RNS Number:2252J
Sears,Roebuck & Co
26 March 2003
INVESTOR RELATIONS CONTACT:
Pam White, Vice President
(847) 286 1468
MEDIA CONTACT:
Edgar P. McDougal
(847) 286 9669
SEARS TO EVALUATE STRATEGIC ALTERNATIVES
FOR CREDIT AND FINANCIAL PRODUCTS BUSINESS
HOFFMAN ESTATES, Ill., - Sears (NYSE: S) announced today that it is evaluating
strategic alternatives for the company's Credit and Financial Products business,
including its possible sale, in order to create value for all investors and
focus on its profitable core Retail and Related Services business.
Sears' Credit and Financial Products business manages the eighth largest U.S.
credit card portfolio with $30.8 billion in card receivables at year-end 2002,
representing approximately 25 million active accounts. The business has the
nation's largest in-house, proprietary card portfolio with $18.4 billion in
Sears Card receivables, as well as $12.4 billion in MasterCard receivables. The
business generated more than $1.5 billion of comparable operating income in
2002.
"Sears' Credit and Financial Products business is extremely attractive and
highly profitable," said Alan J. Lacy, chairman and chief executive officer. "It
continues to perform well and is on track to deliver on its 2003 financial plan.
However, we believe the tremendous value and earnings power of these assets are
not reflected in today's market valuation of Sears. By selecting the right
strategic partner for this unique business, we believe we can create significant
value for our investors.
"This strategic action will support our sharpened focus on strengthening and
growing Sears' profitable Retail and Related Services business, while further
streamlining our organization, reducing leverage and returning cash to
shareholders," said Lacy.
Sears' Retail and Related Services business delivered more than $31 billion in
revenue and $1.2 billion in operating income in 2002, a 28 percent increase over
2001 on a comparable basis, and generates significant free cash flow. The
company is the No. 1 retailer of home appliances, fitness equipment and lawn
mowers, and holds leading positions in many other categories. In addition, Sears
is the exclusive provider of several leading brands, including Kenmore,
Craftsman, Lands' End and DieHard. Sears owns a substantial direct-to-customer
operation and is the largest U.S. product repair service provider, making 14.5
million service calls annually.
The company expects to conclude its review of strategic alternatives for the
Credit and Financial Products business and take any related actions that arise
from this review in the second half of 2003.
Webcast Scheduled
Sears will webcast an analyst and investor conference call this morning at
9:00 a.m. Eastern / 8:00 a.m. Central time. The call will be webcast live over
the Internet at Sears.com. To access the webcast, click on "Investor Relations"
and select "Events and Webcasts." A replay of the call will be available on the
Web site for approximately one week. Software necessary to listen to the
webcast, Windows Media Player or Real Player, can be downloaded from the webcast
site. Downloading the software may take up to 22 minutes with a 56K speed modem.
About Sears
Sears, Roebuck and Co. is a broadline retailer with significant service and
credit businesses. In 2002, the company's annual 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 site, www.sears.com. In June 2002, Sears acquired
Lands' End, a direct merchant of traditionally styled, classic Lands' End
clothing offered to customers around the world through regular mailings of its
specialty catalogs and online at www.landsend.com.
Forward-Looking Statements
This press release and this morning's webcast contain statements about the
Company's expectations regarding possible strategic alternatives for its Credit
and Financial Products business and the timeline for completing a review of such
alternatives, as well as statements about the Company's 2003 financial plan, and
other statements about future Company performance. These 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. For example, there can be no
assurances that the Company will identify an acceptable purchaser or negotiate
acceptable terms for the sale and ongoing operation of all or part of its Credit
and Financial Products business and there can be no assurances as to the timing
of such a transaction or transactions. These outcomes depend on many factors
outside the Company's control, such as the willingness of third parties to
accept terms that are acceptable to the Company. Further risks and uncertainties
that may cause actual results to differ materially include 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 a third-party credit
card program, 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.
(Supplemental financial tables below)
Sears, Roebuck and Co.
Domestic Credit and Financial Products Results, excluding non-comparable items
Supplemental Financial Disclosure (1)
2000 2001 2002
Revenue less Interest (in millions) $3,697 $3,821 $4,378
Operating Income (in millions) $1,513 $1,529 $1,502
Average Account Balance as of Year-end:
Total portfolio $1,113 $1,136 $1,321
Total Portfolio (in millions):
Average managed receivables $25,830 $26,318 $28,372
Ending managed receivables $27,001 $27,599 $30,766
Pre-Tax Profitability Ratios:
Return on average managed receivables(2) 5.9% 5.8% 5.3%
Return on average equity(3) 59% 58% 53%
2001 2002
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Credit Statistics:
60+ day delinquency
rates(4) 7.50% 7.26% 7.41% 7.58% 7.31% 6.87% 7.24% 7.69%
Net charge-off rates(5) 5.07% 5.42% 5.62% 5.23% 5.43% 5.32% 5.55% 5.40%
(1) For more complete and detailed information refer to the Company's
Form 10-K for the fiscal year ended December 28, 2002.
(2) Equal to ratio of comparable operating income divided by average
managed credit card receivables of the Credit and Financial Products
segment.
(3) Equal to ratio of comparable operating income divided by average
equity based on a 9-to-1 debt to equity ratio for managed
receivables.
(4) Equal to ratio of balances associated with delinquent accounts
greater than 60-days past due as a percentage of end-of-period
receivables. Accounts are classified as delinquent until charged-off
pursuant to the company's charge-off policy which typically charges
off receivable balances after a 240-day contractual delinquency
period.
(5) Equal to net charge-offs as a percentage of average receivables.
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended December 30, 2000
Excluding Non-Comparable Items and Securitization Income
Retail & Credit & Securiti- Non-
Related Financial Corporate & Sears zation comparable Consolidated
Services Products Other Canada Total Impact (1) items GAAP
Merchandise sales
and services $31,935 $-- $353 $ 3,989 $36,277 $-- $-- $36,277
Credit and financial
products revenues -- 5,247 -- 293 5,540 (969) -- 4,571
Total Revenues 31,935 5,247 353 4,282 41,817 (969) -- 40,848
Costs and expenses
Cost of sales, buying
and occupancy 23,573 -- 144 2,901 26,618 -- 14(2) 26,632
Selling and
administrative 6,687 810 407 1,038 8,942 (135) -- 8,807
Provision for
uncollectible accounts -- 1,358 -- 48 1,406 (522) -- 884
Provision for previously
securitized receivables -- -- -- -- -- -- -- --
Depreciation and
amortization 710 16 53 60 839 -- -- 839
Interest 25 1,550 -- 113 1,688 (440) -- 1,248
Special charges and
impairments -- -- -- -- -- -- 251(2) 251
Total costs and
expenses 30,995 3,734 604 4,160 39,493 (1,097) 265 38,661
Operating income $940 $ 1,513 $ (251) $122 $ 2,324 $128 $ (265) $2,187
Net Income $ 1,458 $82 $ (197) $1,343
EPS - Diluted $4.21 $0.24 $(0.57) $3.88
Average shares o/s 346.3 346.3 346.3 346.3
2000 noncomparable items include:
(1) During 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities". Prior to
2001, domestic securitized receivables were recorded as off-balance
sheet securitizations under previous accounting rules thereby
reducing reported amounts of revenues, expenses, assets and
liabilities. From April 2001 forward, the Company securitization
transactions are accounted for as secured borrowings and the Company
ceased recording securitization income, which was $128 million
($82 million after-tax) in 2000.
(2) Special charges and impairments in 2000 consisted of:
- a $150 million pretax charge ($99 million after-tax) related to the
closing of 87 underperforming stores. Of the $150 million pretax
charge, $136 million was recorded in special charges and
impairments and $14 million in cost of sales.
- a $115 million impairment charge ($98 million after-tax) to write
down the Sears Termite and Pest Control business to its fair value.
This business was sold in 2001.
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Retail & Credit & Securiti- Non-
Related Financial Corporate & Sears zation comparable Consolidated
Services Products Other Canada Total Impact (1) items GAAP
Merchandise sales and
services $ 31,346 $-- $378 $4,031 $35,755 $-- $-- $35,755
Credit and financial
products revenues -- 5,216 -- 294 5,510 (275) -- 5,235
Total Revenues 31,346 5,216 378 4,325 41,265 (275) -- 40,990
Costs and expenses
Cost of sales, buying
and occupancy 23,081 -- 159 2,994 26,234 -- -- 26,234
Selling and administrative 6,628 833 473 997 8,931 (39) -- 8,892
Provision for uncollectible
accounts -- 1,441 -- 56 1,497 (153) -- 1,344
Provision for previously
securitized receivables -- -- -- -- -- -- 522(1) 522
Depreciation and amortization 704 18 58 83 863 -- -- 863
Interest 32 1,395 -- 111 1,538 (123) -- 1,415
Special charges and impairments -- -- -- -- -- -- 542(2) 542
Total costs and expenses 30,445 3,687 690 4,241 39,063 (315) 1,064 39,812
Operating income $901 $1,529 $(312) $84 $2,202 $40 $ (1,064) $1,178
Net Income before
cumulative effect of
change in accounting $1,385 $26 $(676) $735
Cumulative effect of
change in accounting $-- $-- $-- $--
Net Income $1,385 $26 $(676) $735
EPS - Diluted $4.22 $ 0.08 $(2.06) $2.24
Average shares o/s 328.5 328.5 328.5 328.5
2001 noncomparable items include:
(1) During 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS")No. 140, " Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities".Prior to 2001,
domestic securitized receivables were recorded as off-balance sheet
securitizations under previous accounting rules thereby reducing
reported amounts of revenues, expenses, assets and liabilities. With
the adoption of SFAS No. 140, the Company recorded a $522 million
($331 million after-tax) provision for previously securitized
receivables to establish an allowance for uncollectible accounts
related to $12 billion of securitized receivables reinstated on the
Company's balance sheet.In addition, from April 2001 forward, the
Company securitization transactions are accounted for as secured
borrowings and the Company ceased recording securitization income,
which was $40 million ($26 million after-tax) in 2001.
(2) Special charges and impairments in 2001 consisted of:
- a $151 million pretax charge ($97 million after-tax) for the exit of
unprofitable and non-strategic Full-line Store business categories
(including cosmetics, installed floor coverings and custom window
treatments).
- a $123 million pretax charge ($79 million after-tax) for
productivity initiatives designed to reduce operating costs.
- a $205 million pretax charge($129 million after-tax) for impairment
and other losses primarily resulting from the insolvency of Homelife
(a former operating division of Sears which was sold in 1998)
- a $63 million pretax charge ($40 million after-tax) for the cost of
a civil legal settlement relating to selling practices in 1994 and
1995 of certain automotive batteries manufactured by Exide
Technologies
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended December 28, 2002
Excluding Non-Comparable Items
Retail & Credit &
Related Financial Corporate & Sears Non-comparable Consolidated
Services Products Other Canada Total items GAAP
Merchandise sales
and services $31,459 $-- $326 $3,913 $35,698 $ -- $35,698
Credit and financial
products revenues -- 5,392 -- 276 5,668 -- 5,668
Total Revenues 31,459 5,392 326 4,189 41,366 -- 41,366
Costs and expenses
Cost of sales,
buying and occupancy 22,743 -- 121 2,782 25,646 -- 25,646
Selling and
administrative 6,816 955 442 1,036 9,249 -- 9,249
Provision for
uncollectible accounts -- 1,903 -- 58 1,961 300(1) 2,261
Provision for
previously
securitized receivables -- -- -- -- -- -- --
Depreciation and
amortization 710 18 55 92 875 -- 875
Interest 35 1,014 -- 94 1,143 -- 1,143
Special charges and
impairments -- -- -- -- -- 111(2) 111
Total costs and
expenses 30,304 3,890 618 4,062 38,874 411 39,285
Operating income $1,155 $ 1,502 $(292) $127 $2,492 $ (411) $ 2,081
Net Income before
cumulative effect
of change in
accounting $1,578 $6(3) $ 1,584
Cumulative effect
of change
in accounting $-- $ (208)(4) $(208)
Net Income $1,578 $ (202) $ 1,376
EPS - Diluted $4.92 $(0.63) $4.29
Average shares o/s 320.7 320.7 320.7
2002 noncomparable items include:
(1) In 2002, the Company refined its allowance methodology to include
current accounts and credit card fees, resulting in a $300 million
($191 million after-tax) increase to the allowance for uncollectible
accounts.
(2) During 2002, Sears Canada converted seven stores operating under the
Eatons banner to Sears Canada Stores, resulting in severance, asset
impairment and other exit costs amounting to $111 million ($40 million
net of income taxes and minority interest).
(3) During 2002, the Company recorded a pretax gain of $336 million
($237 million after-tax) resulting from the gain on the sale of its
holdings in Advance Auto Parts. (This after-tax gain of $237 million
offset the after-tax charges of $191 million and $40 million noted in
footnotes 1 and 2 above.)
(4) During 2002, the Company adopted Statement of Financial Accounting
Standard No. 142 "Goodwill and Other Intangible Assets", resulting in
a charge of $208 million (net of income taxes and minority interest),
representing the cumulative effect of the change in accounting for
goodwill as of the beginning of 2002.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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