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Sears Reports Third Quarter 2003 Results

Sears, Roebuck and Co. (NYSE: S) today reported net income of $147 million, or $0.52 per share, for the third quarter ended September 27, 2003, compared with net income of $189 million, or $0.59 per share, in the third quarter of 2002.

Sears' third quarter 2003 earnings included a pretax charge of $141 million ($89 million after-tax), or $0.32 per share, related to the company's previously announced refinement of its business strategy for The Great Indoors.

"The third quarter results were in line with our expectations," said Chairman and CEO Alan J. Lacy. "We are pleased with our return to sales growth following two years of a fundamental repositioning and restructuring of our core business. While we have much still to do, we believe the business is well-positioned for profitable growth."

Retail and Related Services

Retail and Related Services reported an operating loss of $85 million for the third quarter of 2003, compared with operating income of $42 million in the third quarter of 2002. Included in these results is the pretax charge of $141 million related to The Great Indoors, which consists of asset impairment charges of $99 million on exited and certain ongoing stores, inventory clearance costs of $29 million and other exit costs of $13 million. Of the $141 million charge, $112 million is reflected in special charges and impairments and $29 million in cost of sales.

Revenues for the third quarter were $7.3 billion, an increase of 1.1 percent over the same period last year primarily due to the 1.2 percent increase in domestic comparable store sales. In the home group, the lawn and garden and fitness businesses continued to experience strong performances across all formats, while home appliances showed solid improvements in the quarter. Within apparel (and accessories), improved merchandise offerings resulted in comparable store sales increases in the women's ready-to-wear, men's and footwear categories.

"We are pleased with the performance of the Lands' End and Covington brands. We completed the roll-out of Lands' End merchandise to another 470 stores during the month of September and now carry the brand in all of our full-line stores nationwide," Lacy said. "We continue to see a broader sales improvement provided by our Lands' End brands in Sears' full-line stores, as comparable store apparel sales for stores carrying the merchandise out- performed those without." Lacy added, "Overall sales trends improved during the quarter, reflecting continuing progress against our goals of upgrading merchandise offerings, enhancing the customer experience and improving our marketing efforts."

The company's domestic gross margin rate for the quarter declined from 27.5 percent to 26.2 percent, as improvements in sourcing were more than offset by an increase in promotional and clearance activities and the $29 million charge for inventory clearance activities in connection with The Great Indoors' restructuring.

Selling and administrative expenses declined $58 million with decreases across virtually all retail business formats attributable to continuing productivity improvement efforts. Selling and administrative expenses as a percentage of sales were 23.1 percent as compared to 24.1 percent in the prior year.

Credit and Financial Products

Credit and Financial Products reported operating income of $366 million for the quarter, up $82 million compared to the 2002 third quarter. The 2002 third quarter results included a $189 million increase to the domestic allowance for uncollectible accounts.

Third quarter domestic Credit and Financial Products revenues of $1.3 billion decreased $56 million from the prior year, as a slight increase in average receivable balances was more than offset by a lower yield. The lower yield is attributable to the lower interest rate environment, reduced late fees and an increase in the size of the MasterCard portfolio, which carries a lower yield than Sears' private label card.

Domestic credit card receivables at the end of the third quarter decreased 1.0 percent from the prior year to $29.0 billion. Funding costs were below last year's quarter, as interest expense decreased due to the lower interest rate environment and lower debt balances.

The domestic provision for uncollectible credit card accounts was $550 million in the third quarter, compared with $588 million in last year's period, a decrease of $38 million. The third quarter of 2002 included a $189 million increase to the allowance for uncollectible accounts resulting from receivables growth and an increase in charge-off and delinquency trends. The net charge-off rate for the third quarter of 2003 was 7.55 percent, compared with 5.55 percent a year ago primarily driven by the seasoning of the MasterCard portfolio, an increase in bankruptcy filings, as well as the ongoing sale of charged-off receivables to a third party.

Year-over-year delinquencies rose to 7.62 percent from 7.24 percent, reflecting continued seasoning of the MasterCard portfolio. The domestic allowance for uncollectible credit card accounts at the end of the third quarter of 2003 was $1.9 billion, or 6.55 percent of ending credit receivables, compared with 6.45 percent at the end of the 2003 second quarter.

Share Repurchase Program

During the quarter, Sears repurchased 20.6 million common shares for a total cost of $892 million, at an average price of $43.33 per share. As of September 27, 2003, the company had remaining authorization to repurchase $339 million common shares by December 31, 2006, under its existing share repurchase program approved by the Sears board of directors on July 15, 2003.

On October 8, the Sears board of directors authorized $3.0 billion for repurchase of the company's common shares. This authorization, combined with the company's existing share repurchase program, positions Sears to execute its plan to return a portion of the proceeds from the sale of its Credit and Financial Products business to its shareholders. The shares will 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.

NTB Sale

On September 22, 2003, Sears announced it had entered into an agreement to sell its National Tire & Battery ("NTB") business and related inventory to TBC Corporation for total cash consideration of approximately $260 million. This transaction, which is subject to the normal regulatory reviews and closing conditions, is expected to close by the end of this year.

Outlook

The company expects full-year earnings per share to be between $4.80 and $5.00 per share. This full-year expectation excludes any effect that may result from the sale of the Credit and Financial Products business, but includes the charge for the refinement of the business strategy for The Great Indoors and the impact of the expected sale of NTB. Within this full-year earnings per share expectation, the company anticipates that fourth quarter Retail and Related Services' operating income, excluding the expected gain upon the closing of the sale of NTB which will be recorded in other income, will increase in the low double-digit range. The company expects comparable store sales to increase low single-digit and gross margin to be flat to the prior year fourth quarter.

Credit and Financial Products would remain on plan for a full-year mid- single digit decline in operating income. The company intends to update its outlook based upon the impacts of the anticipated sale of the Credit and Financial Products business as soon as practical after the close of the transaction.

Forward-Looking Statements

This release contains guidance on full-year 2003 earnings per share, segment operating income, comparable store sales, margins and other company performance measures, as well as the timing of the expected closing of the sale of NTB. 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 the possibility that either the Credit and Financial Products or the NTB sale does not close or either closing is delayed; competitive conditions in retail and credit; changes in consumer confidence and spending; delinquency and charge-off trends in the credit card portfolio; consumer debt levels and the level of consumer bankruptcies; the success of initiatives to address increased delinquencies and credit losses and improve credit profitability; the success of the full-line store strategy and other strategies; 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; Sears' ability to integrate and operate Lands' End successfully; the successful integration of Sears retail businesses with Citigroup's operation of the Credit and Financial Products business, which involves significant training and the integration of complex systems and processes; 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; the 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 www.sears.com/investors, under "Events and Webcasts." A telephone replay of the call will be available beginning at approximately 1:00 p.m. EDT/12:00 noon CDT today. The replay number is 1-800-947-6621, access code: 7239. A replay of the conference call will also be available on the company's website at www.sears.com/investors, under "Events and Webcasts."

About Sears

Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2002, the company's revenue was $41.4 billion. The company offers its wide range of apparel, home and automotive products and services to families in the U.S. through Sears stores nationwide, including approximately 870 full-line stores. Sears also offers a variety of merchandise and services through its Web sites, sears.com, thegreatindoors.com and landsend.com, and a variety of specialty catalogs.

  SEARS, ROEBUCK AND CO.
  CONSOLIDATED INCOME

                                    For the 13 Weeks      For the 39 Weeks
                                         Ended                 Ended
                                   September 27, 2003    September 27, 2003
                                    and September 28,     and September 28,
                                          2002                  2002
  (millions, except earnings per
   common share)                     2003       2002       2003       2002

  REVENUES
   Merchandise sales and services   $8,409     $8,239    $24,734    $24,639
   Credit and financial products
    revenues                         1,385      1,430      4,136      4,209
       Total revenues                9,794      9,669     28,870     28,848

  COSTS AND EXPENSES
   Cost of sales, buying and
    occupancy                        6,137      5,934     18,013     17,902
   Selling and administrative        2,229      2,340      6,666      6,637
   Provision for uncollectible
    accounts                           567        603      1,511      1,685
   Depreciation and amortization       226        219        681        650
   Interest                            281        298        847        866
   Special charges and impairments     112          -        112        111
        Total costs and expenses     9,552      9,394     27,830     27,851

  Operating income                     242        275      1,040        997
  Other income, net                      2         10         16         98

  Income before income taxes,
   minority interest and cumulative
   effect of accounting change         244        285      1,056      1,095

  Income taxes                         (91)       (94)      (392)      (382)

  Minority interest                     (6)        (2)       (16)        23

  Income before cumulative effect
   of accounting change                147        189        648        736

  Cumulative effect of change in
   accounting for goodwill               -          -          -       (208)

  NET INCOME                          $147       $189       $648       $528

  EARNINGS PER COMMON SHARE

   Basic
      Earnings per share before
       cumulative effect of
       accounting change             $0.53      $0.60      $2.18      $2.32

      Cumulative effect of change
       in accounting for goodwill        -          -          -      (0.66)

             Earnings per share      $0.53      $0.60      $2.18      $1.66

   Diluted
      Earnings per share before
       cumulative effect of
       accounting change             $0.52      $0.59      $2.17      $2.29

      Cumulative effect of change
       in accounting for goodwill        -         -        -         (0.65)

         Earnings per share          $0.52      $0.59      $2.17      $1.64

  Average common and dilutive
   common equivalent shares
   outstanding                       281.0      320.1      298.7      321.7


  SEARS, ROEBUCK AND CO.
  CONSOLIDATED BALANCE SHEET

      (millions)
                                   September 27,  September 28, December 28,
                                       2003           2002         2002
  Assets
   Current assets
    Cash and cash equivalents         $1,546          $637        $1,962
    Credit card receivables            1,974        30,810        32,595
      Less allowance for
       uncollectible accounts             54         1,676         1,836
      Net credit card receivables      1,920        29,134        30,759
    Other receivables                    600           452           863
    Merchandise inventories            6,243         5,961         5,115
    Prepaid expenses and deferred
     charges                             517           619           535
    Deferred income taxes                818           992           749
    Assets held for sale              27,818             -             -
         Total current assets         39,462        37,795        39,983

   Property and equipment, net         6,660         6,748         6,910
   Deferred income taxes                 443           502           734
   Goodwill                              945           940           944
   Tradenames and other
    intangible assets                    710           704           704
   Other assets                          870         1,314         1,134
         Total assets                $49,090       $48,003       $50,409

  Liabilities
   Current liabilities
    Short-term borrowings             $6,179        $4,289        $4,525
    Current portion of long-term
     debt and capitalized lease
     obligations                       2,595         4,774         4,808
    Accounts payable and other
     liabilities                       7,058         6,867         7,485
    Unearned revenues                  1,245         1,189         1,199
    Other taxes                          472           486           580
    Liabilities held for sale         10,602             -             -
         Total current liabilities    28,151        17,605        18,597

   Long-term debt and capitalized
    lease obligations                 12,121        20,781        21,304
   Pension and postretirement
    benefits                           2,010         2,189         2,491
   Minority interest and other
    liabilities                        1,319         1,214         1,264
         Total liabilities            43,601        41,789        43,656

  Commitments and Contingent Liabilities

  Shareholders' Equity
   Common shares                         323           323           323
   Capital in excess of par value      3,503         3,512         3,505
   Retained earnings                   8,945         7,723         8,497
   Treasury stock - at cost           (6,306)       (4,489)       (4,474)
   Deferred ESOP expense                 (27)          (42)          (42)
   Accumulated other comprehensive
    loss                                (949)         (813)       (1,056)
         Total shareholders' equity    5,489         6,214         6,753
         Total liabilities and
          shareholders' equity       $49,090       $48,003       $50,409

         Total common shares
          outstanding                  263.3         316.4         316.7


  SEARS, ROEBUCK AND CO.
  Segment Income Statements

  (millions, except earnings per share)

  For the 13 Weeks Ended September 27, 2003 and September 28, 2002

                                                         Credit & Financial
                              Retail & Related Services       Products
                                   2003         2002       2003        2002

  Merchandise sales and services  $7,342       $7,261         $-         $-
  Credit and financial products
   revenues                            -            -      1,307      1,363

  Total revenues                   7,342        7,261      1,307      1,363

  Costs and expenses
     Cost of sales, buying
      and occupancy                5,415        5,266          -          -
     Selling and administrative    1,694        1,752        157        233
     Provision for uncollectible
      accounts                         -            -        550        588
     Depreciation and amortization   182          180          4          4
     Interest                         24           21        230        254
     Special charges and
      impairments                    112            -          -          -
         Total costs and expenses  7,427        7,219        941      1,079

  Operating income (loss)           $(85)         $42       $366       $284

  Net income

  EPS - Diluted

     Average shares o/s


                                      Corporate & Other      Sears Canada
                                        2003      2002      2003       2002

  Merchandise sales and services        $107       $91      $960       $887
  Credit and financial products
   revenues                                -         -        78         67

  Total revenues                         107        91     1,038        954

  Costs and expenses
     Cost of sales, buying and
      occupancy                           42        33       680        635
     Selling and administrative          111       106       267        249
     Provision for uncollectible
      accounts                             -         -        17         15
     Depreciation and amortization        13        11        27         24
     Interest                              -         -        27         23
     Special charges and impairments       -         -         -          -
            Total costs and expenses     166       150     1,018        946

  Operating income (loss)               $(59)     $(59)      $20         $8

  Net income

  EPS - Diluted

     Average shares o/s


                                                           Total
                                                   2003               2002

  Merchandise sales and services                  $8,409             $8,239
  Credit and financial products revenues           1,385              1,430

  Total revenues                                   9,794              9,669

  Costs and expenses
      Cost of sales, buying and occupancy          6,137              5,934
      Selling and administrative                   2,229              2,340
      Provision for uncollectible accounts           567                603
      Depreciation and amortization                  226                219
      Interest                                       281                298
      Special charges and impairments                112                  -
            Total costs and expenses               9,552              9,394

  Operating income (loss)                           $242               $275

  Net income                                        $147               $189

  EPS - Diluted                                    $0.52              $0.59

     Average shares o/s                            281.0              320.1


  For the 39 Weeks Ended September 27, 2003 and September 28, 2002

                                                          Credit & Financial
                                 Retail & Related Services     Products
                                     2003         2002     2003       2002

  Merchandise sales and services    $21,757     $21,728       $-         $-
  Credit and financial products
   revenues                               -           -    3,903      4,002

  Total revenues                     21,757      21,728    3,903      4,002

  Costs and expenses
     Cost of sales, buying
      and occupancy                  15,991      15,873        -          -
     Selling and administrative       4,978       4,880      590        725
     Provision for uncollectible
      accounts                            -           -    1,467      1,652
     Depreciation and amortization      552         524       13         14
     Interest                            49          22      717        772
     Special charges and
      impairments                       112           -        -          -
         Total costs and expenses    21,682      21,299    2,787      3,163

  Operating income (loss)               $75        $429   $1,116       $839

  Income before cumulative
   effect of accounting
   change

  Cumulative effect of change
   in accounting

  Net Income

  EPS - Diluted

     Average shares o/s


                                      Corporate & Other      Sears Canada
                                        2003      2002      2003       2002

  Merchandise sales and services        $270      $241    $2,707     $2,670
  Credit and financial products
   revenues                                -         -       233        207

  Total revenues                         270       241     2,940      2,877

  Costs and expenses
     Cost of sales, buying and
      occupancy                          107        89     1,915      1,940
     Selling and administrative          333       310       765        722
     Provision for uncollectible
      accounts                             -         -        44         33
     Depreciation and amortization        34        39        82         73
     Interest                              -         -        81         72
     Special charges and impairments       -         -         -        111
            Total costs and expenses     474       438     2,887      2,951

  Operating income (loss)              $(204)    $(197)      $53       $(74)

  Income before cumulative effect of
   accounting change

  Cumulative effect of change in
   accounting

  Net Income

  EPS - Diluted

     Average shares o/s

                                                            Total
                                                   2003               2002

  Merchandise sales and services                 $24,734            $24,639
  Credit and financial products revenues           4,136              4,209

  Total revenues                                  28,870             28,848

  Costs and expenses
      Cost of sales, buying and occupancy         18,013             17,902
      Selling and administrative                   6,666              6,637
      Provision for uncollectible accounts         1,511              1,685
      Depreciation and amortization                  681                650
      Interest                                       847                866
      Special charges and impairments                112                111
            Total costs and expenses              27,830             27,851

  Operating income (loss)                         $1,040               $997

  Income before cumulative effect of
   accounting change                                $648               $736

  Cumulative effect of change in accounting           $-              $(208)

  Net Income                                        $648               $528

  EPS - Diluted                                    $2.17              $1.64

     Average shares o/s                            298.7              321.7


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
  AND STORE COUNT

  ($ in millions)

                           Average Balance
                For the 13 Weeks     For the 39 Weeks    Ending Balance
                 Ended Sept. 27,     Ended Sept. 27,    Sept. 27, Sept. 28,
               2003 and Sept. 28,   2003 and Sept. 28,    2003      2002
                     2002                 2002

                 2003       2002      2003       2002     2003     2002

  Sears Card
   credit card
   receivables $16,219     $19,137   $16,961   $20,302   $15,930  $18,466
  Sears Gold
   MasterCard
   credit card
   receivables  12,973       9,579    12,653     7,618    13,057   10,815
  Total domestic
   credit card
   receivables $29,192     $28,716   $29,614   $27,920   $28,987  $29,281


                 For the 13 Weeks Ended   For the 39 Weeks Ended
                   Sept. 27, 2003 and       Sept. 27, 2003 and
                     Sept. 28, 2002           Sept. 28, 2002

  Domestic credit card
   receivables-       2003      2002          2003      2002
  Net interest
   margin:
  Portfolio yield   17.24%     18.26%        16.90%    18.42%
  Effective
   financing rate    3.14%      3.51%         3.21%     3.66%
  Net interest
   margin           14.10%     14.75%        13.69%    14.76%


  Domestic net
   charge-off
   rate:
     Sears Card      7.80%      6.52%         5.99%      6.28%
     Sears Gold
      MasterCard     7.23%      3.62%         6.17%      3.16%
      Total          7.55%      5.55%         6.07%      5.43%


                                 2003                       2002
                September 27,  June 28,   March 29,  Dec. 28,    Sep. 28,
                    2003        2003        2003       2002       2002


  Sears Card
   delinquency
   rate              9.47%      9.33%     10.14%       10.34%      9.74%
  Sears Gold
   MasterCard
   delinquency
   rate              5.37%      4.96%      4.72%        3.76%      2.99%
  Total domestic
   delinquency
   rate              7.62%      7.41%      7.87%        7.69%      7.24%

  Allowance for
   uncollectible
   accounts         $1,900     $1,900     $1,790      $1,780      $1,630

  Allowance % of
   domestic credit
   card receivables   6.55%      6.45%      6.06%       5.79%       5.57%


                    September 27,    September 28,
                        2003            2002

  Domestic
   inventories
           -LIFO       $5,563          $5,368
           -FIFO       $6,195          $5,988


                  For the 13 Weeks Ended   For the 39 Weeks Ended
                    Sept. 27, 2003 and      Sept. 27, 2003 and
                      Sept. 28, 2002          Sept. 28, 2002

  Pretax LIFO charge   $6         $6           $30        $30


                          September 27,  September 28,  December 28,
  Domestic retail stores:     2003           2002           2002

   Full-line                   869            872            872
   Specialty                 1,314          1,299          1,305
   Lands' End                   16             15             15
            Total            2,199          2,186          2,192

   During 2003, the Company opened 22 stores consisting of two Full-line
   stores, 19 Specialty stores and one Lands' End outlet store.  In
   addition, the Company closed 15 stores consisting of five Full-line
   stores and 10 Specialty stores.

SOURCE: Sears, Roebuck and Co.

CONTACT: Edgar P. McDougal, +1-847-286-9669, Investor, Pam White,
+1-847-286-1468, both of Sears

Web site:








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