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Sears Reports Third Quarter 2004 Results

Sears, Roebuck and Co. (NYSE: S) today reported a net loss of $61 million, or $0.29 per share on an average base of 210.7 million common equivalent shares, for the third quarter ended October 2, 2004, compared with net income of $147 million, or $0.52 per share on an average base of 281.0 million common equivalent shares in the third quarter of 2003. The prior year results include the results of the domestic Credit and Financial Products and National Tire & Battery (NTB) businesses divested in the fourth quarter of 2003.

"A number of factors contributed to a disappointing third quarter, including softer retail demand, larger than expected costs associated with seasonal transitions and a slower ramp up of sales following certain business resets," said Chairman and CEO Alan J. Lacy.

Sears' third quarter 2003 earnings included a pretax charge of $141 million, or $0.32 per share, related to the company's refinement of its business strategy for The Great Indoors.

Domestic

The Domestic segment, which includes all domestic retail formats as well as the company's corporate functions, reported an operating loss of $106 million for the third quarter of 2004, compared with operating income of $222 million in the third quarter of 2003. The prior year results included operating income of $369 million and $6 million, respectively, from the divested domestic Credit and Financial Products and NTB businesses, and a pretax charge of $141 million related to the company's refinement of its business strategy for The Great Indoors. Of the $141 million charge, $112 million was reflected in special charges and impairments and $29 million in cost of sales, buying and occupancy.

Merchandise sales and services revenues for the 2004 third quarter were $7.1 billion, compared with $7.4 billion in the prior year period. Prior year revenues include $115 million attributable to NTB. Sales decreases across most categories within the full-line stores more than offset sales increases in certain specialty store formats and the $39 million of revenues earned under the long-term alliance with Citigroup. Overall, domestic comparable store sales decreased 4.0 percent in the third quarter of 2004.

The gross margin rate for the quarter decreased to 25.9 percent in the current year from 26.7 percent in the prior year as weaker sales drove increased promotional and clearance markdowns within the home and apparel businesses which more than offset the revenues earned under the long-term alliance with Citigroup.

Selling and administrative expenses for the third quarter were $1.7 billion. The prior year selling and administrative expenses of $2.0 billion included $184 million related to divested businesses.

Interest of $39 million for the 2004 third quarter included $14 million attributable to interest expense related to the legacy debt of the former Credit and Financial Products business.

Sears Canada

Sears Canada reported operating income of $21 million for the third quarter of 2004, compared with operating income of $20 million in the third quarter of 2003.

Revenues for the third quarter increased 11.2 percent to $1.2 billion due to increased sales across most formats as well as the effects of foreign exchange.

The gross margin rate declined to 27.7 percent in the current year quarter from 29.2 percent in the prior year, primarily due to a change in sales mix weighted more heavily toward lower margin products, including home appliances and furniture, and increased promotional activity.

Selling and administrative expenses as a percentage of revenues decreased to 25.0 percent in the current year quarter from 25.7 percent in the prior year, primarily due to a reduction in advertising costs.

Significant Developments

On September 29, 2004, the company closed the acquisition of ownership or leasehold interest in 50 stores from Kmart Holding Corporation for $575.9 million. The company has paid 30 percent of the overall purchase price for these properties, with the remaining 70 percent to be paid upon Sears taking possession of the stores. Sears will take possession of the stores in spring 2005 and expects to convert them to Sears nameplates by the fourth quarter of 2005. Sears also agreed to make lease payments to Wal-Mart under subleases for six Wal-Mart stores. Sears has taken possession of two Wal-Mart stores and has targeted possession of an additional two stores in 2005 and the remaining two stores in 2006.

Financial Position

As a result of the sale of the domestic Credit and Financial Products business in November 2003 and related liability management actions, the company's domestic term debt position has been reduced to $2.9 billion as of the end of the current fiscal year quarter, down from $22.7 billion at the prior year quarter end and $5.3 billion at year end. The company retired $23 million of domestic term debt in the third quarter of 2004 and expects to retire an additional $150 million by year-end 2004.

Share Repurchase

During the third quarter of 2004, the company repurchased 6 million common shares at a total cost of approximately $225 million, or an average price of $36.64 per share. As of October 2, 2004, the company had remaining authorization to repurchase approximately $500 million of common shares by December 31, 2006, under its existing share repurchase program approved by the board of directors in October 2003. 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.

Outlook

"Based on our sales and margin performance over the past two quarters, coupled with a more cautious holiday outlook, we have adopted a more conservative outlook for the fourth quarter. While we remain optimistic about a favorable holiday shopping season, we believe that it is appropriate to lower our fourth quarter sales and margin assumptions," Lacy said.

For the year, the company now expects earnings per share, before the cumulative effect of change in accounting principle, but including $0.24 per share related to the second quarter special charges and additional depreciation, to be between $1.46 and $1.66. This outlook reflects the lower than expected year-to-date results, assumes fourth quarter domestic comparable store sales to be flat and lowers the projected fourth quarter gross margin rates. This full-year outlook includes the negative carrying cost of approximately $0.20 to $0.25 per share on the company's remaining legacy debt related to its former Credit and Financial Products business.

Forward-Looking Statements

This release contains guidance on full-year 2004 earnings per share and fourth quarter revenues and gross margins, statements regarding the conversion and opening of the Kmart and Wal-Mart stores acquired by Sears, and statements about our expectations concerning additional debt retirement and share repurchases. These statements are forward-looking statements based on assumptions about the future that are subject to risks and uncertainties, and actual results may differ materially from the results projected in the forward looking statements. Risks and uncertainties that may cause actual results to differ materially include competitive conditions in retail and related services industries; changes in consumer confidence, tastes, preferences and spending; the availability and level of consumer debt; the successful execution of, and customer response to, the company's strategic initiatives, including the full-line store strategy and the conversion and integration of the Kmart and Wal-Mart stores and other new store locations; the possibility that the company will identify new business and strategic options for one or more of its business segments, potentially including selective acquisitions, dispositions, restructurings, joint ventures and partnerships; trade restrictions, tariffs and other factors potentially affecting the company's ability to find qualified vendors and access products in an efficient manner; the company's ability to successfully implement its initiatives to improve its inventory management capabilities; the outcome of pending legal proceedings; anticipated cash flow; social and political conditions such as war, political unrest and terrorism or natural disasters; the possibility of negative investment returns in the company's pension plan; changes in interest rates; volatility in financial markets; changes in the company's debt ratings, credit spreads and cost of funds; the possibility of interruptions in systematically accessing the public debt markets; general economic conditions and normal business uncertainty. In addition, Sears typically earns a disproportionate share of its operating income in the fourth quarter due to seasonal buying patterns, which are difficult to forecast with certainty. The company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available.

Webcast

Sears will webcast its third quarter earnings conference call at 10:30 a.m. EDT/9:30 a.m. CDT today. Investors and the media are invited to listen to the call through the company's website at , under "Presentations & Audio Archives". Software necessary to listen to the webcast (Windows Media or Real Player) can be downloaded from the webcast site. Downloading the software may take up to 22 minutes with a 56k modem. A telephone replay of the call will be available beginning at approximately 12:30 p.m. EDT/11:30 a.m. CDT today. The replay number is 1-800-873-2089, access code: 7502. A replay of the conference call will also be available on the company's website at , under "Presentations & Audio Archives".

About Sears

Sears, Roebuck and Co. is a leading broadline retailer providing merchandise and related services. With revenues in 2003 of $41.1 billion, the company offers its wide range of home merchandise, apparel and automotive products and services through more than 2,300 Sears-branded and affiliated stores in the U.S. and Canada, which includes approximately 870 full-line and 1,100 specialty stores in the U.S. Sears also offers a variety of merchandise and services through sears.com, landsend.com and specialty catalogs. Sears is the only retailer where consumers can find each of the Kenmore, Craftsman, DieHard and Lands' End brands together -- among the most trusted and preferred brands in the U.S. The company is the largest provider of product repair services with more than 14 million service calls made annually.

  SEARS, ROEBUCK AND CO.
  CONSOLIDATED INCOME

                                        For the 13 Weeks   For the 39 Weeks
                                             Ended              Ended
                                        October September  October September
                                           2,      27,        2,       27,
  (millions, except earnings per          2004    2003       2004     2003
   common share)
  REVENUES
    Merchandise sales and services      $8,210  $8,409    $24,613  $24,734
    Credit and financial products
     revenues                               85   1,385        257    4,136
            Total revenues               8,295   9,794     24,870   28,870

  COSTS AND EXPENSES
    Cost of sales, buying and occupancy  6,062   6,137     17,965   18,013
    Selling and administrative           2,009   2,229      5,967    6,638
    Provision for uncollectible
     accounts                               16     567         43    1,511
    Depreciation and amortization          227     226        717      681
    Interest, net                           66     281        210      847
    Special charges and impairments          -     112         41      140
            Total costs and expenses     8,380   9,552     24,943   27,830

  Operating (loss)/ income                 (85)    242        (73)   1,040
  Other income, net                          6       2         58       16

  (Loss)/ income before income taxes,
    minority interest and
    cumulative effect of change in
    accounting principle                   (79)    244        (15)   1,056

  Income tax benefit/ (expense)             25     (91)         2     (392)

  Minority interest                         (7)     (6)       (15)     (16)

  (Loss)/ income before cumulative
    effect of change
    in accounting principle                (61)    147        (28)     648

  Cumulative effect of change in
   accounting principle                      -       -       (839)       -

  NET (LOSS)/ INCOME                    $  (61)  $ 147    $  (867)  $  648

  (LOSS)/ EARNINGS PER COMMON SHARE

    Basic
       (Loss)/ earnings per share
       before cumulative
       effect of change in accounting
       principle                       $ (0.29) $ 0.53    $ (0.13)  $ 2.18

       Cumulative effect of change in
       accounting principle            $     -  $    -    $ (3.90)  $    -

        (Loss)/ earnings per share     $ (0.29) $ 0.53    $ (4.03)  $ 2.18

    Diluted
       (Loss)/ earnings per share
       before cumulative
       effect of change in accounting
       principle                       $ (0.29) $ 0.52    $ (0.13)  $ 2.17

       Cumulative effect of change in
       accounting principle            $     -  $    -    $ (3.90)  $    -

        (Loss)/ earnings per share     $ (0.29) $ 0.52    $ (4.03)  $ 2.17


  Average common equivalent shares
   outstanding                           210.7   281.0      215.0    298.7


  SEARS, ROEBUCK AND CO.
  CONSOLIDATED BALANCE SHEET
      (millions)

                                       October 2,  September 27,  January 3,
                                         2004          2003          2004
      Assets
        Current assets
          Cash and cash equivalents    $ 2,734       $ 1,546       $ 9,057
          Sears Canada credit card
           receivables                   1,929         1,939         1,998
            Less allowance for
             uncollectible accounts         33            51            42
            Net credit card receivables  1,896         1,888         1,956
          Other receivables                567           632           733
          Merchandise inventories, net   6,400         6,243         5,335
          Prepaid expenses, deferred
           charges and other current
           assets                          645           517           407
          Deferred income taxes            674           818           708
          Assets held for sale              --        27,818            --
            Total current assets        12,916        39,462        18,196

        Property and equipment, net      6,632         6,660         6,788
        Deferred income taxes              295           443           378
        Goodwill                           956           945           943
        Tradenames and other intangible
         assets                            709           710           710
        Other assets                     1,144           870           708
            Total assets               $22,652       $49,090       $27,723

      Liabilities
        Current liabilities
          Short-term borrowings        $   823       $ 6,179       $ 1,033
          Current portion of long-term
           debt and capitalized lease
           obligations                     786         2,595         2,950
          Merchandise payables           3,123         3,305         3,106
          Income taxes payable             558           607         1,867
          Other liabilities              3,075         3,146         2,950
          Unearned revenues              1,262         1,245         1,244
          Other taxes                      487           472           609
          Liabilities held for sale         --        10,602            --
            Total current liabilities   10,114        28,151        13,759

        Long-term debt and capitalized
         lease obligations               4,070        12,121         4,218
        Pension and postretirement
         benefits                        1,619         2,010         1,956
        Minority interest and other
         liabilities                     1,431         1,319         1,389
            Total liabilities           17,234        43,601        21,322

      Commitments and Contingent
       Liabilities

      Shareholders' Equity
        Common shares                      323           323           323
        Capital in excess of par value   3,502         3,503         3,519
        Retained earnings               10,623         8,945        11,636
        Treasury stock - at cost        (8,942)       (6,306)       (7,945)
        Deferred ESOP expense               (6)          (27)          (26)
        Accumulated other comprehensive
         loss                              (82)         (949)       (1,106)
            Total shareholders' equity   5,418         5,489         6,401
            Total liabilities and
             shareholders' equity      $22,652       $49,090       $27,723

            Total common shares
             outstanding                 207.6         263.3         230.4


  SEARS, ROEBUCK AND CO.
  Segment Income Statements
  (millions)

  For the 13 Weeks Ended October 2, 2004 and September 27, 2003


                                Domestic      Sears Canada    Consolidated
                              2004    2003*   2004    2003    2004    2003
  Merchandise sales and
   services                  $7,141  $7,449  $1,069  $  960  $8,210  $8,409
  Credit and financial
   products revenues              -   1,307      85      78      85   1,385
  Total revenues              7,141   8,756   1,154   1,038   8,295   9,794

  Costs and expenses
    Cost of sales, buying
     and occupancy            5,289   5,457     773     680   6,062   6,137
    Selling and
     administrative           1,720   1,962     289     267   2,009   2,229
    Provision for
     uncollectible accounts       -     550      16      17      16     567
    Depreciation and
     amortization               199     199      28      27     227     226
    Interest, net                39     254      27      27      66     281
    Special charges and
     impairments                  -     112       -       -       -     112
            Total costs and
             expenses         7,247   8,534   1,133   1,018   8,380   9,552

  Operating (loss)/ income   $ (106) $  222  $   21  $   20  $  (85) $  242

  Foreign exchange rate
   (quarterly average)                       0.7650  0.7234

  Net (loss)/ income                                         $  (61) $  147

  (Loss)/earnings per share                                  $(0.29) $ 0.52

     Average shares
      oustanding                                              210.7   281.0



  * Domestic segment detail for the 13 weeks ended September 27, 2003

                              Retail &     Credit &
                              Related      Financial  Corporate &   Total
                              Services     Products     Other     Domestic
  Merchandise sales and
   services                     $7,342     $    -      $  107     $ 7,449
  Credit and financial
   products revenues                 -      1,307           -       1,307

  Total revenues                 7,342      1,307         107       8,756

  Costs and expenses
    Cost of sales, buying and
     occupancy                   5,415          -          42       5,457
    Selling and administrative   1,694        157         111       1,962
    Provision for uncollectible
     accounts                        -        550           -         550
    Depreciation and amortization  182          4          13         199
    Interest, net                   24        230           -         254
    Special charges and
     impairments                   112          -           -         112
      Total costs and expenses   7,427        941         166       8,534

  Operating (loss)/ income      $  (85)    $  366      $  (59)    $   222


  SEARS, ROEBUCK AND CO.
  Segment Income Statements
  (millions)

  For the 39 Weeks Ended October 2, 2004 and September 27, 2003

                             Domestic       Sears Canada     Consolidated
                           2004    2003**   2004    2003     2004     2003
  Merchandise sales and
   services              $21,603  $22,027  $3,010  $2,707  $24,613  $24,734
  Credit and financial
   products revenues           -    3,903     257     233      257    4,136
  Total revenues          21,603   25,930   3,267   2,940   24,870   28,870

  Costs and expenses
    Cost of sales,
     buying and
     occupancy            15,795   16,098   2,170   1,915   17,965   18,013
    Selling and
     administrative        5,107    5,873     860     765    5,967    6,638
    Provision for
     uncollectible
     accounts                  -    1,467      43      44       43    1,511
    Depreciation and
     amortization            634      599      83      82      717      681
    Interest, net            129      766      81      81      210      847
    Special charges and
     impairments              41      140       -       -       41      140
     Total costs and
       expenses           21,706   24,943   3,237   2,887   24,943   27,830

  Operating (loss)/
   income                $  (103) $   987  $   30  $   53  $   (73) $ 1,040

  Foreign exchange rate
   (annual average)                        0.7532  0.6974

  (Loss)/ income before
   cumulative effect of
   change in accounting
   principle                                               $   (28) $   648

  Cumulative effect of
   change in accounting
   principle                                               $  (839) $     -

  Net (loss)/ income                                       $  (867) $   648

  (Loss)/earnings per
   share                                                   $ (4.03) $  2.17

     Average shares
      outstanding                                            215.0    298.7



  ** Domestic segment detail for the 39 weeks ended September 27, 2003

                              Retail &     Credit &
                              Related      Financial  Corporate &   Total
                              Services     Products     Other     Domestic
  Merchandise sales and
   services                    $21,757     $    -       $ 270     $22,027
  Credit and financial
   products revenues                 -      3,903           -       3,903

  Total revenues                21,757      3,903         270      25,930

  Costs and expenses
    Cost of sales, buying and
     occupancy                  15,991          -         107      16,098
    Selling and administrative   4,962        590         321       5,873
    Provision for uncollectible
     accounts                        -      1,467           -       1,467
    Depreciation and amortization  552         13          34         599
    Interest, net                   49        717           -         766
    Special charges and
     impairments                   128          -          12         140
       Total costs and
             expenses           21,682      2,787         474      24,943

  Operating income/ (loss)     $    75     $1,116       $(204)    $   987


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - INVENTORY, STORE COUNT AND SUMMARY OF CERTAIN
   SIGNIFICANT ITEMS

  ($ in millions, except earnings per share)

  Domestic Inventories:
                            October 2,   September 27,   January 3,
                               2004          2003           2004

                  -LIFO       $5,666        $5,563         $4,728
                  -FIFO       $6,247        $6,195         $5,308

  Domestic Retail Stores:
                            October 2,   September 27,   January 3,
                               2004          2003           2004
    Full-line                    871           869            871
    Specialty                  1,115         1,314          1,105
    Lands' End                    17            16             16
      Total Domestic
        Retail Stores          2,003         2,199          1,992


  Summary of Certain Significant Items Affecting the Consolidated
  Results:(1)

                                      For the 13 Weeks    For the 13 Weeks
                                      Ended October 2,   Ended September 27,
                                            2004              2003
                                        Pretax  Per Share  Pretax  Per Share

    Negative carry related to Credit
     legacy debt                         $ 14    $0.04     $   -    $    -

    Charges associated with the
     refinement of TGI business
     strategy                               -        -       141      0.32

    Proforma effects on the prior
     year:
         Divested Businesses:
           Operating income                 -        -      (375)    (0.85)
           Zero-percent financing costs     -        -        67      0.15
           Pro forma revenues earned
             under Citigroup alliance       -        -        39      0.09
           Total divested businesses        -        -      (269)    (0.61)

    Domestic retirement plan
     accounting change (2)                  -        -        18      0.04

    Total                                $ 14    $0.04     $(110)   $(0.25)

    Average common equivalent shares
     outstanding                                 210.7               281.0

    (1) These items relate to the Company's refinement of the business
        strategy for The Great Indoors, the results of operations of
        divested businesses and the change in accounting for domestic
        retirement plans. Management believes that consideration of these
        items in addition to reported results provides a better
        understanding of the Company's financial performance.

    (2) Represents the effect on the 13 weeks ended September 27, 2003
        assuming that the change in accounting for retirement plans occurred
        at the beginning of fiscal 2003.


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - INVENTORY, STORE COUNT AND SUMMARY OF CERTAIN
  SIGNIFICANT ITEMS

  ($ in millions, except earnings per share)

  Summary of Certain Significant Items Affecting the Consolidated
   Results:(1)

                                       For the 39 Weeks   For the 39 Weeks
                                       Ended October 2,  Ended September 27,
                                             2004                2003
                                       Pretax  Per Share   Pretax  Per Share
    Cumulative effect of change in
     accounting for retirement plans     $  -    $3.90    $    -    $    -

    Curtailment gain on post-retirement
     medical plans                        (30)   (0.09)        -         -

    Negative carry related to Credit
     legacy debt and related debt
     retirement costs                      71     0.22         -         -

    Employment termination costs           41     0.12        28      0.06

    Charges associated with the
     refinement of TGI business
     strategy                               -        -       141      0.30

    Accelerated depreciation resulting
     from CSC purchased services
     transaction                           39     0.12         -         -

    Proforma effects on the prior year:
         Divested Businesses:
           Operating income                 -        -    (1,144)    (2.43)
           Zero-percent financing costs     -        -       184      0.39
           Pro forma revenues earned
             under Citigroup alliance       -        -       112      0.24
           Total divested businesses        -        -      (848)    (1.80)

    Domestic retirement plan accounting
     change (2)                             -        -        51      0.11

    Total                                $121    $4.27    $ (628)   $(1.33)

    Average common equivalent shares
     outstanding                                 215.0               298.7

    (1) These items relate to the Company's refinement of the business
        strategy for The Great Indoors, the results of operations of
        divested businesses and the change in accounting for domestic
        post-retirement medical and retirement plans.  Management believes
        that consideration of these items in addition to reported results
        provides a better understanding of the Company's financial
        performance.

    (2) Represents the effect on the 39 weeks ended September 27, 2003
        assuming that the change in accounting for retirement plans occurred
        at the beginning of fiscal 2003.

SOURCE: Sears, Roebuck and Co.

CONTACT: News Media Contact, Edgar P. McDougal, +1-847-286-9669, or
Investor Contact, Scott A. Bohaboy, +1-847-286-7419, both of Sears, Roebuck
and Co.

Web site:








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