exercise of warrants to purchase shares). Mr. Lampert is the Chairman of the Board and Chief Executive Officer of Sears Holdings.

SHO and Sears Holdings (and in some circumstances, its subsidiaries) have entered into various agreements (as amended, the "SHO-Sears Holdings Agreements") that, among other things, (1) govern specified aspects of our relationship with Sears Holdings, (2) establish terms under which subsidiaries of Sears Holdings provide services to us, and (3) establish terms pursuant to which subsidiaries of Sears Holdings obtain merchandise inventories for us. The terms of the SHO-Sears Holdings Agreements were agreed to prior to the Separation (except for amendments entered into after the Separation that were approved by the Audit Committee of SHO's Board of Directors) in the context of a parent-subsidiary relationship and in the overall context of the Separation. The costs and allocations charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company itself providing the applicable services. The Company has engaged in frequent discussions, and has resolved disputes, with Sears Holdings about the terms and conditions of the SHO-Sears Holdings Agreements, the business relationships that are reflected in the SHO-Sears Holdings Agreements, and the details of these business relationships, many of which details had not been addressed by the terms and conditions of the SHO-Sears Holdings Agreements or, if addressed, in the past were, and in the future could be, in dispute as to their meaning or application in the context of the existing business relationships. Many of these discussions have resulted in adjustments to the relationships that the Company believes together are in Company's best interests. On May 11, 2016, SHO and Sears Holdings entered into amendments to most of the SHO-Sears Holdings Agreements. The amendments are referred to in our Current Report on Form 8-K (File No. 001-35641) filed with the Securities and Exchange Commission on May 17, 2016. We also filed a Current Report on Form 8-K (File No. 001-35641) with the Securities and Exchange Commission on March 9, 2017 regarding the Amendment to Amended and Restated Merchandising Agreement dated as of March 8, 2017 among the Company, Sears Holdings, and Stanley Black & Decker. Inc.

The following is a summary of the nature of the related-party transactions between SHO and Sears Holdings:

• SHO receives commissions from Sears Holdings for specified online sales, sales of extended service contracts, and sales of delivery and handling services, and commissions relating to the use in our stores of credit cards branded with the Sears name. For specified transactions SHO pays commissions to Sears Holdings.

• We obtain a significant amount of our merchandise inventories from Sears Holdings.

• We pay royalties related to our sale of products branded with the KENMORE®, CRAFTSMAN®, and DIEHARD® marks (which marks are owned by, or licensed to, subsidiaries of Sears Holdings, together the "KCD Marks"). The royalty rates vary but none exceeds 6%.

• We pay fees for participation in Sears Holdings' SHOP YOUR WAY REWARDS® program.

• We pay fees to Sears Holdings for logistics, handling, warehouse, and transportation services, which fees are based generally on merchandise inventory units.

• Sears Holdings provides the Company with specified corporate services. These services include accounting and finance, and information technology, among other services. Sears Holdings charges the Company for these corporate services based on actual usage or pro rata charges based upon sales or other measurements.

• Sears Holdings leases stores and distribution/repair facilities to the Company, for which the Company pays rent and related occupancy charges to Sears Holdings.

The following table summarizes the results of the transactions with Sears Holdings reflected in the Company’s Condensed Consolidated Financial Statements:

	13 Weeks Ended				26 Weeks Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Thousands
Net Commissions from Sears Holdings	$	18,448	$	22,818	$	35,485	$	44,392
Purchases related to cost of sales and occupancy	268,584		302,554		533,114		616,088
Services included in selling and administrative expense	17,370		18,864		33,903		40,312

We incur payables to Sears Holdings for merchandise inventory purchases and service and occupancy charges (net of commissions) based on the SHO-Sears Holdings Agreements.  Amounts due to or from Sears Holdings are non-interest bearing and, except as provided in the following sentences of this paragraph, are settled on a net basis and have payment terms of 10 days after the invoice date. In accordance with the SHO–Sears Holdings Agreements and at the request of Sears Holdings, the Company can pay invoices on two or three-day terms and receive a deduction on invoices for early–payment discounts of 37 to 43 basis points, respectively. The Company can, in its sole discretion, revert to ten–day, no–discount payment terms at any time upon notice to Sears Holdings. The discount received for payments made on accelerated terms, net of incremental interest expense, results in a net financial benefit to the Company. During 2017, the Company paid most invoices on either two or three–day terms and received discounts of $1.4 million and $2.0 million, for the 13 and 26 weeks ended July 29, 2017, respectively, which is reflected in the Condensed Consolidated Statements of Operations. During 2016, the Company began paying invoices on accelerated terms on May 1, 2016 and received discounts of $1.0 million during both the 13 and 26 weeks ended July 30, 2016, which is reflected in the Condensed Consolidated Statements of Operations.

We recorded real estate occupancy payments of $0.3 million and $0.6 million for the 13 and 26 weeks ended July 29, 2017, respectively, and $0.2 million and $0.4 million for the 13 and 26 weeks ended July 30, 2016, respectively, to Seritage Growth Properties, a real estate investment trust. Edward S. Lampert is the Chairman of the Board of Trustees of Seritage.

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Financing Arrangements

6 Months Ended

Jul. 29, 2017

Debt Disclosure [Abstract]

FINANCING ARRANGEMENTS

FINANCING ARRANGEMENTS

In October 2012 the Company entered into a Credit Agreement with a syndicate of lenders, including Bank of America, N.A., as administrative agent, which provided (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million (the “Prior Facility”). Under the Prior Facility the Company initially borrowed $100 million which was used to pay a cash dividend to Sears Holdings prior to the Separation.

On November 1, 2016 the Company and its primary operating subsidiaries, entered into an Amended and Restated Credit Agreement with a syndicate of lenders, including Bank of America, N.A., as administrative agent and collateral agent, which provides (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million (the “Senior ABL Facility”). The Senior ABL Facility, which amended and restated the Prior Facility in its entirety, provides for extended revolving credit commitments in an aggregate amount equal to $170 million (the “Extended Revolving Credit Commitments”) and non-extended revolving credit commitments in an aggregate amount equal to $80 million (the “Non-Extended Revolving Credit Commitments”). The Extended Revolving Credit Commitments will mature on the earlier of (1) February 29, 2020 and (2) six months prior to the expiration of specified agreements entered into with Sears Holdings and its subsidiaries in connection with the Separation (the “Subject Agreements”) unless they are extended to a date later than February 29, 2020 or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility. The Non-Extended Revolving Credit Commitments will mature on the earlier of (1) October 11, 2017 and (2) six months prior to the expiration of the Subject Agreements unless they are extended to a date later than October 11, 2017 or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility. Costs related to and incurred for the November 1, 2016 refinancing totaled approximately $5.4 million, of which $4.4 million is remaining and is included in Prepaid and Other current assets on the Condensed Consolidated Balance Sheet as of July 29, 2017 and is being amortized over the remaining term of the Senior ABL Facility.

As of July 29, 2017 we had $112.4 million outstanding under the Senior ABL Facility, which approximated the fair value of these borrowings. Up to $75 million of the Senior ABL Facility is available for the issuance of letters of credit and up to $25 million is available for swingline loans. The Senior ABL Facility permits us to request commitment increases in an aggregate principal amount of up to $100 million. Availability under the Senior ABL Facility as of July 29, 2017 was $86.8 million, with $6.1 million of letters of credit outstanding under the facility. If the Non-Extended Revolving Credit Commitments had matured prior to the end of the second quarter of 2017, our availability under the Senior ABL Facility would have been approximately $52 million as of July 29, 2017.

In the first quarter of 2017, we resumed our agreement with Sears Holdings whereby SHO paid Sears Holdings' invoices for merchandise and services on accelerated terms in exchange for a 37 to 43 basis-point cash discount depending on the number of days we paid before the invoice due date. The Senior ABL Facility borrowings increased by approximately $23 million as of July 29, 2017, as a result of our accelerated payments. The discounts we received for the accelerated payments, less the incremental interest expense, resulted in a net financial benefit to the Company. During 2017, the Company paid most invoices on either two or three–day terms and received discounts totaling $1.4 million and $2.0 million for the 13 and 26 weeks ended July 29, 2017, respectively, which are reflected in the Condensed Consolidated Statements of Operations. During 2016, the Company began paying invoices on accelerated terms on May 1, 2016 and received discounts totaling $1.0 million during both the 13 and 26 weeks ended July 30, 2016, which are reflected in the Condensed Consolidated Statements of Operations.

The principal terms of the Senior ABL Facility are summarized below.

Prepayments

The Senior ABL Facility is subject to mandatory prepayment in amounts equal to the amount by which the outstanding extensions of credit exceed the lesser of the borrowing base and the commitments then in effect.

Security and Guarantees

The Senior ABL Facility is secured by a first lien security interest on substantially all the assets of the Company and its subsidiaries, including, without limitation, accounts receivable, inventory, general intangibles, investment property, equipment,

cash, cash equivalents, deposit accounts and securities accounts, as well as certain other assets (other than intellectual property and fee-owned interests in real property) ancillary to any of the foregoing and all proceeds of any of the foregoing, including cash proceeds and the proceeds of applicable insurance. The Senior ABL Facility is guaranteed by the Company and each of its existing and future direct and indirect wholly owned domestic subsidiaries (other than specified immaterial subsidiaries).

Interest; Fees

The interest rates per annum applicable to the loans under the Senior ABL Facility are based on a fluctuating rate of interest measured by reference to, at the Company’s election, either (1) an adjusted London inter-bank offered rate (LIBOR) plus a borrowing margin ranging from (x) 3.50% to 4.50%, in the case of the Extended Revolving Credit Commitments or (y) 2.00% to 2.50%, in the case of the Non-Extended Revolving Credit Commitments (which the blended rate was approximately 4.52% at July 29, 2017), and in each case based on availability under the Senior ABL Facility, or (2) an alternate base rate plus a borrowing margin, ranging from (x) 2.50% to 3.50%, in the case of the Extended Revolving Credit Commitments or (y) 1.00% to 1.50%, in the case of the Non-Extended Revolving Credit Commitments (which the blended rate was approximately 6.52% at July 29, 2017), and in each case based on availability under the Senior ABL Facility.

Customary fees are payable in respect of the Senior ABL Facility, including letter of credit fees and commitment fees.

Covenants

The Senior ABL Facility includes a number of negative covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries (including the guarantors) to, subject to certain exceptions, incur additional indebtedness (including guarantees), grant liens, make investments, make prepayments on other indebtedness, and engage in mergers or change the nature of the business of the Company and its subsidiaries (including the guarantors). In addition, upon excess availability falling below a specified level (which has not occurred), the Company is required to comply with a minimum fixed charge coverage ratio. The Senior ABL Facility also limits SHO’s ability to declare and pay cash dividends and to repurchase its common stock. The Senior ABL Facility would not have permitted us to pay cash dividends or repurchase our common stock as of July 29, 2017.

The Senior ABL Facility also contains affirmative covenants, including financial and other reporting requirements. As of July 29, 2017, SHO was in compliance with all covenants under the Senior ABL Facility.

Events of Default

The Senior ABL Facility includes customary and other events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments, change of control, failure to perform a “Material Contract” (which includes specified SHO-Sears Holdings Agreements) to the extent required to maintain it in full force and effect, failure to enforce a Material Contract in accordance with its terms, or termination by Sears Holdings of specified “Separation Agreements” (which include specified SHO-Sears Holdings Agreements).

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Summary of Segment Data

6 Months Ended

Jul. 29, 2017

Segment Reporting [Abstract]

SUMMARY OF SEGMENT DATA

SUMMARY OF SEGMENT DATA

The Hometown reportable segment consists of the aggregation of our Hometown Stores, Hardware Stores, and Home Appliance Showrooms business formats described in “Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations-Executive Overview" of this Quarterly Report on Form 10-Q. The Outlet reportable segment also represents a business format. These segments are evaluated by our Chief Operating Decision Maker to make decisions about resource allocation and to assess performance. Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the U.S. Sales categories include appliances, lawn and garden, tools and paint, and other (which includes initial franchise revenue).

	13 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	222,513		$	116,655		$	339,168
Lawn and garden	81,237			5,697			86,934
Tools and paint	24,536			3,386			27,922
Other	19,354			16,607			35,961
Total	347,640			142,345			489,985
Costs and expenses
Cost of sales and occupancy	280,126			117,511			397,637
Selling and administrative	75,759			39,449			115,208
Depreciation and amortization	1,890			2,814			4,704
Total	357,775			159,774			517,549
Operating loss	$	(10,135	)	$	(17,429	)	$	(27,564	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	1,096		$	1,469		$	2,565

	13 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	259,446		$	129,719		$	389,165
Lawn and garden	91,196			6,871			98,067
Tools and paint	31,369			4,355			35,724
Other	14,603			18,829			33,432
Total	396,614			159,774			556,388
Costs and expenses
Cost of sales and occupancy	313,231			128,277			441,508
Selling and administrative	83,554			35,254			118,808
Depreciation and amortization	1,507			1,786			3,293
Gain on sale of asset	—			(25,269		)	(25,269		)
Total	398,292			140,048			538,340
Operating income (loss)	$	(1,678	)	$	19,726		$	18,048
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	3,268		$	1,280		$	4,548

	26 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	420,239		$	242,520		662,759
Lawn and garden	144,800			11,292			156,092
Tools and paint	49,823			7,266			57,089
Other	29,992			32,286			62,278
Total	644,854			293,364			938,218
Costs and expenses
Cost of sales and occupancy	510,000			242,115			752,115
Selling and administrative	150,176			75,913			226,089
Depreciation and amortization	2,745			4,163			6,908
Total	662,921			322,191			985,112
Operating loss	$	(18,067	)	$	(28,827	)	$	(46,894	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	2,351		$	2,290		$	4,641

	26 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	490,380		$	271,767		$	762,147
Lawn and garden	169,613			11,559			181,172
Tools and paint	67,486			8,969			76,455
Other	35,714			37,881			73,595
Total	763,193			330,176			1,093,369
Costs and expenses
Cost of sales and occupancy	597,369			264,929			862,298
Selling and administrative	164,407			72,393			236,800
Depreciation and amortization	3,076			3,474			6,550
Gain on the sale of assets	—			(25,269		)	(25,269		)
Total	764,852			315,527			1,080,379
Operating income (loss)	$	(1,659	)	$	14,649		$	12,990
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	4,574		$	2,264		$	6,838

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Commitments and Contingencies

6 Months Ended

Jul. 29, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

We are subject to various legal and governmental proceedings arising out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management would not have a material adverse effect on our business, financial position, results of operations, or cash flows.

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(Loss) Earnings Per Common Share

6 Months Ended

Jul. 29, 2017

Earnings Per Share [Abstract]

(LOSS) EARNINGS PER COMMON SHARE

(LOSS) EARNINGS PER COMMON SHARE

Basic earnings per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for each period. Diluted income per common share also includes the dilutive effect of potential common shares. In the periods where the Company records a net loss the diluted per share amount is equal to the basic per share amount.

The following table sets forth the components used to calculate basic and diluted loss per share attributable to our stockholders.

	13 Weeks Ended					26 Weeks Ended
	July 29, 2017			July 30, 2016		July 29, 2017			July 30, 2016
Thousands except income per common share
Basic weighted average shares	22,702			22,696		22,702			22,681
Diluted weighted average shares	22,702			22,699		22,702			22,682
Net (loss) income	$	(29,446	)	$	10,642	$	(50,880	)	$	7,071
(Loss) income per common share:
Basic	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31
Diluted	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31

For the 13 and 26 weeks ended July 30, 2016, 14,000 unvested shares of restricted stock were excluded from the computation of diluted earnings per share due to the anti-dilutive effect of the unvested shares.

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Equity

6 Months Ended

Jul. 29, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

EQUITY

EQUITY

Stock-Based Compensation

Four million shares of the Company's common stock are reserved for issuance under the Company's Amended and Restated 2012 Stock Plan (the "Plan").

A total of 89,221 shares of restricted stock were granted under the Plan in 2013 (the "2013 Grants") to a group of eligible individuals (as defined in the Plan) and 14,000 shares of restricted stock were granted under the Plan to an eligible individual in 2015 (the "2015 Grant"). As of May 16, 2016, 52,691 shares of restricted stock comprising the 2013 Grants had been forfeited. On that date the remaining 36,530 shares of restricted stock comprising the 2013 Grants vested in accordance with the terms and conditions of the governing restricted-stock agreements and the Plan. The 14,000 shares of restricted stock comprising the 2015 Grant were forfeited in the first quarter of 2017.

In 2015 the Company granted a total of 159,475 stock units under the Plan to a group of eligible individuals, all of whom were employees of the Company at the time of the grants. As of July 29, 2017, 34,091 stock units had been forfeited. The remaining 125,384 stock units will vest, if at all, on April 13, 2018 in accordance with and subject to the terms and conditions of governing stock-unit agreements, including forfeiture conditions, and the Plan. The fair value of these awards will vary based on changes in our stock price at each reporting period.

During the first quarter of 2017 the Company granted a total of 222,788 stock units under the Plan to a group of eligible individuals, all of whom were employees of the Company at the time of the grants. As of July 29, 2017, 33,333 of these stock units had been forfeited. The remaining 189,455 stock units will vest, if at all, in three substantially equal installments on January 30 in 2018, 2019, and 2020 in accordance with and subject to the terms and conditions of governing stock unit agreements, including forfeiture conditions, and the Plan.

The shares of restricted stock referred to above in this Note 11 constituted outstanding shares of the Company's common stock. The recipients of the restricted stock grants had full voting and dividend rights with respect to, but were unable to transfer or pledge, their shares of restricted stock prior to the applicable vesting dates. The stock units referred to above in this Note 11, which are payable solely in cash based on the Nasdaq closing price of our common stock at the applicable vesting dates, do not constitute outstanding shares of the Company's common stock. The recipients of the stock unit grants have, with respect to their stock units, no rights to receive the Company's common stock or other securities of the Company, no rights as a stockholder of the Company, no dividend rights, and no voting rights.

We are authorized to grant stock options and to make other awards (in addition to restricted stock and stock units) to eligible participants pursuant to the Plan. The Company has made no stock-option awards under the Plan. Except for the grants of restricted stock and stock units referred to above in this Note 11, the Company has not made any grant or award under the Plan. We do not currently have a broad-based program that provides for awards under the Plan on an annual basis.

We account for stock-based compensation using the fair value method in accordance with accounting standards regarding share-based payment transactions. During the 26 weeks ended July 29, 2017, we recorded $0.1 million in total compensation income for 314,839 stock units. At July 29, 2017 we had $0.8 million in total unrecognized compensation cost related to the remaining unvested stock units, which we expect to recognize over the next approximately 2.5 years.

Changes during 2017 with respect to the 2015 Grant are noted below.

	26 Weeks Ended July 29, 2017
(Shares in Thousands)	Shares		Weighted-Average Fair Value Per Share on Date of Grant
Balance at January 28, 2017	14		$	9.38
Granted	—		—
Vested	—		—
Forfeited	(14	)	9.38
Balance at July 29, 2017	—		$	—

Share Repurchase Program

During 2013 the Company's Board of Directors authorized a $25 million repurchase program for the Company's outstanding shares of common stock. The timing and amount of repurchases 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 plans. 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. See Note 7 to these Condensed Consolidated Financial Statements regarding the Senior ABL Facility's limits on SHO’s ability to repurchase its common stock. 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.

No shares were repurchased during the 13 and 26 weeks ended July 29, 2017. At July 29, 2017, we had approximately $12.5 million of remaining authorization under the repurchase program.

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Store Closing Charges

6 Months Ended

Jul. 29, 2017

Restructuring and Related Activities [Abstract]

STORE CLOSING CHARGES

STORE CLOSING CHARGES

Closed Store Charges

We continue to take proactive steps to make the best use of capital by closing unprofitable stores. The Company closed 70 and 79 Hometown store locations during the 13 and 26 weeks ended July 29, 2017, respectively. In addition, the Company closed 11 and 12 Outlet store locations during the 13 and 26 weeks ended July 29, 2017, respectively.

In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which we no longer expect to receive any economic benefit are accrued as of when we ceased to use the leased space and have been reduced for estimated sublease income.

Store closing costs for the 13 and 26 weeks ended July 29, 2017 were as follows:

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
13 weeks ended July 29, 2017	$	9,397	$	1,796	$	979	$	386	$	12,558

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
26 weeks ended July 29, 2017	$	8,447	$	1,796	$	979	$	386	$	11,608

(1)	Recorded within cost of sales and occupancy in the Condensed Consolidated Statements of Operations. Lease termination costs are net of estimated sublease income, and include the reversal of closed store reserves when a lease agreement is terminated for an amount less than the remaining reserve established for the store.
(2)	Recorded within depreciation and amortization in the Condensed Consolidated Statements of Operations.
(3)	Recorded within selling and administrative in the Condensed Consolidated Statements of Operations.

Closed Store Reserve

Store closing reserves at July 29, 2017 and January 28, 2017 are shown in the table below. Store closing reserves of $9.4 million,$0.8 million, and $7.7 million are included within other current liabilities in the Condensed Consolidated Balance Sheets at July 29, 2017, July 30, 2016 and January 28, 2017, respectively.

Thousands	Total
Balance at January 28, 2017	$	7,659
Store closing benefit	(950		)
Payments/utilization	(2,490		)
Balance at April 29, 2017	$	4,219
Store closing costs	9,783
Payments/utilization	(4,629		)
Balance at July 29, 2017	$	9,373

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Background and Basis of Presentation (Policies)

6 Months Ended

Jul. 29, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

These unaudited Condensed Consolidated Financial Statements include the accounts of Sears Hometown and Outlet Stores, Inc. and its subsidiaries, all of which are wholly owned. These unaudited Condensed Consolidated Financial Statements do not include all of the information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the 13 and 26 weeks ended July 29, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year. These financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017 (the "2016 10-K").

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

Our second fiscal-quarter end is the Saturday closest to July 31 each year.  Our fiscal-year end is the Saturday closest to January 31 each year.

Variable Interest Entities and Consolidation

Variable Interest Entities and Consolidation

The Financial Accounting Standards Board ("FASB") has issued guidance on variable interest entities and consolidation for determining whether an entity is a variable interest entity ("VIE") as well as the methods permitted for determining the primary beneficiary of a variable interest entity. In addition, this guidance requires ongoing reassessments as to whether a reporting company is the primary beneficiary of a variable interest entity and disclosures regarding the reporting company’s involvement with a variable interest entity.

On an ongoing basis the Company evaluates its business relationships, such as those with its independent dealers, independent franchisees, and suppliers, to identify potential variable interest entities. Generally, these businesses either qualify for a scope exception under the consolidation guidance or, where a variable interest exists, the Company does not possess the power to direct the activities that most significantly impact the economic performance of these businesses. The Company has not consolidated any of such entities in the periods presented.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

We determine the fair value of financial instruments in accordance with standards pertaining to fair value measurements. Such standards define fair value and establish a framework for measuring fair value under GAAP. Under fair value measurement accounting standards, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. We report the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by accounting standards for fair value measurements, which prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:

Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide ongoing pricing information.

Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable for the asset or liability, such as interest-rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risks, and default rates.

Level 3 inputs—unobservable inputs for the asset or liability.

Cash and cash equivalents, merchandise payables, accrued expenses (level 1), accounts and franchisee notes receivable, and short-term debt (level 2) are reflected in the Condensed Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. For short-term debt, the variable interest rates are a significant input in our fair value assessments. The carrying value of long-term notes receivable approximates fair value.

We measure certain non-financial assets and liabilities, including long-lived assets, at fair value on a nonrecurring basis.

The Company was not required to measure any other significant non-financial asset or liability at fair value as ofJuly 29, 2017.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business"

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of Business". This ASU is meant to clarify the definition of a business to add guidance when determining when an acquisition or disposal should be accounted for as a sale of assets or business. This ASU provides a more robust framework to use in determining when a set of assets or activities should be classified as a business, providing more consistency in accounting for business or asset acquisitions. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those periods. The ASU will be applied prospectively.

ASU 2016-15 "Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments"

In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments". This ASU reduces the diversity in reporting of eight specific cash flow issues due to accounting guidance that is unclear or does not exist. The eight issues relate to certain debt activities, business combination activities, insurance settlements and other various activities. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted and is to be applied retrospectively using a transition method for each period presented. An entity that elects early adoption of the amendment under this ASU must adopt all aspects of the amendment in the same period. This guidance is not expected to have a material impact on our consolidated financial statements.

ASU 2016-02 "Leases (Topic 842)"

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This amendment created a new Topic under the accounting standards codification to account for the provisions of the ASU. This amendment is meant to provide transparency and to improve comparability between entities. The ASU requires companies to record an asset and liability on the balance sheet for leases that were formerly designated as operating leases as well as leases designated as financing leases. The provisions of the ASU predominately change the recognition of leases for lessees, but the provisions do not substantially change the accounting for lessors. This ASU will supersede the provisions of Topic 840 Leases.

The liability recorded for a lease is generally intended to recognize the present value of lease payments and the asset as a right to use the underlying asset for the lease, including optional periods if it is reasonably certain the option will be exercised. If a lease term is less than twelve months, a company is allowed to elect not to record the asset and liability. Expense related to these leases are to be amortized straight-line over the expected term of the lease.

Additionally, the provisions of this ASU provide additional guidance on separating lease terms from maintenance and other type of provisions that provide a good or service, accounting for sale-leaseback provisions, and leveraged leases.

These updates are required to be applied under a modified retrospective approach from the beginning of the earlier period presented. The modified approach provides optional practical expedients that may be elected, which will allow companies to continue to account for leases under the previous guidance for leases that commenced prior to the effective date. Reporting in the cash flow statement remains virtually unchanged. Additional qualitative and quantitative disclosures are required.

The provisions of this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those periods. Early adoption is allowed. We have just commenced the process for evaluating the impact of this ASU on our financial statements, and therefore it's impact has not yet been determined. However, upon adoption, we expect that the right of use asset and the lease liability will be recognized in the balance sheets in amounts that will be material.

ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)"

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)".The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The new revenue recognition guidance more closely aligns U.S. GAAP with International Financial Reporting Standards ("IFRS"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB issued ASU 2015-14: Accounting for Revenue from Contracts with Customers (Topic 606)" The amended guidance deferred the effective date of ASU 2014-9 to annual periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2016 and interim periods within those fiscal years. In addition, four other ASUs have been issued amending and clarifying ASU 2014-09 and must be adopted concurrently.

• ASU 2016-08 "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

• ASU 2016-10 "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"

• ASU 2016-12 "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients"

• ASU 2016-20 "Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements"

This update can either be applied under a cumulative effect or retrospective method. We are in the process of reviewing customer contracts and agreements to determine the potential effects of the standard based on our revenue streams and current revenue recognition practices. Following review of customer contracts and agreements, we will summarize contract terms, reference the findings to the applicable new guidance, determine the financial statement impact, and then update policies and controls to ensure application of the new provisions will be applied consistently throughout the Company. As we are still in the process of completing our full assessment of the impact expected from adoption of this standard, we have not yet determined the materiality of the resulting differences in the timing of revenue recognition. The Company expects to adopt the provisions of this standard using the modified retrospective approach, which requires a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption. The Company will adopt ASU 2014-09 effective February 4, 2018.

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Accounts and Franchisee Receivables and Other Assets (Tables)

6 Months Ended

Jul. 29, 2017

Receivables [Abstract]

Schedule of Accounts and Franchisee Receivables and Other Assets

Accounts and franchisee receivables and other assets consist of the following:

Thousands	July 29, 2017			July 30, 2016			January 28, 2017
Short-term franchisee receivables	$	1,584		$	2,262		$	1,920
Miscellaneous receivables	10,363			16,018			10,475
Long-term franchisee receivables	11,260			20,971			18,406
Other assets	5,851			3,822			7,643
Allowance for losses on short-term franchisee receivables (1)	(1,027		)	(1,263		)	(947		)
Allowance for losses on long-term franchisee receivables (1)	(5,999		)	(9,300		)	(7,295		)
Net accounts and franchisee receivables and other assets	$	22,032		$	32,510		$	30,202

(1) The Company recognizes an allowance for losses on franchisee receivables (which consist primarily of franchisee promissory notes) in an amount equal to estimated probable losses net of recoveries. The allowance is based on an analysis of expected future write-offs and existing economic conditions and an assessment of specific identifiable franchisee promissory notes and other franchisee receivables considered at risk or uncollectible. The expense associated with the allowance for losses on franchisee receivables is recognized as selling and administrative expense. Most of our franchisee promissory notes authorize us to deduct debt service from our commissions otherwise due and payable to the franchisees, and we routinely make those deductions to the extent of available commissions payable.

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Allowance for Losses on Franchisee Receivables (Tables)

6 Months Ended

Jul. 29, 2017

Receivables [Abstract]

Schedule of Provision for Losses on Franchisee Receivables

The allowance for losses on franchisee receivables consists of the following as of:

	26 Weeks Ended
Thousands	July 29, 2017			July 30, 2016
Allowance for losses on franchisee receivables, beginning of period	$	8,242		$	12,141
Provisions (recoveries) during the period	5,701			(483		)
Write off of franchisee receivables against the allowance	(6,917		)	(1,220		)
Other	—			125
Allowance for losses on franchisee receivables, end of period	$	7,026		$	10,563

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Other Current and Long-Term Liabilities (Tables)

6 Months Ended

Jul. 29, 2017

Payables and Accruals [Abstract]

Schedule of Accrued Expenses and Other Long-term Liabilities

Other current and long-term liabilities consist of the following:

Thousands	July 29, 2017		July 30, 2016		January 28, 2017
Customer deposits	$	19,645	$	25,350	$	19,943
Sales and other taxes	11,256		11,753		11,380
Accrued expenses	30,923		26,335		27,602
Payroll and related items	6,958		5,203		5,766
Store closing costs	9,373		894		7,659
Total Other current and long-term liabilities	$	78,155	$	69,535	$	72,350

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Related Party Agreements and Transactions (Tables)

6 Months Ended

Jul. 29, 2017

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

The following table summarizes the results of the transactions with Sears Holdings reflected in the Company’s Condensed Consolidated Financial Statements:

	13 Weeks Ended				26 Weeks Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016
Thousands
Net Commissions from Sears Holdings	$	18,448	$	22,818	$	35,485	$	44,392
Purchases related to cost of sales and occupancy	268,584		302,554		533,114		616,088
Services included in selling and administrative expense	17,370		18,864		33,903		40,312

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Summary of Segment Data (Tables)

6 Months Ended

Jul. 29, 2017

Segment Reporting [Abstract]

Schedule of Segment Data

Sales categories include appliances, lawn and garden, tools and paint, and other (which includes initial franchise revenue).

	13 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	222,513		$	116,655		$	339,168
Lawn and garden	81,237			5,697			86,934
Tools and paint	24,536			3,386			27,922
Other	19,354			16,607			35,961
Total	347,640			142,345			489,985
Costs and expenses
Cost of sales and occupancy	280,126			117,511			397,637
Selling and administrative	75,759			39,449			115,208
Depreciation and amortization	1,890			2,814			4,704
Total	357,775			159,774			517,549
Operating loss	$	(10,135	)	$	(17,429	)	$	(27,564	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	1,096		$	1,469		$	2,565

	13 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	259,446		$	129,719		$	389,165
Lawn and garden	91,196			6,871			98,067
Tools and paint	31,369			4,355			35,724
Other	14,603			18,829			33,432
Total	396,614			159,774			556,388
Costs and expenses
Cost of sales and occupancy	313,231			128,277			441,508
Selling and administrative	83,554			35,254			118,808
Depreciation and amortization	1,507			1,786			3,293
Gain on sale of asset	—			(25,269		)	(25,269		)
Total	398,292			140,048			538,340
Operating income (loss)	$	(1,678	)	$	19,726		$	18,048
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	3,268		$	1,280		$	4,548

	26 Weeks Ended July 29, 2017
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	420,239		$	242,520		662,759
Lawn and garden	144,800			11,292			156,092
Tools and paint	49,823			7,266			57,089
Other	29,992			32,286			62,278
Total	644,854			293,364			938,218
Costs and expenses
Cost of sales and occupancy	510,000			242,115			752,115
Selling and administrative	150,176			75,913			226,089
Depreciation and amortization	2,745			4,163			6,908
Total	662,921			322,191			985,112
Operating loss	$	(18,067	)	$	(28,827	)	$	(46,894	)
Total assets	$	297,553		$	148,890		$	446,443
Capital expenditures	$	2,351		$	2,290		$	4,641

	26 Weeks Ended July 30, 2016
Thousands	Hometown			Outlet			Total
Net sales
Appliances	$	490,380		$	271,767		$	762,147
Lawn and garden	169,613			11,559			181,172
Tools and paint	67,486			8,969			76,455
Other	35,714			37,881			73,595
Total	763,193			330,176			1,093,369
Costs and expenses
Cost of sales and occupancy	597,369			264,929			862,298
Selling and administrative	164,407			72,393			236,800
Depreciation and amortization	3,076			3,474			6,550
Gain on the sale of assets	—			(25,269		)	(25,269		)
Total	764,852			315,527			1,080,379
Operating income (loss)	$	(1,659	)	$	14,649		$	12,990
Total assets	$	415,501		$	207,377		$	622,878
Capital expenditures	$	4,574		$	2,264		$	6,838

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(Loss) Earnings Per Common Share (Tables)

6 Months Ended

Jul. 29, 2017

Earnings Per Share [Abstract]

Schedule of (Loss) Earnings Per Share, Basic and Diluted

The following table sets forth the components used to calculate basic and diluted loss per share attributable to our stockholders.

	13 Weeks Ended					26 Weeks Ended
	July 29, 2017			July 30, 2016		July 29, 2017			July 30, 2016
Thousands except income per common share
Basic weighted average shares	22,702			22,696		22,702			22,681
Diluted weighted average shares	22,702			22,699		22,702			22,682
Net (loss) income	$	(29,446	)	$	10,642	$	(50,880	)	$	7,071
(Loss) income per common share:
Basic	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31
Diluted	$	(1.30	)	$	0.47	$	(2.24	)	$	0.31

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Equity (Tables)

6 Months Ended

Jul. 29, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Restricted Stock Award Activity

Changes during 2017 with respect to the 2015 Grant are noted below.

	26 Weeks Ended July 29, 2017
(Shares in Thousands)	Shares		Weighted-Average Fair Value Per Share on Date of Grant
Balance at January 28, 2017	14		$	9.38
Granted	—		—
Vested	—		—
Forfeited	(14	)	9.38
Balance at July 29, 2017	—		$	—

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Store Closing Charges (Tables)

6 Months Ended

Jul. 29, 2017

Restructuring and Related Activities [Abstract]

Schedule of Store Closing Costs

Store closing costs for the 13 and 26 weeks ended July 29, 2017 were as follows:

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
13 weeks ended July 29, 2017	$	9,397	$	1,796	$	979	$	386	$	12,558

Thousands	Lease Termination Costs (1)		Inventory Related (1)		Impairment and Accelerated Depreciation (2)		Other Charges (3)		Total Store Closing Costs
26 weeks ended July 29, 2017	$	8,447	$	1,796	$	979	$	386	$	11,608

(1)	Recorded within cost of sales and occupancy in the Condensed Consolidated Statements of Operations. Lease termination costs are net of estimated sublease income, and include the reversal of closed store reserves when a lease agreement is terminated for an amount less than the remaining reserve established for the store.
(2)	Recorded within depreciation and amortization in the Condensed Consolidated Statements of Operations.
(3)	Recorded within selling and administrative in the Condensed Consolidated Statements of Operations.

Schedule of Store Closing Reserves

Store closing reserves of $9.4 million,$0.8 million, and $7.7 million are included within other current liabilities in the Condensed Consolidated Balance Sheets at July 29, 2017, July 30, 2016 and January 28, 2017, respectively.

Thousands	Total
Balance at January 28, 2017	$	7,659
Store closing benefit	(950		)
Payments/utilization	(2,490		)
Balance at April 29, 2017	$	4,219
Store closing costs	9,783
Payments/utilization	(4,629		)
Balance at July 29, 2017	$	9,373

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Background and Basis of Presentation (Details)	6 Months Ended
	Jul. 29, 2017 store segment state
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of stores | store	932
Number of states in which the Company operates | state	50
Number of operating segments | segment	2

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Accounts and Franchisee Receivables and Other Assets (Details) - USD ($) $ in Thousands	Jul. 29, 2017	Jan. 28, 2017	Jul. 30, 2016
Receivables [Abstract]
Short-term franchisee receivables	$ 1,584	$ 1,920	$ 2,262
Miscellaneous receivables	10,363	10,475	16,018
Long-term franchisee receivables	11,260	18,406	20,971
Other assets	5,851	7,643	3,822
Allowance for losses on short-term franchisee receivables	(1,027)	(947)	(1,263)
Allowance for losses on long-term franchisee receivables	(5,999)	(7,295)	(9,300)
Net accounts and franchisee receivables and other assets	$ 22,032	$ 30,202	$ 32,510

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Allowance for Losses on Franchisee Receivables (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jul. 29, 2017 USD ($) location	Jul. 29, 2017 USD ($) location	Jul. 30, 2016 USD ($)
Provision for Losses on Franchisee Receivables [Roll Forward]
Number of franchise locations terminated | location	14	14
Franchise Receivable
Provision for Losses on Franchisee Receivables [Roll Forward]
Allowance for losses on franchisee receivables, beginning of period		$ 8,242	$ 12,141
Provisions (recoveries) during the period		5,701	(483)
Write off of franchisee receivables against the allowance		(6,917)	(1,220)
Other		0	125
Allowance for losses on franchisee receivables, end of period	$ 7,026	7,026	$ 10,563
Previous Franchisee note Receivable
Provision for Losses on Franchisee Receivables [Roll Forward]
Promissory note carrying amount	5,500	5,500
Loss on transaction	5,500
New Franchisee Note Receivable
Provision for Losses on Franchisee Receivables [Roll Forward]
Promissory note carrying amount	$ 1,500	$ 1,500

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Other Current and Long-Term Liabilities (Details) - USD ($) $ in Thousands	Jul. 29, 2017	Jan. 28, 2017	Jul. 30, 2016
Payables and Accruals [Abstract]
Customer deposits	$ 19,645	$ 19,943	$ 25,350
Sales and other taxes	11,256	11,380	11,753
Accrued expenses	30,923	27,602	26,335
Payroll and related items	6,958	5,766	5,203
Store closing costs	9,373	7,659	894
Total Other current and long-term liabilities	$ 78,155	$ 72,350	$ 69,535

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Related Party Agreements and Transactions (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Jul. 30, 2016	Jul. 29, 2017	Jul. 30, 2016
Minimum
Related Party Transaction [Line Items]
Invoice payment term			2 days
Maximum
Related Party Transaction [Line Items]
Invoice payment term			3 days
ESL
Related Party Transaction [Line Items]
Beneficial interest acquired by related party, percentage	57.00%		57.00%
ESL | Sears Holdings
Related Party Transaction [Line Items]
Beneficial interest acquired by related party, percentage	49.00%		49.00%
Sears Holdings Corporation
Related Party Transaction [Line Items]
Maximum percentage of royalty rates			6.00%
Net Commissions from Sears Holdings	$ 18,448	$ 22,818	$ 35,485	$ 44,392
Purchases related to cost of sales and occupancy	268,584	302,554	533,114	616,088
Services included in selling and administrative expense	17,370	18,864	$ 33,903	40,312
Invoice payment term			10 days
Discounts received	1,400	1,000	$ 2,000	1,000
Sears Holdings Corporation | Minimum | Payments for Merchandise Inventory to Related Party
Related Party Transaction [Line Items]
Early payment discount percentage			0.37%
Sears Holdings Corporation | Maximum | Payments for Merchandise Inventory to Related Party
Related Party Transaction [Line Items]
Early payment discount percentage			0.43%
Seritage Growth Properties
Related Party Transaction [Line Items]
Occupancy payments	$ 300	$ 200	$ 600	$ 400

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Financing Arrangements (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Oct. 31, 2012	Jul. 29, 2017	Jul. 30, 2016	Jul. 29, 2017	Jul. 30, 2016	Jan. 28, 2017	Nov. 01, 2016
Debt Instrument [Line Items]
Increases in aggregate principal				$ 100,000,000
Payments for refinancing fees						$ 5,400,000
Remaining and is included in Prepaid and Other current assets		$ 4,400,000		4,400,000
Short-term debt outstanding under the Senior ABL Facility		$ 112,400,000		$ 112,400,000
LIBOR
Debt Instrument [Line Items]
Blended interest rate		4.52%		4.52%
Base Rate
Debt Instrument [Line Items]
Blended interest rate		6.52%		6.52%
Sears Holdings Corporation
Debt Instrument [Line Items]
Invoice payment term				10 days
Discounts received		$ 1,400,000	$ 1,000,000	$ 2,000,000	$ 1,000,000
Minimum
Debt Instrument [Line Items]
Invoice payment term				2 days
Minimum | Sears Holdings Corporation | Payments for Merchandise Inventory to Related Party
Debt Instrument [Line Items]
Early payment discount percentage				0.37%
Maximum
Debt Instrument [Line Items]
Invoice payment term				3 days
Maximum | Sears Holdings Corporation | Payments for Merchandise Inventory to Related Party
Debt Instrument [Line Items]
Early payment discount percentage				0.43%
Swingline Loans
Debt Instrument [Line Items]
Aggregate maximum borrowings		25,000,000		$ 25,000,000
Letter of Credit
Debt Instrument [Line Items]
Aggregate maximum borrowings		75,000,000		75,000,000
Senior ABL Facility
Debt Instrument [Line Items]
Aggregate maximum borrowings	$ 250,000,000						$ 250,000,000
Increases in aggregate principal	$ 100,000,000
Remaining borrowing capacity		86,800,000		86,800,000
Remaining borrowing capacity had credit commitments matured		52,000,000		52,000,000
Credit facility borrowings increase				23,000,000
Senior ABL Facility | Letter of Credit
Debt Instrument [Line Items]
Remaining borrowing capacity		$ 6,100,000		$ 6,100,000
Senior ABL Facility Extended Commitments
Debt Instrument [Line Items]
Aggregate maximum borrowings							170,000,000
Senior ABL Facility Extended Commitments | Minimum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate				3.50%
Senior ABL Facility Extended Commitments | Minimum | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate				2.50%
Senior ABL Facility Extended Commitments | Maximum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate				4.50%
Senior ABL Facility Extended Commitments | Maximum | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate				3.50%
Senior ABL Facility Non-Extended Commitments
Debt Instrument [Line Items]
Aggregate maximum borrowings							$ 80,000,000
Senior ABL Facility Non-Extended Commitments | Minimum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate				2.00%
Senior ABL Facility Non-Extended Commitments | Minimum | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate				1.00%
Senior ABL Facility Non-Extended Commitments | Maximum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate				2.50%
Senior ABL Facility Non-Extended Commitments | Maximum | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate				1.50%

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Summary of Segment Data (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Jul. 30, 2016	Jul. 29, 2017	Jul. 30, 2016	Jan. 28, 2017
Segment Reporting Information [Line Items]
Net sales	$ 489,985	$ 556,388	$ 938,218	$ 1,093,369
Cost of sales and occupancy	397,637	441,508	752,115	862,298
Selling and administrative	115,208	118,808	226,089	236,800
Depreciation and amortization	4,704	3,293	6,908	6,550
Gain on sale of assets	0	(25,269)	0	(25,269)
Total costs and expenses	517,549	538,340	985,112	1,080,379
Operating (loss) income	(27,564)	18,048	(46,894)	12,990
Total assets	446,443	622,878	446,443	622,878	$ 468,426
Capital expenditures	2,565	4,548	4,641	6,838
Appliances
Segment Reporting Information [Line Items]
Net sales	339,168	389,165	662,759	762,147
Lawn and garden
Segment Reporting Information [Line Items]
Net sales	86,934	98,067	156,092	181,172
Tools and paint
Segment Reporting Information [Line Items]
Net sales	27,922	35,724	57,089	76,455
Other
Segment Reporting Information [Line Items]
Net sales	35,961	33,432	62,278	73,595
Hometown
Segment Reporting Information [Line Items]
Net sales	347,640	396,614	644,854	763,193
Cost of sales and occupancy	280,126	313,231	510,000	597,369
Selling and administrative	75,759	83,554	150,176	164,407
Depreciation and amortization	1,890	1,507	2,745	3,076
Gain on sale of assets		0		0
Total costs and expenses	357,775	398,292	662,921	764,852
Operating (loss) income	(10,135)	(1,678)	(18,067)	(1,659)
Total assets	297,553	415,501	297,553	415,501
Capital expenditures	1,096	3,268	2,351	4,574
Hometown | Appliances
Segment Reporting Information [Line Items]
Net sales	222,513	259,446	420,239	490,380
Hometown | Lawn and garden
Segment Reporting Information [Line Items]
Net sales	81,237	91,196	144,800	169,613
Hometown | Tools and paint
Segment Reporting Information [Line Items]
Net sales	24,536	31,369	49,823	67,486
Hometown | Other
Segment Reporting Information [Line Items]
Net sales	19,354	14,603	29,992	35,714
Outlet
Segment Reporting Information [Line Items]
Net sales	142,345	159,774	293,364	330,176
Cost of sales and occupancy	117,511	128,277	242,115	264,929
Selling and administrative	39,449	35,254	75,913	72,393
Depreciation and amortization	2,814	1,786	4,163	3,474
Gain on sale of assets		(25,269)		(25,269)
Total costs and expenses	159,774	140,048	322,191	315,527
Operating (loss) income	(17,429)	19,726	(28,827)	14,649
Total assets	148,890	207,377	148,890	207,377
Capital expenditures	1,469	1,280	2,290	2,264
Outlet | Appliances
Segment Reporting Information [Line Items]
Net sales	116,655	129,719	242,520	271,767
Outlet | Lawn and garden
Segment Reporting Information [Line Items]
Net sales	5,697	6,871	11,292	11,559
Outlet | Tools and paint
Segment Reporting Information [Line Items]
Net sales	3,386	4,355	7,266	8,969
Outlet | Other
Segment Reporting Information [Line Items]
Net sales	$ 16,607	$ 18,829	$ 32,286	$ 37,881

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(Loss) Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Jul. 30, 2016	Jul. 29, 2017	Jul. 30, 2016
Earnings Per Share [Abstract]
Basic weighted average shares (in shares)	22,702,000	22,696,000	22,702,000	22,681,000
Diluted weighted average shares (in shares)	22,702,000	22,699,000	22,702,000	22,682,000
Net (loss) income	$ (29,446)	$ 10,642	$ (50,880)	$ 7,071
(Loss) income per common share:
Basic (in dollars per share)	$ (1.30)	$ 0.47	$ (2.24)	$ 0.31
Diluted (in dollars per share)	$ (1.30)	$ 0.47	$ (2.24)	$ 0.31
Unvested shares of restricted stock (in shares)	14,000		14,000

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Equity (Narrative) (Details) - USD ($)		3 Months Ended		6 Months Ended	12 Months Ended		30 Months Ended	31 Months Ended
	May 16, 2016	Jul. 29, 2017	Apr. 29, 2017	Jul. 29, 2017	Jan. 30, 2016	Feb. 01, 2014	Jul. 29, 2017	Jul. 29, 2017	Dec. 31, 2013
Stock-based Compensation
Shares reserved under plan (in shares)		4,000,000		4,000,000			4,000,000	4,000,000
Share Repurchase Program
Authorized amount									$ 25,000,000
Stock repurchased (in shares)		0		0
Remaining authorized repurchase amount		$ 12,500,000		$ 12,500,000			$ 12,500,000	$ 12,500,000
Restricted Stock
Stock-based Compensation
Stock granted (in shares)					14,000	89,221
Forfeited in period (in shares)	52,691		14,000
Vested (in shares)	36,530			0
Unvested (in shares)		314,839		314,839			314,839	314,839
Share-based compensation income				$ 100,000
Total unrecognized compensation		$ 800,000		$ 800,000			$ 800,000	$ 800,000
Compensation to be recognized term				2 years 6 months
Restricted Stock Units (RSUs)
Stock-based Compensation
Unvested (in shares)		189,455		189,455			189,455	189,455
Share-based Compensation Award, Tranche One | Restricted Stock Units (RSUs)
Stock-based Compensation
Vesting installment percentage				33.00%
Share-based Compensation Award, Tranche Two | Restricted Stock Units (RSUs)
Stock-based Compensation
Vesting installment percentage				33.00%
Share-based Compensation Award, Tranche Three | Restricted Stock Units (RSUs)
Stock-based Compensation
Vesting installment percentage				33.00%
Amended and Restated 2012 Stock Plan (the 'Plan') | Restricted Stock Units (RSUs)
Stock-based Compensation
Stock granted (in shares)			222,788		159,475
Forfeited in period (in shares)							34,091	33,333
Unvested (in shares)		125,384		125,384			125,384	125,384

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Equity (Restricted Stock Awards) (Details) - Restricted Stock - $ / shares		6 Months Ended
	May 16, 2016	Jul. 29, 2017
Shares
Beginning of year balance (in shares)		14,000
Granted (in shares)		0
Vested (in shares)	(36,530)	0
Forfeited (in shares)		(14,000)
Balance at end of period (in shares)		0
Weighted-Average Fair Value on Date of Grant
Beginning of year balance (in dollars per share)		$ 9.38
Granted (in dollars per share)		0.00
Vested (in dollars per share)		0.00
Forfeited (in dollars per share)		9.38
Balance at end of period (in dollars per share)		$ 0.00

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Store Closing Charges (Narrative) (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jul. 29, 2017 USD ($) store	Jul. 29, 2017 USD ($) store	Apr. 29, 2017 USD ($)	Jan. 28, 2017 USD ($)	Jul. 30, 2016 USD ($)
Restructuring Cost and Reserve [Line Items]
Store closing restructuring reserves | $	$ 9,373	$ 9,373	$ 4,219	$ 7,659	$ 800
Hometown | Facility Closing
Restructuring Cost and Reserve [Line Items]
Number of store closings	70	79
Outlet | Facility Closing
Restructuring Cost and Reserve [Line Items]
Number of store closings	11	12

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Store Closing Charges (Schedule of Store Closing Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Apr. 29, 2017	Jul. 29, 2017
Restructuring Cost and Reserve [Line Items]
Total Store Closing Costs	$ 9,783	$ (950)
Facility Closing
Restructuring Cost and Reserve [Line Items]
Total Store Closing Costs	12,558		$ 11,608
Cost of Sales and Occupancy | Facility Closing
Restructuring Cost and Reserve [Line Items]
Lease Termination Costs	9,397		8,447
Inventory Related	1,796		1,796
Deprecation and Amortization | Facility Closing
Restructuring Cost and Reserve [Line Items]
Impairment and Accelerated Depreciation	979		979
Sellingl and Administrative Expenses | Facility Closing
Restructuring Cost and Reserve [Line Items]
Other Charges	$ 386		$ 386

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Store Closing Charges (Schedule of Store Closing Reserves) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 29, 2017	Apr. 29, 2017	Jul. 29, 2017
Restructuring and Related Activities [Abstract]
Closed store reserve, Beginning balance	$ 4,219	$ 7,659	$ 7,659
Store closing cost (benefit)	9,783	(950)
Payments/utilization	(4,629)	(2,490)
Closed store reserve, Ending balance	$ 9,373	$ 4,219	$ 9,373