Sears to Evaluate Strategic Alternatives For Credit and Financial Products Business
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.
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 &
Related Financial Corporate & Sears
Services Products Other Canada
Merchandise sales
and services $31,935 $-- $353 $ 3,989
Credit and financial
products revenues -- 5,247 -- 293
Total Revenues 31,935 5,247 353 4,282
Costs and expenses
Cost of sales, buying
and occupancy 23,573 -- 144 2,901
Selling and
administrative 6,687 810 407 1,038
Provision for
uncollectible accounts -- 1,358 -- 48
Provision for previously
securitized receivables -- -- -- --
Depreciation and
amortization 710 16 53 60
Interest 25 1,550 -- 113
Special charges and
impairments -- -- -- --
Total costs and
expenses 30,995 3,734 604 4,160
Operating income $940 $ 1,513 $ (251) $122
Net Income
EPS - Diluted
Average shares o/s
Total Securitization Non-
Impact (1) comparable Consolidated
items GAAP
Merchandise sales
and services $36,277 $-- $-- $36,277
Credit and financial
products revenues 5,540 (969) -- 4,571
Total Revenues 41,817 (969) -- 40,848
Costs and expenses
Cost of sales,
buying and
occupancy 26,618 -- 14(2) 26,632
Selling and
administrative 8,942 (135) -- 8,807
Provision for
uncollectible
accounts 1,406 (522) -- 884
Provision for
previously
securitized
receivables -- -- -- --
Depreciation and
amortization 839 -- -- 839
Interest 1,688 (440) -- 1,248
Special charges
and impairments -- -- 251(2) 251
Total costs and
expenses 39,493 (1,097) 265 38,661
Operating income $ 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 & Related Credit & Corporate & Sears
Services Financial Other Canada
Products
Merchandise sales and
services $ 31,346 $-- $378 $4,031
Credit and financial
products revenues -- 5,216 -- 294
Total Revenues 31,346 5,216 378 4,325
Costs and expenses
Cost of sales, buying
and occupancy 23,081 -- 159 2,994
Selling and administrative 6,628 833 473 997
Provision for uncollectible
accounts -- 1,441 -- 56
Provision for previously
securitized receivables -- -- -- --
Depreciation and amortization 704 18 58 83
Interest 32 1,395 -- 111
Special charges and impairments -- -- -- --
Total costs and expenses 30,445 3,687 690 4,241
Operating income $901 $1,529 $(312) 84
Net Income before
cumulative effect of
change in accounting
Cumulative effect of
change in accounting
Net Income
EPS - Diluted
Average shares o/s
Total Securitization Non- Consolidated
Impact(1) comparable GAAP
items
Merchandise sales
and services $35,755 $-- $-- $35,755
Credit and financial
products revenues 5,510 (275) -- 5,235
Total Revenues 41,265 (275) -- 40,990
Costs and expenses
Cost of sales,
buying and
occupancy 26,234 -- -- 26,234
Selling and
administrative 8,931 (39) -- 8,892
Provision for
uncollectible
accounts 1,497 (153) -- 1,344
Provision for
previously securitized
receivables -- -- 522(1) 522
Depreciation and
amortization 863 -- -- 863
Interest 1,538 (123) -- 1,415
Special charges and
impairments -- -- 542(2) 542
Total costs and
expenses 39,063 (315) 1,064 39,812
Operating income $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 & Related Credit & Financial Corporate &
Services Products Other
Merchandise sales
and services $31,459 $-- $326
Credit and financial
products revenues -- 5,392 --
Total Revenues 31,459 5,392 326
Costs and expenses
Cost of sales,
buying and occupancy 22,743 -- 121
Selling and
administrative 6,816 955 442
Provision for
uncollectible accounts -- 1,903 --
Provision for
previously
securitized receivables -- -- --
Depreciation and
amortization 710 18 55
Interest 35 1,014 --
Special charges and
impairments -- -- --
Total costs and
expenses 30,304 3,890 618
Operating income $1,155 $ 1,502 $(292)
Net Income before
cumulative effect
of change in
accounting
Cumulative effect
of change
in accounting
Net Income
EPS - Diluted
Average shares o/s
Sears Total Non- Consolidated
Canada comparable GAAP
items
Merchandise sales and
services $3,913 $35,698 $ -- $35,698
Credit and financial
products revenues 276 5,668 -- 5,668
Total Revenues 4,189 41,366 -- 41,366
Costs and expenses
Cost of sales, buying
and occupancy 2,782 25,646 -- 25,646
Selling and
administrative 1,036 9,249 -- 9,249
Provision for
uncollectible
accounts 58 1,961 300 (1) 2,261
Provision for
previously
securitized receivables -- -- -- --
Depreciation and
amortization 92 875 -- 875
Interest 94 1,143 -- 1,143
Special charges and
impairments -- -- 111 (2) 111
Total costs
and expenses 4,062 38,874 411 39,285
Operating income $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.
SOURCE: Sears
CONTACT: Media - Edgar P. McDougal, +1-847-286-9669, or Investors - Pam
White, +1-847-286-1468, both of Sears; or George Sard or Denise DesChenes,
both of Citigate Sard Verbinnen, +1-212-687-8080, for Sears
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