Sears Reports Record 2002 Earnings Per Share Comparable EPS of $4.92 For Year; $2.11 For Fourth Quarter
Sears, Roebuck and Co. (NYSE: S) reported today net income, excluding noncomparable items of $1.6 billion, or $4.92 per share for 2002 as compared to $4.22 in 2001, a 17 percent per share increase. On a reported basis, net income was $1.4 billion or $4.29 per share for 2002 as compared to $2.24 last year. Non-comparable items are detailed in a schedule at the end of this release.
"2002 was a year of tremendous change for Sears," said Chairman and Chief Executive Officer Alan J. Lacy. "We made significant progress in repositioning and restructuring our core retail business, full-line stores, resulting in improved earnings for Sears. 2002 was a record year for Sears in terms of earnings per share."
Fourth Quarter Earnings
The company also reported fourth quarter 2002 net income, excluding non- comparable items, of $669 million, or $2.11 per share compared to $657 million, or $2.02 per share in 2001, a 4.5 percent per share increase. The increase is due to improved profitability in the company's Retail and Related Services segment as well as a decrease in the number of shares outstanding, partially offset by a decline in the Credit and Financial Products segment.
"Despite a challenging retail environment and soft sales, we made strong progress in improving our core retail operations," said Lacy. "The acquisition of Lands' End, continued improvement in merchandise assortments, inventory management and vendor sourcing, and an improvement in the cost structure of the full-line stores all contributed to increased profitability."
Fourth quarter of 2002 was affected by one non-comparable item - the gain on the sale of the company's remaining investment in Advance Auto Parts, Inc. The sale resulted in an after-tax gain of $179 million, or $0.56 per share and generated after-tax cash proceeds of $335 million. Non-comparable items affecting the fourth quarter of 2001 consisted of charges relating to implementation of productivity initiatives, product category exits, and the Exide battery litigation settlement. These non-comparable items, on an after- tax basis, were $163 million, or $0.50 per share.
Reported fourth quarter 2002 net income, including the non-comparable items, was $848 million or $2.67 per share, compared with $494 million, or $1.52 per share in the fourth quarter of 2001.
Retail and Related Services
Retail and Related Services segment operating income for the fourth quarter, excluding non-comparable items, increased 9.7 percent to $726 million due to improvements in margin, as well as the addition of Lands' End. "We are pleased by our strong profit performance in retail in the fourth quarter especially in light of the challenging retail environment during the holiday selling season," said Lacy.
Retail and Related Services revenues for the fourth quarter of 2002 of $9.7 billion were 2.8 percent above last year's fourth quarter revenues of $9.5 billion. Increased revenues due to the acquisition of Lands' End, and the addition of seven new The Great Indoors stores were partially offset by declines in full-line stores revenues. In hardlines, revenue declined in big- ticket categories such as home appliances, home electronics and lawn and garden. Softline sales declined compared to the prior year, however, sales improved over the prior quarter's performance.
Retail and Related Services gross margin rate improved by 140 basis points to 29.4 percent. The improvement in margin was due to the inclusion of Lands' End and improved inventory management and product sourcing in full-line stores.
Selling and administrative spending was 7.5 percent higher than fourth quarter 2001. The increase was due to additional expense related to the inclusion of Lands' End and higher investment in The Great Indoors, partially offset by a reduction in operating costs for full-line stores. Selling and administrative expenses were 19.9 percent of sales compared with 19.0 percent last year.
Credit and Financial Products
Operating income decreased by $63 million or 14.8 percent from the prior year as favorable funding costs and higher revenues were more than offset by a higher provision for uncollectible accounts.
Fourth quarter domestic Credit and Financial Products revenues increased 4.4 percent from a year ago, to $1.4 billion due to higher average receivable balances. Credit receivables at the end of the fourth quarter grew 11.5 percent over the prior year to $30.8 billion.
Funding costs declined by $43 million or 15.1 percent from last year's quarter due to a favorable interest rate environment.
The domestic provision for uncollectible accounts increased by $160 million or 40.9 percent over last year's period due to higher charge-offs and a $150 million increase to the allowance for uncollectible accounts. The allowance increase reflects the growth in Sears Gold MasterCard receivables, as well as increases in the net charge-off rate and delinquencies. The net charge-off rate for the fourth quarter increased to 5.40 percent from 5.23 percent last year primarily due to increased customer bankruptcy filings over last year. Delinquencies for the quarter increased to 7.69 percent compared to 7.58 percent last year. The domestic allowance for uncollectible accounts of $1.8 billion is 5.79 percent of ending credit receivables as of the end of the fourth quarter of 2002 compared to 5.57 percent at the end of last quarter.
2003 Outlook
The company's preliminary outlook for 2003 is for comparable earnings per share to increase in the low- to mid- single digits. The Retail and Related Services business is expected to grow operating income in the mid-teens, while operating income for the Credit and Financial Products segment is expected to decline at a low- to mid-single-digit rate. Sears Canada is anticipated to post increased year- over-year profitability, and the Corporate and Other segment is expected to remain relatively flat with productivity savings being offset by higher benefit and insurance costs.
Forward-Looking Statements
This release contains guidance on 2003 comparable earnings per share, which is a forward-looking statement based on assumptions about the future that are subject to risks and uncertainties, such as competitive conditions in retail; changes in consumer confidence and spending; changes in interest rates; delinquency and charge-off trends in the credit card receivables portfolio; continued consumer acceptance of the Sears Gold MasterCard Program; the successful execution of and customer reactions to Sears' Full-line store strategy and other performance improvement initiatives; Sears' ability to integrate and operate Lands' End successfully; anticipated cash flow; the possibility of increased hostilities in the Middle East; 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. While the company believes its forecasts and assumptions are reasonable, it cautions that actual results may differ materially. The company intends these forward-looking statements to speak only as of the time of this presentation and does not undertake to update or revise them as more information becomes available.
About Sears
Sears, Roebuck and Co. is a broadline retailer with significant service and credit businesses. In 2002, the company's annual revenue was more than $41 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 .
SEARS, ROEBUCK AND CO.
CONSOLIDATED INCOME
For the 13 Weeks Ended For the 52 Weeks Ended
December 28, 2002 December 28, 2002
and December 29, 2001 and December 29, 2001
(millions, except earnings per
common share) 2002 2001 2002 2001
REVENUES
Merchandise sales
and services $11,059 $10,819 $35,698 $35,755
Credit and financial products
revenues 1,459 1,401 5,668 5,235
Total revenues 12,518 12,220 41,366 40,990
COSTS AND EXPENSES
Cost of sales, buying and
occupancy 7,744 7,781 25,646 26,234
Selling and administrative 2,612 2,408 9,249 8,892
Provision for uncollectible
accounts 576 415 2,261 1,344
Provision for previously
securitized receivables - - - 522
Depreciation and amortization 225 214 875 863
Interest 277 321 1,143 1,415
Special charges and
impairments - 255 111 542
Total costs and
expenses 11,434 11,394 39,285 39,812
Operating income 1,084 826 2,081 1,178
Other income, net 274 15 372 45
Income before income taxes and
minority interest 1,358 841 2,453 1,223
Income taxes (476) (331) (858) (467)
Minority interest (34) (16) (11) (21)
Income before cumulative effect
of accounting change 848 494 1,584 735
Cumulative effect of change in
accounting for goodwill - - (208) -
NET INCOME $848 $494 $1,376 $735
EARNINGS PER COMMON SHARE
Basic
Earnings per share before
cumulative effect of a change
in accounting principle $2.67 $1.53 $4.99 $2.25
Cumulative effect of change
in accounting for goodwill $- $- $(0.65) $-
Earning per share $2.67 $1.53 $4.34 $2.25
Diluted
Earnings per share before
cumulative effect of a change
in accounting principle $2.67 $1.52 $4.94 $2.24
Cumulative effect of change
in accounting for goodwill $- $- $(0.65) $-
Earning per share $2.67 $1.52 $4.29 $2.24
Average common and dilutive
common equivalent shares
outstanding 317.6 325.5 320.7 328.5
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended December 28, 2002 and December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Credit & Financial
Retail & Related Services Products
2002 2001 2002 2001
Merchandise sales and
services $9,731 $9,470 $- $-
Credit and financial
products revenues - - 1,390 1,331
Total Revenues 9,731 9,470 1,390 1,331
Costs and expenses
Cost of sales, buying
and occupancy 6,870 6,822 - -
Selling and
administrative 1,936 1,801 230 225
Provision for
uncollectible accounts - - 551 391
Provision for previously
securitized receivables - - - -
Depreciation and
amortization 186 174 4 4
Interest 13 11 242 285
Special charges and
impairments - - - -
Total costs and
expenses 9,005 8,808 1,027 905
Operating income $726 $662 $363 $426
Net Income before
cumulative effect of
change in accounting
Cumulative effect of
change in accounting
Net Income
EPS - Diluted
Average shares o/s
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended December 28, 2002 and December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Corporate & Other Sears Canada
2002 2001 2002 2001
Merchandise sales and services $85 $74 $1,243 $1,275
Credit and financial products
revenues - - 69 70
Total Revenues 85 74 1,312 1,345
Costs and expenses
Cost of sales, buying and
occupancy 32 28 842 931
Selling and administrative 132 126 314 256
Provision for uncollectible
accounts - - 25 24
Provision for previously
securitized receivables - - - -
Depreciation and amortization 16 14 19 22
Interest - - 22 25
Special charges and
impairments - - - -
Total costs and expenses 180 168 1,222 1,258
Operating income $(95) $(94) $90 $87
Net Income before cumulative
effect of change in accounting
Cumulative effect of change in
accounting
Net Income
EPS - Diluted
Average shares o/s
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended December 28, 2002 and December 29, 2001
Reconciling Items
Securitization
Total Impact
2002 2001 2002 2001
Merchandise sales and services $11,059 $10,819 $- $-
Credit and financial products
revenues 1,459 1,401 - -
Total Revenues 12,518 12,220 - -
Costs and expenses
Cost of sales, buying and
occupancy 7,744 7,781 - -
Selling and administrative 2,612 2,408 - -
Provision for uncollectible
accounts 576 415 - -
Provision for previously
securitized receivables - - -
Depreciation and amortization 225 214 - -
Interest 277 321 - -
Special charges and impairments - - - -
Total costs and expenses 11,434 11,139 - -
Operating income $1,084 $1,081 $- $-
Net Income before cumulative effect
of change in accounting $669 $657 $- $-
Cumulative effect of change in
accounting $- $- $- $-
Net Income $669 $657 $- $-
EPS - Diluted $2.11 $2.02 $- $-
Average shares o/s 317.6 325.5 317.6 325.5
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 13 Weeks Ended December 28, 2002 and December 29, 2001
Reconciling Items
Non-comparable items Consolidated GAAP
2002 2001 2002 2001
Merchandise sales and services $- $- $11,059 $10,819
Credit and financial products
revenues - - 1,459 1,401
Total Revenues - - 12,518 12,220
Costs and expenses
Cost of sales, buying and
occupancy - - 7,744 7,781
Selling and administrative - - 2,612 2,408
Provision for uncollectible
accounts - - 576 415
Provision for previously
securitized receivables - - - -
Depreciation and
amortization - - 225 214
Interest - - 277 321
Special charges and
impairments - 255 - 255
Total costs and
expenses - 255 11,434 11,394
Operating income $- $(255) $1,084 $826
Net Income before cumulative
effect of change in accounting $179 $(163) $848 $494
Cumulative effect of change in
accounting $- $- $-
Net Income $179 $(163) $848 $494
EPS - Diluted $0.56 $(0.50) $2.67 $1.52
Average shares o/s 317.6 325.5 317.6 325.5
For the 52 Weeks Ended December 28, 2002 and December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Credit &
Retail & Related Financial
Products Services
2002 2001 2002 2001
Merchandise sales and services $31,459 $31,346 $- $-
Credit and financial products revenues - - 5,392 5,216
Total Revenues 31,459 31,346 5,392 5,216
Costs and expenses
Cost of sales, buying and occupancy 22,743 23,081 - -
Selling and administrative 6,816 6,628 955 833
Provision for uncollectible
accounts - - 1,903 1,441
Provision for previously
securitized receivables - - - -
Depreciation and amortization 710 704 18 18
Interest 35 32 1,014 1,395
Special charges and impairments - - - -
Total costs and expenses 30,304 30,445 3,890 3,687
Operating income $1,155 $901 $1,502 $1,529
Net Income before cumulative effect of
change in accounting
Cumulative effect of change in
accounting
Net Income
EPS - Diluted
Average shares o/s
For the 52 Weeks Ended December 28, 2002 and December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Corporate & Other Sears Canada
2002 2001 2002 2001
Merchandise sales and services $326 $378 $3,913 $4,031
Credit and financial products
revenues - - 276 294
Total Revenues 326 378 4,189 4,325
Costs and expenses
Cost of sales, buying and
occupancy 121 159 2,782 2,994
Selling and administrative 442 473 1,036 997
Provision for uncollectible
accounts - - 58 56
Provision for previously
securitized receivables - - - -
Depreciation and amortization 55 58 92 83
Interest - - 94 111
Special charges and impairments - - - -
Total costs and expenses 618 690 4,062 4,241
Operating income $(292) $(312) $127 $84
Net Income before cumulative effect
of change in accounting
Cumulative effect of change in
accounting
Net Income
EPS - Diluted
Average shares o/s
For the 52 Weeks Ended December 28, 2002 and December 29, 2001
Reconciling Items
Securitization
Total Impact
2002 2001 2002 2001
Merchandise sales and services $35,698 $35,755 $- $-
Credit and financial products
revenues 5,668 5,510 - (275)
Total Revenues 41,366 41,265 - (275)
Costs and expenses
Cost of sales, buying and
occupancy 25,646 26,234 - -
Selling and administrative 9,249 8,931 - (39)
Provision for uncollectible
accounts 1,961 1,497 - (153)
Provision for previously
securitized receivables - - -
Depreciation and amortization 875 863 - -
Interest 1,143 1,538 - (123)
Special charges and impairments - - - -
Total costs and expenses 38,874 39,063 - (315)
Operating income $2,492 $2,202 $- $40
Net Income before cumulative effect
of change in accounting $1,578 $1,385 $- $26
Cumulative effect of change in
accounting $- $- $- $-
Net Income $1,578 $1,385 $- $26
EPS - Diluted $4.92 $4.22 $- $0.08
Average shares o/s 320.7 328.5 320.7 328.5
For the 52 Weeks Ended December 28, 2002 and December 29, 2001
Reconciling Items
Non-comparable Consolidated
items GAAP
2002 2001 2002 2001
Merchandise sales and services $- $- $35,698 $35,755
Credit and financial products
revenues - - 5,668 5,235
Total Revenues - - 41,366 40,990
Costs and expenses
Cost of sales, buying and
occupancy - - 25,646 26,234
Selling and administrative - - 9,249 8,892
Provision for uncollectible
accounts 300 - 2,261 1,344
Provision for previously
securitized receivables - 522 - 522
Depreciation and amortization - - 875 863
Interest - - 1,143 1,415
Special charges and impairments 111 542 111 542
Total costs and expenses 411 1,064 39,285 39,812
Operating income $(411) $(1,064) $2,081 $1,178
Net Income before cumulative effect
of change in accounting $6 $(676) $1,584 $735
Cumulative effect of change in
accounting $(208) $- $(208) $-
Net Income $(202) $(676) $1,376 $735
EPS - Diluted $(0.63) $(2.06) $4.29 $2.24
Average shares o/s 320.7 328.5 320.7 328.5
SEARS, ROEBUCK AND CO.
SUPPLEMENTAL INFORMATION - DOMESTIC CREDIT CARD RECEIVABLES, INVENTORY
AND STORE COUNT
(millions)
Average Balance
For the 13 Weeks Ended For the 52 Weeks Ended
December 28, 2002 and December 28, 2002 and
December 29, 2001 December 29, 2001
2002 2001 2002 2001
Sears Card credit card
receivables $18,372 $22,804 $19,868 $23,828
Sears Gold MasterCard
credit card receivables 11,357 3,950 8,504 2,490
Managed domestic credit
card receivables $29,729 $26,754 $28,372 $26,318
Ending Balance
December 28, December 29,
2002 2001
Sears Card credit card receivables $18,444 $22,342
Sears Gold MasterCard credit card
receivables 12,322 5,257
Managed domestic credit card receivables $30,766 $27,599
For the 13 Weeks Ended For the 52 Weeks Ended
December 28, 2002 and December 28, 2002 and
December 29, 2001 December 29, 2001
Domestic managed credit
card receivables- 2002 2001 2002 2001
Net interest margin:
Portfolio yield 17.91% 19.17% 18.29% 19.14%
Effective financing
rate 3.24% 4.21% 3.55% 5.25%
Net interest margin 14.67% 14.96% 14.74% 13.89%
Total domestic managed
net charge-off rate 5.40% 5.23% 5.42% 5.32%
Sears Card managed
net charge-off rate 6.36% 5.77% 6.28% 5.70%
Sears Gold MasterCard
managed net charge-
off rate 3.86% 2.10% 3.41% 1.65%
2002
Dec. 28, Sep. 28, Jun. 29, Mar. 30,
2002 2002 2002 2002
Domestic managed credit
card receivables-
Delinquency rate 7.69% 7.24% 6.87% 7.31%
Sears Card
delinquency rate 10.31% 9.71% 8.73% 8.75%
Sears Gold MasterCard
delinquency rate 3.78% 3.00% 2.58% 2.56%
Allowance for
uncollectible accounts $1,780 $1,630 $1,441 $1,115
Allowance % of domestic
on-book credit
card receivables 5.79% 5.57% 5.10% 4.13%
2001
Dec. 29, 2001
Domestic managed credit card receivables-
Delinquency rate 7.58%
Sears Card delinquency rate 8.90%
Sears Gold MasterCard delinquency rate 1.98%
Allowance for uncollectible accounts $1,115
Allowance % of domestic on-book
credit card receivables 4.04%
December 28, December 29,
2002 2001
Domestic
inventories -LIFO $4,635 $4,372
-FIFO $5,237 $4,962
For the 13 Weeks Ended For the 52 Weeks Ended
December 28, 2002 December 28, 2002
and December 29, 2001 and December 29, 2001
Pretax LIFO charge
(credit) $(19) $(5) $11 $25
December 29, December 28,
Domestic retail stores: 2001 Opened Closed 2002
Full-line stores 867 15 (10) 872
Specialty formats 1,318 28 (41) 1,305
Total 2,185 43 (51) 2,177
Gross square feet 148.9 3.2 (2.2) 149.9
Operating
(millions, except per share data) Income Per Share
13 Weeks Ended December 28,
2002 and December 29, 2001 2002 2001 2002 2001
Special charges and
impairments:
Home office and store
operations initiatives $- $123 $- $0.25
Product category exits - 69 - 0.13
Exide battery litigation
settlement - 63 - 0.12
Total special charges and
impairments - 255 - 0.50
Non-comparable items in
operating income $- $255 - 0.50
Advance Auto Parts gain (0.56) -
Total effect on earnings per
share $(0.56) $0.50
Operating Income Per Share
52 Weeks Ended December 28,
2002 and December 29, 2001 2002 2001 2002 2001
Special charges and
impairments:
Eaton's store conversions $111 $- $0.13 $-
Home office and store
operations initiatives - 123 - 0.24
Product category exits - 69 - 0.14
Exide battery litigation
settlement - 63 - 0.12
HomeLife closure and other - 205 - 0.39
Exit of cosmetics business - 82 - 0.16
Total special charges and
impairments 111 542 0.13 1.05
Effect of change in
estimate for the allowance
for uncollectible accounts 300 - 0.59
Provision for previously
securitized receivables - 522 - 1.01
Net securitization income - (40) - (0.08)
Non-comparable items in
operating income $411 $1,024 0.72 1.98
Advance Auto Parts gain (0.74) -
Effect of change in accounting
for goodwill 0.65 -
Total effect on earnings per share $0.63 $1.98
SOURCE: Sears, Roebuck and Co.
CONTACT: Peggy A. Palter, +1-847-286-8361, or investor relations, Pam
White, +1-847-286-1468, both of Sears Roebuck and Co.
Web site: http://www.sears.com/