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Sears Reports Record Second Quarter 2000 Earnings

Strong Retail and Credit Businesses Drive 29 Percent Earnings Per Share Increase

Sears, Roebuck and Co. (NYSE: S) reported record second-quarter 2000 net income of $388 million, or $1.11 per share, compared with reported 1999 second-quarter net income of $331 million, or $0.86 per share, an increase of 29 percent on a per share basis.

The increase in earnings per share was primarily due to strength in Sears retail and credit businesses coupled with the company's share repurchase program. In retail, robust hardlines sales and improved selling and administrative expenses resulted in operating income growth of 9.8 percent over the second quarter of the prior year. Credit operating income increased by 26.3 percent due to higher revenues, improved portfolio quality, securitization activity, and reductions in selling and administrative expense. Operating income in the company's home services business also improved over 1999.

"We continue to benefit from the strength of our retail and credit businesses, which both contributed to strong growth in operating income and record earnings this quarter," said Chairman and Chief Executive Officer Arthur C. Martinez. "In our retail business, we posted solid sales growth and lower selling and administrative expenses, while our credit business saw further improvement in portfolio quality and lower operating costs. Our strong cash flow allowed us to repurchase over 10 million shares of Sears stock during the quarter and our return on equity over the last twelve months has expanded to 25.1 percent."

For the first six months of 2000, net income was $623 million or $1.76 per share, compared with $477 million or $1.24 per share for the first half of last year, an increase of 42 percent on a per share basis.

Revenues

Revenues for the second quarter of 2000 increased 4.6 percent to $10.08 billion, compared with $9.64 billion for the same period a year ago. The revenue increase was primarily due to improvements in Sears full-line and dealer stores, Sears Canada and credit. Domestic comparable store sales increased 2.7 percent.

"In the second quarter, we continued to see strong momentum in our hardlines business led by appliances and electronics," said Martinez. "In softgoods, footwear, fine jewelry, cosmetics and fragrances showed solid growth but, consistent with difficult industry trends, were offset by apparel results. The Great Indoors and Sears dealer stores also enjoyed strong performance for the quarter."

Revenues in the services segment, which include Sears Home Services and Sears Direct Response businesses, were $732 million in the quarter, roughly flat with a year ago. Sears Canada's revenue increased 9.8 percent, to $1.02 billion in the second quarter of 2000, due to strong comparable store sales growth in its full-line retail stores. Second quarter domestic credit revenues increased 6.2 percent from a year ago, to $1.03 billion. The increase primarily reflects improved yield and higher securitization revenue.

All revenue amounts reflect the application of SEC Staff Accounting Bulletin 101 (SAB 101), which affected the classification of revenue and related costs of licensed businesses. There was no effect on operating income related to the implementation of SAB 101.

Gross margin and selling and administrative costs

Consolidated gross margin as a percent of merchandise sales and services was 26.4 percent in the second quarter of 2000 compared with 27.1 percent in the comparable 1999 period. The change reflects a decrease in retail margins partially offset by improvements in the services margin rate. Retail gross margin declined in the second quarter primarily due to increased markdown activity and a higher sales mix of hardlines products.

Selling and administrative expense as a percentage of total revenues was 21.0 percent in the second quarter of 2000 compared to 21.4 percent in the prior year period. The improvement reflects selling and administrative expense leverage across all segments, partially offset by increased investment in on-line initiatives and integration costs associated with Sears Canada's acquisition of Eatons.

Provision for uncollectible accounts

In the second quarter of 2000, the consolidated provision for uncollectible accounts was $215 million, flat with the second quarter of 1999. The domestic allowance for doubtful accounts remained at $725 million, consistent with the year-end 1999 and first quarter 2000 levels.

Sears, Roebuck and Co. is a leading retailer of apparel, home and automotive products and services, with annual revenue of nearly $40 billion. The company serves families across the United States through approximately 860 full-line department stores, more than 2,100 specialized retail locations, and a variety of online offerings accessible through the company's Web site, . Sears, Roebuck and Co. owns a majority stake in Sears Canada.

  SEARS, ROEBUCK AND CO.
  CONSOLIDATED INCOME
  (millions, except earnings per share)

                     For the 13 Weeks Ended       For the 26 Weeks Ended
                July 1, 2000 and July 3, 1999  July 1, 2000 and July 3, 1999
                        2000    1999* %Change     2000     1999*  %Change
  Revenues
    Merchandise and
     services         $8,975   $8,599    4.4%  $16,804   $16,127     4.2%
    Credit revenues    1,101    1,037    6.2%    2,245     2,165     3.7%
      Total revenues  10,076    9,636    4.6%   19,049    18,292     4.1%

  Costs and expenses
    Cost of sales,
     buying and
      occupancy        6,606    6,271    5.3%   12,475    11,929     4.6%
    Selling and
     administrative    2,112    2,058    2.6%    4,066     3,977     2.2%
    Depreciation and
     amortization        210      215   -2.3%      419       424    -1.2%
    Provision for
     uncollectible
      accounts           215      215    0.0%      460       506    -9.1%
    Interest             310      313   -1.0%      626       647    -3.2%
      Total costs
       and expenses    9,453    9,072    4.2%   18,046    17,483     3.2%

  Operating income       623      564   10.5%    1,003       809    24.0%
  Other income, net        5      (12)      -        6       (14)       -
  Income before income
   taxes and minority
    interest             628      552   13.8%    1,009       795    26.9%
  Income taxes          (232)    (209)  11.0%     (372)     (301)   23.6%
  Minority interest       (8)     (12) -33.3%      (14)      (17)  -17.6%
  Net income            $388     $331   17.2%     $623      $477    30.6%
  Earnings per share:
    Basic              $1.12    $0.87   28.7%    $1.77     $1.25    41.6%
    Diluted            $1.11    $0.86   29.1%    $1.76     $1.24    41.9%
  Average common and
    dilutive common
     equivalent shares
      outstanding      348.4    383.6            354.2     384.4

  *1999 amounts restated to reflect licensed business operations under SEC
   Staff Accounting Bulletin No. 101 (SAB 101).  The restatement
   reclassified amounts within the statement of income but did not affect
   operating income or net income.


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION
  (millions, except number of stores)

                     For the 13 Weeks Ended       For the 26 Weeks Ended
                July 1, 2000 and July 3, 1999  July 1, 2000 and July 3, 1999
                        2000     1999 %Change       2000    1999  %Change
  Total Revenues:
  Retail              $7,290   $6,997    4.2%    $13,603 $13,131     3.6%
  Services               732      736   -0.5%      1,355   1,383    -2.0%
  Credit               1,033      973    6.2%      2,104   2,036     3.3%
  International        1,021      930    9.8%      1,987   1,742    14.1%
    Total revenues   $10,076   $9,636    4.6%    $19,049 $18,292     4.1%

  Operating income
    as reported:
  Retail                $190     $173    9.8%       $193    $104    85.6%
  Services                99       94    5.3%        164     169    -3.0%
  Credit                 398      315   26.3%        780     610    27.9%
  Corporate              (94)     (63)  49.2%       (182)   (136)   33.8%
  International           30       45  -33.3%         48      62   -22.6%
    Total operating
     income             $623     $564   10.5%     $1,003    $809    24.0%


                    July 1,   July 3,
                      2000      1999

  Domestic
    inventories
     -- LIFO        $5,033     $4,491
     -- FIFO        $5,653     $5,183


                  For the 13 Weeks Ended           For the 26 Weeks Ended
               July 1, 2000 and July 3, 1999   July 1, 2000 and July 3, 1999


  Pretax
    LIFO charge        $12        $12                    $24       $24



                        Jan. 1,                  July 1,
                         2000  Opened  Closed     2000
  Domestic retail stores:
    Full-line stores      858       3     (3)      858
    Specialty formats   2,153      44    (23)    2,174
      Total             3,011      47    (26)    3,032

    Gross square feet   146.4     0.8   (0.6)    146.6


  SEARS, ROEBUCK AND CO.
  SUPPLEMENTAL INFORMATION - CREDIT SEGMENT
  (millions)

  The following credit information relates to the domestic managed portfolio
  of credit card receivables which is comprised of on-book credit card
  receivables, credit card receivables underlying retained interest
  securities and securities which have been sold to third parties.
  The effective financing rate is based on both domestic on-book debt of the
  company and securitization interest of the Sears Master Trust.

                    For the 13 Weeks Ended      For the 26 Weeks Ended
               July 1, 2000 and July 3, 1999   July 1, 2000 and July 3, 1999

                        2000      1999             2000       1999
  Average domestic
    credit card
     receivables:
    Managed credit card
      receivables     $25,244   $26,469           $25,698    $27,039
    Securitized
     balances
      sold             (6,367)   (6,566)           (6,420)   (6,529)
    Retained
     interest in
      transferred
       credit card
        receivables    (2,695)   (3,765)           (2,889)   (4,040)
    Owned credit
      card
       receivables    $16,182   $16,138           $16,389    $16,470



                             July 1,      July 3,
                               2000         1999
  Ending domestic credit
    card receivables:
    Managed credit card
     receivables             $25,144      $26,103
    Securitized balances
     sold                      (6,893)     (6,381)
    Retained interest in
     transferredcredit card
      receivables              (1,985)     (3,600)
    Other receivables             58          104
    Owned credit card
     receivables             $16,324      $16,226


                                     For the 13              For the 26
                                   weeks ended              weeks ended
                                    July 1, 2000            July 1, 2000
                                  and July 3, 1999        and July 3, 1999
                                2000         1999         2000        1999
  Domestic managed credit
    card receivables --
  Net interest margin:
  Portfolio yield             19.71%       19.37%       19.98%      19.61%
  Effective financing rate     5.91%        5.74%        5.91%       5.73%
  Net interest margin         13.80%       13.63%       14.07%      13.88%
  Domestic managed net
    charge-off rate (A)        5.09%        7.11%        5.39%       7.08%



                                2000                          1999
                     July 1   Apr. 1    Jan. 1          Oct. 2      July 3

  Domestic managed
    credit card
     receivables --
  Delinquency
    rate (A)          7.15%    7.20%     7.58%           7.57%       7.29%
  Allowance for
    uncollectible
     accounts          $725     $725      $725            $773        $850
  Allowance % of
    domestic owned
     credit card
      receivables     4.46%    4.48%     4.26%           4.78%       5.27%


  (A) The 1999 domestic managed net charge-off rate includes all of the
      accounts in the domestic portfolio.  Twelve percent of the accounts
      were converted to the new Total Systems Services, Inc. ("TSYS")
      account processing system in October 1998, 38% were converted in March
      1999, and 50% were converted in April 1999.  Balances are generally
      charged-off earlier under the TSYS system than under the proprietary
      system.  Delinquency rates calculated on the Company's pre-TSYS
      proprietary system are not comparable to delinquencies calculated on
      the TSYS system due to differences in methodology.  For a description
      of the anticipated effects on delinquency rates of the TSYS
      conversion, see Sears quarterly report on Form 10-Q dated
      May 14, 1998.


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

                                   July 1,          July 3,     January 1,
                                     2000            1999          2000
  Assets
    Current Assets
      Cash and cash equivalents      $345            $397          $729
      Retained interest in
       transferred credit card
        receivables                 1,985           3,600         3,144
      Credit card receivables,
       net                         17,125          16,771        18,033
      Other receivables               311             384           404
      Merchandise inventories       5,628           5,000         5,069
      Prepaid expenses and
       deferred charges               561             604           579
      Deferred income taxes           764             729           709
        Total current assets       26,719          27,485        28,667

    Property and equipment, net     6,345           6,332         6,450
    Deferred income taxes             318             531           367
    Other assets                    1,487           1,502         1,470
        Total assets              $34,869         $35,850       $36,954

  Liabilities
    Current liabilities
      Short-term borrowings        $2,557          $3,814        $2,989
      Current portion of
       long-term debt and
        capitalized leases          2,338             612         2,165
      Accounts payable and
       other liabilities            6,319           5,977         6,992
      Unearned revenues             1,086             950           971
      Other taxes                     462             451           584
        Total current liabilities  12,762          11,804        13,701

    Long-term debt and
     capitalized leases            12,245          14,042        12,884
    Postretirement benefits         2,070           2,258         2,180
    Minority interest and
     other liabilities              1,343           1,463         1,350
        Total liabilities          28,420          29,567        30,115

  Commitments and Contingent Liabilities

  Shareholders' Equity
    Common shares                     323             323           323
    Capital in excess of par value  3,542           3,566         3,554
    Retained income                 6,414           5,149         5,952
    Treasury stock -- at cost      (3,418)         (2,233)       (2,569)
    Deferred ESOP expense            (113)           (160)         (134)
    Accumulated other comprehensive
     income                          (299)           (362)         (287)
      Total shareholders' equity    6,449           6,283         6,839
      Total liabilities and
       shareholders' equity       $34,869         $35,850       $36,954
      Total common shares
       outstanding                  343.0           380.3         369.1

SOURCE: Sears, Roebuck and Co.

Contact: Peggy A. Palter of Sears, Roebuck and Co., 847-286-8361

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