Sears Accelerates Off-Mall Growth With Acquisitions of up to 61 Off-Mall Stores for Approximately $620 Million

Sears, Roebuck and Co. (NYSE: S) announced today it has agreed to acquire ownership or leasehold interest in up to 61 off-mall stores in key Sears markets from Kmart Holding Corporation (NASDAQ: KMRT) and Wal-Mart Stores, Inc. (NYSE: WMT) for approximately $620 million in cash.

The majority of the stores are expected to be converted by fourth quarter 2005 to Sears nameplates, including a new mid-size format that is modeled on Sears Grand.

The Kmart stores are located primarily in large, urban markets with home, family and income demographics similar to Sears'. The seven Wal-Mart stores are located in mid-size markets that also fit well into Sears' market and demographic profile.

"These transactions will jump start our strategy to grow the Sears brand off-mall, increase our points of distribution, and acquire well-located real estate at a fair value in key markets for Sears," said Chairman and CEO Alan J. Lacy. "The acquisitions will allow us to quickly open more stores and significantly boost our off-mall retail presence in priority markets that have synergies with our existing mall-based stores."

Sears plans to increase the pace of growth for its Sears Grand format, targeting three of the newly acquired Kmart locations for conversion to Sears Grand stores. Including the previously announced four Sears Grand stores expected to be opened by the end of 2004, the company expects to be operating 12-14 Sears Grands at the end of 2005.

The portfolio of stores to be acquired average 110,000 gross square feet and 84,000 selling square feet, compared with an average of 90,000 selling square feet for Sears' current full-line stores. Most of the new stores will be converted to the new mid-size format, modeled on Sears Grand. The new stores will offer a relevant subset of traditional categories, including apparel, home appliances, home electronics, home improvement and home fashions, plus consumables and transactional items, including a pharmacy in certain locations. The floor design of the new stores will be on one level, utilizing a common layout similar to the open-racetrack design of existing Sears Grand stores, with exit cashiering near the door. The design will allow more efficient store operations and a significantly increased ratio of selling to gross square footage.

"Almost 60 percent of these new locations will be in the top 15 DMAs and will significantly increase our store coverage in the nation's largest markets, filling in our footprint and supplementing our mall-based stores by providing customers with the convenience they need," Lacy said. "Starting with a 'Best of Sears' assortment tailored for specific markets, we will employ many of the successful merchandising and design elements of Sears Grand in the mid-size floor plan of the new format. These new off-mall stores will have improved operating efficiency and leverage our supply chain and marketing expenses."

Sears will fund the purchase of the stores from available cash. The company will pay a maximum purchase price of approximately $620 million in cash for up to 54 Kmart stores, plus the assumption of existing leases. Sears will make lease payments to Wal-Mart under subleases for the seven Wal-Mart stores. The acquisitions include real estate and Kmart store fixtures, but exclude inventory and liabilities not related to leases. Sears expects to take possession of four stores in 2004, up to 55 stores in 2005 and the remaining two stores in 2006. The acquisitions are subject to customary closing conditions.

Sears plans to invest approximately $200 million to remodel and re-fixture the stores, and expects to complete conversions of the majority of the locations by fourth quarter 2005. The acquisitions are expected to be accretive to earnings in the first full year of operation, 2006.

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, including approximately 870 full-line stores 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.

Webcast Scheduled

Sears will webcast an analyst and investor conference call today at 10:30 a.m. EDT/9:30 a.m. CDT. Investors and the media are invited to listen to the call through the company's website at http://www.sears.com/investors , 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 1-888-566-0627, access code: 5426. A replay of the conference call will also be available on the company's website at http://www.sears.com/investors , under "Presentations & Audio Archives."

Forward-Looking Statements

This release makes certain statements regarding the acquisition and conversion of the Kmart and Wal-Mart stores, the company's strategy for growth, and the impact of the new stores on Sears' operations, which are "forward-looking statements" based on assumptions about the future, which are subject to risks and uncertainties, such as competitive conditions in retail; changes in consumer confidence and spending; the successful execution of and customer reactions to the company's strategic initiatives, including the full-line store strategy and the proposed acquisition and conversion of the Kmart and Wal-Mart stores and other new store locations, which will involve significant construction activity, hiring and training of personnel and obtaining various consents and approvals; Sears' ability to operate the new stores successfully and integrate the new stores into the Sears infrastructure, which involves leveraging the supply chain and consolidating expenses; anticipated cash flow; 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 successfully merchandise the new stores with Sears branded merchandise, including Lands' End merchandise; social and political conditions such as war, political unrest and terrorism or natural disasters; 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.

SOURCE: Sears, Roebuck and Co.

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

Web site: http://www.sears.com/
http://www.sears.com/investors