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Sears Holdings Reports Second Quarter Results

Sears Holdings Corporation ("Holdings" or "the Company") (NASDAQ: SHLD) today reported net income of $294 million, or $1.88 per diluted share, for the second quarter ended July 29, 2006, compared with net income of $161 million, or $0.98 per diluted share, for the second quarter ended July 30, 2005. The second quarter 2006 results include a $36 million pre-tax gain, or $22 million net of taxes ($0.14 per diluted share), representing the Company's portion of proceeds received during the second quarter of 2006 related to the settlement of Visa/MasterCard antitrust litigation. Excluding the impact of this gain, second quarter 2006 net income was $272 million, or $1.74 per diluted share. In addition, the prior year second quarter results included $42 million in merger-related restructuring charges at Kmart, or $26 million net of taxes ($0.16 per diluted share). Excluding the impact of these charges, prior year second quarter net income was $187 million, or $1.14 per diluted share. The improvement in second quarter 2006 earnings reflects improved profitability at both Kmart and Sears Domestic, largely due to reduced expenses and an increase of 120 basis points in gross margin rate from 27.2% in 2005 to 28.4% in 2006.

"Sears Holdings' resolve to improve the profitability of this business remains strong and is borne out in the company's second quarter results," said Aylwin Lewis, Sears Holdings' chief executive officer and president. He added, "While we are making progress, we must continue to focus on our customers, improve the shopability of our stores and continue to give our customers reasons to shop our stores more frequently."

Second Quarter Revenues and Comparable Store Sales

For the quarter, domestic comparable stores sales declined 3.8% in the aggregate, with Sears Domestic comparable store sales declining 6.3% and Kmart comparable store sales declining 0.6%. The comparable store sales declines at both Kmart and Sears Domestic reflect the impact of increased competition and lower transaction volumes. At Kmart, comparable store sales declines in home goods were partially offset by increased sales within a number of merchandise categories, including apparel, general merchandise, pharmacy and food and other consumable goods. At Sears Domestic, comparable store sales declined across most categories and formats, with more pronounced sales declines within both the home fashion and lawn and garden categories.

Total revenues declined $0.4 billion to $12.8 billion for the 13 weeks ended July 29, 2006, as compared to total revenues of $13.2 billion for the 13 weeks ended July 30, 2005. Sears revenues were $8.3 billion for the 13 weeks ended July 29, 2006 as compared to $8.6 billion for the 13 weeks ended July 30, 2005 primarily reflecting the impact of comparable store sales declines, partially offset by an increase in the total number of Sears Full-line stores in operation, resulting mainly due to conversions from the Kmart format. Total revenues at Kmart declined $0.1 billion as compared to the prior year period, primarily reflecting a reduction in the total number of Kmart stores in operation.

Operating Income

Operating income was $517 million for the 13 weeks ended July 29, 2006, as compared to $324 million for the 13 weeks ended July 30, 2005. The increase in operating income was due to an increase of $92 million of Kmart operating income, as well as a $77 million increase in Sears Domestic operating income mainly due to lower expenses as a result of realizing merger synergies and a reduction of selling and administrative costs which decreased from $3.0 billion (22.8% of revenues) last year to $2.8 billion (22.1% of revenues) this year. The second quarter 2006 results include a $36 million one-time gain, recorded as a reduction of selling and administrative expenses, representing the Company's portion of proceeds received during the second quarter of 2006 related to the settlement of Visa/MasterCard antitrust litigation. Excluding the impact of this gain, second quarter operating income was $481 million. In addition, the prior year results included $42 million in merger-related restructuring charges at Kmart. Excluding the impact of these charges, the prior year second quarter operating income was $366 million. Revenues declined from $13.2 billion last year to $12.8 billion this year, however, the impact of this decline was largely offset by an improvement in gross margin rate to 28.4% this year, an increase of 120 basis points from the prior year rate.

Financial Position

The Company had cash and cash equivalents of $3.7 billion at July 29, 2006 (of which $3.2 billion is domestic and $0.5 billion is at Sears Canada) as compared to $2.1 billion at July 30, 2005 and $4.4 billion at January 28, 2006. The decline in cash from fiscal 2005 year end is attributable to share repurchases, cash used in the acquisition of additional interests in Sears Canada, capital expenditures and debt repayments, partially offset by cash generated from operations.

Merchandise inventories at July 29, 2006 were approximately $9.5 billion, as compared to $9.0 billion as of July 30, 2005. The increase reflects planned increases due to earlier receipt of product this year and increases in categories where the Company believes business trends support higher inventory levels. Merchandise payables were $3.3 billion at July 29, 2006, as compared to $3.5 billion as of July 30, 2005.

Share Repurchase

During the second quarter of 2006, the company repurchased 0.7 million common shares at a total cost of $91 million, or an average price of $137.67 per share. As of July 29, 2006, the Company had remaining authorization to repurchase $406 million of common shares under its existing share repurchase program approved by the board of directors. The remaining shares may be purchased in the open market, through self-tender offers or through privately negotiated transactions. Timing will depend on prevailing market conditions, alternative uses of capital and other factors.

Investment of Available Capital

As noted above, the Company had total domestic cash and cash equivalents of $3.2 billion at July 29, 2006. Since the merger between Kmart and Sears, the Company's cash flows have exceeded its working capital, financing and capital investment needs, and management expects that the Company's cash flows will continue to exceed its operating cash needs for the foreseeable future.

The Company regularly evaluates how best to use available capital to increase shareholder value. The Company has and will continue to invest in its businesses to improve the customer experience and provide the opportunity for attractive returns. The Company has also repurchased $1.1 billion of its common shares since the merger and expects to continue to repurchase shares subject to market conditions and board authorization. In addition, the Company may pursue investments in the form of acquisitions, joint ventures and partnerships where the Company believes attractive returns can be obtained. Further, the Company may determine under certain market conditions that available capital is best utilized to fund investments that it believes offer the Company attractive return opportunities, whether or not related to its ongoing business activities.

As previously reported, the Company's Board of Directors has delegated authority to direct investment of the Company's surplus cash to its Chairman, Edward S. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. As of July 29, 2006, the Company's surplus cash was primarily invested in short-term, highly liquid investments. The Company is currently using, and may in the future use, a portion of its available capital to invest in marketable securities and other financial instruments, including derivatives. These investments may include significant and highly concentrated direct investments and/or related derivative positions with respect to the equity securities of public companies. Derivative contracts would be recorded on the Company's balance sheet at fair value and, for non-hedge contracts, changes in fair value would be recognized currently in earnings as unrealized gains or losses.

"Our strong financial position and cash flow generation provide us with the flexibility to capitalize on a wide range of market opportunities as they arise. In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the Company for the associated risks." said Edward S. Lampert, Chairman of Holdings.

Any such investments will involve risks, and shareholders should recognize that Holdings' balance sheet may change depending on the extent of excess funds and the timing, magnitude and performance of investments which the Company may make. Furthermore, such investments would be subject to volatility that may affect both the recorded value of the investments as well as the Company's periodic earnings.

Adjusted EBITDA

For purposes of evaluating operating performance, the Company's management uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement computed as operating income appearing on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs, nonrecurring gains and restructuring charges. Adjusted EBITDA is used by management to evaluate the operating performance of the Company's businesses for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company's businesses.

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

  -- EBITDA excludes the effects of financing and investing activities by
     eliminating the effects of interest and depreciation costs;
  -- Adjusted EBITDA excludes the one-time gain resulting from the
     settlement of Visa/MasterCard litigation;
  -- Management considers merger transaction costs to result from
     extraordinary activities that are not part of normal operations;
  -- Restructuring activities, while periodically affecting the Company's
     results, may vary significantly from period to period and have a
     disproportionate effect in a given period, which affects the
     comparability of results; and
  -- Management considers gains/ (losses) on the sale of assets to result
     from investing decisions rather than ongoing operations.


  Adjusted EBITDA was determined as follows:

                                       13 Weeks Ended     26 Weeks Ended
                                      July 29,  July 30, July 29, July 30,
                                       2006      2005     2006     2005
                                                                 Pro Forma
  Operating income per
   statement of income                 $517     $324     $848     $424
  Plus depreciation and amortization    276      280      565      563
  Less gain on sale of assets            (7)      (4)     (24)     (11)
  Before excluded items                 786      600    1,389      976

  Vice Chairman Separation Expense        8       --        8       --
  Visa/MasterCard settlement            (36)      --      (36)      --
  Merger transaction costs               --       --       --       34
  Restructuring charges                  14       42       23       45

  Adjusted EBITDA as defined           $772     $642   $1,384   $1,055

  % to revenues                         6.0%     4.9%     5.6%     4.1%


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

                              13 Weeks Ended           26 Weeks Ended
                           Adjusted      % To       Adjusted      % To
                            EBITDA     Revenues      EBITDA      Revenues
                          July  July  July  July   July   July   July July
                           29,   30,   29,   30,    29,    30,    29,  30,
                          2006  2005  2006  2005   2006   2005   2006 2005
                                                          Pro         Pro
                                                          Forma       Forma
  Domestic operations     $679  $588  5.9%  4.9%  $1,253   $952  5.6% 4.0%
  Sears Canada              93    54  7.4%  4.5%     131    103  5.7% 4.5%
  Total Adjusted EBITDA   $772  $642  6.0%  4.9%  $1,384 $1,055  5.6% 4.1%


  Quarterly Report on Form 10-Q

The Company plans to file with the SEC its Quarterly Report on Form 10-Q for the second quarter 2006 on or before September 7, 2006.

Forward-Looking Statements

Results are preliminary and unaudited. This press release contains forward-looking statements about the Company's goals. Forward-looking statements are subject to risks and uncertainties that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to, statements about the expected benefits of the business combination of Sears and Kmart, the potential benefits of our investments and future financial and operating results. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Risks and uncertainties include the possibility that we fail to offer products and services that satisfy the desires of our customers, whose preferences may change in the future, or other factors outside the control of Holdings. Actual results may differ materially from those set forth in the forward- looking statements. The Company intends the forward-looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation's third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The company is the nation's largest provider of home services, with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at .

                        Sears Holdings Corporation
                           Statements of Income
                               (Unaudited)

    Amounts are Preliminary
     and Subject to Change       13 Weeks Ended         26 Weeks Ended
                                    Reported         Reported      Pro forma
    millions, except per
     common share data          July 29, July 30, July 29, July 30, July 30,
                                  2006     2005     2006     2005     2005
  REVENUES
    Merchandise sales and
     services                   $12,785  $13,114  $24,783  $20,749  $25,800
    Credit and financial
     products revenues                -       78        -       87      173
       Total revenues            12,785   13,192   24,783   20,836   25,973

  COSTS AND EXPENSES
    Cost of sales, buying and
     occupancy                    9,158    9,541   17,823   15,202   18,874
    Gross margin dollars          3,627    3,573    6,960    5,547    6,926
    Gross margin rate             28.4%    27.2%    28.1%    26.7%    26.8%

    Selling and administrative    2,827    3,009    5,548    4,737    6,078
    Selling and administrative
     expense as a percentage of
     total revenues               22.1%    22.8%    22.4%    22.7%    23.4%

    Depreciation and
     amortization                   276      280      565      387      563
    Gain on sales of assets          (7)      (4)     (24)     (10)     (11)
    Restructuring charges            14       42       23       45       45
        Total costs and
         expenses                12,268   12,868   23,935   20,361   25,549

  Operating income                  517      324      848      475      424
  Interest expense, net              42       72       89      114      147
  Bankruptcy-related recoveries     (11)     (15)     (12)     (32)     (32)
  Other income                      (16)      (2)     (27)     (11)     (21)

  Income before income taxes,
   minority interest and
    cumulative effect of change
     in accounting principle        502      269      798      404      330
  Income taxes                      201      103      319      155      144
  Minority interest                   7        5        5        7       13

  Income before cumulative
   effect of change in
    accounting principle            294      161      474      242      173
  Cumulative effect of change
   in accounting principle
    (net of income tax benefit
     of $58)                          -        -        -      (90)     (90)
  NET INCOME                       $294     $161     $474     $152      $83

  EARNINGS PER COMMON SHARE
    Diluted earnings per share
     before cumulative effect
     of change in accounting
     principle                    $1.88    $0.98    $3.01    $1.66    $1.06
    Diluted earnings per share    $1.88    $0.98    $3.01    $1.05    $0.51

    Diluted weighted average
     common shares outstanding    156.5    165.1    157.3    145.4    163.6



                        Sears Holdings Corporation
                         Condensed Balance Sheets

  Amounts are Preliminary and
   Subject to Change                            (Unaudited)

  millions                                  July 29,    July 30,    Jan. 28,
                                             2006         2005        2006
  ASSETS
  Current assets
     Cash and cash equivalents              $3,690       $2,138      $4,440
     Receivables                               803        1,822         811
     Merchandise inventories                 9,455        8,953       9,068
     Other current assets                      917        1,086         888
     Total current assets                   14,865       13,999      15,207

  Property and equipment, net                9,395       10,084       9,823
  Goodwill                                   1,885        1,911       1,684
  Tradenames and other intangible
   assets                                    3,454        4,039       3,448
  Other assets                                 462          485         411
     TOTAL ASSETS                          $30,061      $30,518     $30,573

  LIABILITIES
  Current liabilities
     Short-term borrowings and current
      portion of long-term debt               $295         $822        $748
     Merchandise payables                    3,274        3,460       3,458
     Unearned revenues                       1,082        1,019       1,047
     Other current liabilities               5,244        4,256       5,097
     Total current liabilities               9,895        9,557      10,350

  Long-term debt and capitalized lease
   obligations                               3,475        3,333       3,268
  Pension and postretirement benefits        2,361        2,614       2,421
  Minority interest and other liabilities    2,719        3,713       2,923
     Total Liabilities                      18,450       19,217      18,962

     Total Shareholders' Equity             11,611       11,301      11,611

     TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY                 $30,061      $30,518     $30,573


  Total common shares outstanding            155.9        164.9       159.8



                        Sears Holdings Corporation
                             Segment Results
                               (Unaudited)

  Amounts are Preliminary and Subject to Change

  2006 - Reported                          13 Weeks Ended July 29, 2006
  millions
                                                      Sears        Sears
                                         Kmart  Domestic Canada  Holdings
  Merchandise sales and services
   revenue                               $4,472  $7,051  $1,262  $12,785

  Cost of sales, buying and occupancy     3,389   4,884     885    9,158
  Gross margin dollars                    1,083   2,167     377    3,627
  Gross margin rate                       24.2%   30.7%   29.9%    28.4%

  Selling and administrative                874   1,669     284    2,827
  Selling and administrative expense as
   a percentage of total revenues         19.5%   23.7%   22.5%    22.1%
  Depreciation and amortization              18     224      34      276
  Gain on sales of assets                     -      (7)      -       (7)
  Restructuring charges                       -       -      14       14
  Total costs and expenses                4,281   6,770   1,217   12,268
  Operating income                         $191    $281     $45     $517

  Number of:
    Kmart Stores                          1,398       -       -    1,398
    Full-Line Stores                          -     934     123    1,057
    Specialty Stores                          -   1,091     254    1,345
    Total Stores                          1,398   2,025     377    3,800


  2005 - Reported                         13 Weeks Ended July 30, 2005
  millions
                                                     Sears       Sears
                                        Kmart  Domestic  Canada Holdings
  Merchandise sales and services        $4,642   $7,337  $1,135  $13,114
  Credit and financial products
   revenues                                  -        -      78       78
    Total revenues                       4,642    7,337   1,213   13,192

  Cost of sales, buying and occupancy    3,529    5,180     832    9,541
  Gross margin dollars                   1,113    2,157     303    3,573
  Gross margin rate                      24.0%    29.4%   26.7%    27.2%

  Selling and administrative               964    1,718     327    3,009
  Selling and administrative expense as
   a percentage of total revenues        20.8%    23.4%   27.0%    22.8%
  Depreciation and amortization             10      235      35      280
  Gain on sales of assets                   (2)       -      (2)      (4)
  Restructuring charges                     42        -       -       42
  Total costs and expenses               4,543    7,133   1,192   12,868
  Operating income                         $99     $204     $21     $324

  Number of:
    Kmart Stores                         1,445        -       -    1,445
    Full-Line Stores                         -      906     122    1,028
    Specialty Stores                         -    1,150     246    1,396
    Total Stores                         1,445    2,056     368    3,869


  2006 - Reported                         26 Weeks Ended July 29, 2006
  millions                                           Sears        Sears
                                        Kmart  Domestic  Canada  Holdings
  Merchandise sales and services
   revenue                              $8,726  $13,748  $2,309  $24,783

  Cost of sales, buying and occupancy    6,630    9,545   1,648   17,823
  Gross margin dollars                   2,096    4,203     661    6,960
  Gross margin rate                      24.0%    30.6%   28.6%    28.1%

  Selling and administrative             1,729    3,289     530    5,548
  Selling and administrative expense as
   a percentage of total revenues        19.8%    23.9%   23.0%    22.4%
  Depreciation and amortization             33      464      68      565
  Gain on sales of assets                  (17)      (7)      -      (24)
  Restructuring charges                      4        -      19       23
  Total costs and expenses               8,379   13,291   2,265   23,935
  Operating income                        $347     $457     $44     $848

  Number of:
    Kmart Stores                         1,398        -       -    1,398
    Full-Line Stores                         -      934     123    1,057
    Specialty Stores                         -    1,091     254    1,345
    Total Stores                         1,398    2,025     377    3,800


  2005 - Reported                         26 Weeks Ended July 30, 2005
  millions                                           Sears       Sears
                                        Kmart  Domestic  Canada Holdings
  Merchandise sales and services        $9,182  $10,338  $1,229  $20,749
  Credit and financial products
   revenues                                  -        -      87       87
    Total revenues                       9,182   10,338   1,316   20,836

  Cost of sales, buying and occupancy    6,997    7,304     901   15,202
  Gross margin dollars                   2,185    3,034     328    5,547
  Gross margin rate                      23.8%    29.3%   26.7%    26.7%

  Selling and administrative             1,920    2,462     355    4,737
  Selling and administrative expense as
   a percentage of total revenues        20.9%    23.8%   27.0%    22.7%
  Depreciation and amortization             20      327      40      387
  Gain on sales of assets                   (8)       -      (2)     (10)
  Restructuring charges                     45        -       -       45
  Total costs and expenses               8,974   10,093   1,294   20,361
  Operating income                        $208     $245     $22     $475

  Number of:
    Kmart Stores                         1,445        -       -    1,445
    Full-Line Stores                         -      906     122    1,028
    Specialty Stores                         -    1,150     246    1,396
    Total Stores                         1,445    2,056     368    3,869


  2005 - Pro Forma                        26 Weeks Ended July 30, 2005
  millions                                           Sears        Sears
                                        Kmart  Domestic  Canada Holdings
  Merchandise sales and services        $9,182  $14,508  $2,110  $25,800
  Credit and financial products
   revenues                                  -        -     173      173
    Total revenues                       9,182   14,508   2,283   25,973

  Cost of sales, buying and occupancy    6,997   10,322   1,555   18,874
  Gross margin dollars                   2,185    4,186     555    6,926
  Gross margin rate                      23.8%    28.9%   26.3%    26.8%

  Selling and administrative             1,920    3,533     625    6,078
  Selling and administrative expense as
   a percentage of total revenues        20.9%    24.4%   27.4%    23.4%
  Depreciation and amortization             20      469      74      563
  Gain on sales of assets                   (8)      (1)     (2)     (11)
  Restructuring charges                     45        -       -       45
  Total costs and expenses               8,974   14,323   2,252   25,549
  Operating income                        $208     $185     $31     $424



                        Sears Holdings Corporation
                             Adjusted EBITDA

  Amounts are Preliminary and Subject to Change

                                         13 Weeks Ended

                               July 29, 2006            July 30, 2005
                         Domestic  Sears   Sears   Domestic   Sears  Sears
                       Operations Canada Holdings Operations Canada Holdings

  Operating income per
   statement of income     $472     $45    $517      $303      $21    $324
  Plus depreciation
   and amortization         242      34     276       245       35     280
  Less gain on sale
   of assets/businesses      (7)      -      (7)       (2)      (2)     (4)
  Before excluded items     707      79     786       546       54     600

  Vice Chairman
   Separation Expense         8       -       8         -        -       -
  Visa/MasterCard
   Settlement               (36)      -     (36)        -        -       -
  Restructuring charges       -      14      14        42        -      42
  Adjusted EBITDA
   as defined              $679     $93    $772      $588      $54    $642
  % to  revenues           5.9%    7.4%    6.0%      4.9%     4.5%    4.9%


                                            26 Weeks Ended

                               July 29, 2006             July 30, 2005
                         Domestic  Sears   Sears   Domestic   Sears  Sears
                       Operations Canada Holdings Operations Canada Holdings
                                                     Pro       Pro    Pro
                                                    Forma     Forma  Forma
  Operating income
   per statement of
   income                  $804     $44    $848      $393      $31    $424
  Plus depreciation and
   amortization             497      68     565       489       74     563
  Less gain on sale of
   assets/businesses        (24)      -     (24)       (9)      (2)    (11)
  Before excluded items   1,277     112   1,389       873      103     976

  Vice Chairman
   Separation Expense         8       -       8         -        -       -
  Visa/MasterCard
   Settlement               (36)      -     (36)        -        -       -
  Merger transaction costs    -       -       -        34        -      34
  Restructuring charges       4      19      23        45        -      45
  Adjusted EBITDA
   as defined            $1,253    $131  $1,384      $952     $103  $1,055
  % to  revenues           5.6%    5.7%    5.6%      4.0%     4.5%    4.1%



                        Sears Holdings Corporation
                         Pro Forma Reconciliation

The following tables provide a reconciliation from the as reported results to the pro forma results presented for Sears Holdings, Sears Domestic and Sears Canada for the 26-week period ended July 30, 2005.

  Sears Holdings                        26-week period ended July 30, 2005


                                         As    Pre-merger Purchase    Pro
  millions                            reported  Activity  Accounting  Forma
  Merchandise sales and services       $20,749   $5,051      $-     $25,800
  Credit and financial products
   revenues                                 87       86       -         173
    Total revenue                       20,836    5,137       -      25,973

  Cost of sales, buying and occupancy   15,202    3,672       -      18,874
  Selling and administrative             4,737    1,330      11       6,078
  Depreciation and amortization            387      147      29         563
  Gain on sales of assets                  (10)      (1)      -         (11)
  Restructuring charges                     45        -       -          45
  Total costs and expenses              20,361    5,148      40      25,549
  Operating income (loss)                  475      (11)    (40)        424
  Interest expense (income), net           114       35      (2)        147
  Bankruptcy-related recoveries            (32)       -       -         (32)
  Other income                             (11)     (10)      -         (21)
  Income before income taxes, minority
   interest and cumulative effect of
   change in accounting principle          404      (36)    (38)        330
  Income tax expense (benefit)             155        4     (15)        144
  Minority interest                          7        6       -          13
  Income before cumulative effect of
   change in accounting principle          242      (46)    (23)        173
  Cumulative effect of change in
   accounting principle, net of tax        (90)       -       -         (90)

  NET INCOME (LOSS)                       $152     $(46)   $(23)        $83


  Sears Domestic
                                        26-week period ended July 30, 2005

                                          As  Pre-merger Purchase    Pro
  millions                            reported Activity  Accounting  Forma
  Merchandise sales and services
   revenue                             $10,338   $4,170      $-     $14,508

  Cost of sales, buying and occupancy    7,304    3,018       -      10,322
  Selling and administrative             2,462    1,060      11       3,533
  Depreciation and amortization            327      116      26         469
  Gain on sales of assets                    -       (1)      -          (1)
  Total costs and expenses              10,093    4,193      37      14,323
  Operating income (loss)                 $245     $(23)   $(37)       $185


  Sears Canada
                                        26-week period ended July 30, 2005

                                          As  Pre-merger Purchase    Pro
  millions                            reported Activity  Accounting  Forma
  Merchandise sales and services        $1,229     $881      $-      $2,110
  Credit and financial product revenues     87       86       -         173
    Total revenues                       1,316      967       -       2,283

  Cost of sales, buying and occupancy      901      654       -       1,555
  Selling and administrative               355      270       -         625
  Depreciation and amortization             40       31       3          74
  Gain on sales of assets                   (2)       -       -          (2)
  Restructuring charges                      -        -       -           -
  Total costs and expenses               1,294      955       3       2,252
  Operating income (loss)                  $22      $12     $(3)        $31

SOURCE: Sears Holdings Corporation

CONTACT: Sears Holdings Public Relations, +1-847-286-8371

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