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August 20, 2015 6:05 AM EDT
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________ 
FORM 8-K
 _____________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 20, 2015
_________________________ 
SEARS HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
 
000-51217, 001-36693
 
20-1920798
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
3333 Beverly Road
Hoffman Estates, Illinois
60179
 
(Address of principal executive offices)
(Zip code)
 
Registrant’s telephone number, including area code: (847) 286-2500
(Former name or former address, if changed since last report): Not Applicable
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 





1

Section 2 -
Financial Information

Item 2.02
Results of Operations and Financial Condition.
 
 
 
On August 20, 2015, the Registrant issued a press release regarding its second quarter 2015 results. The press release is attached hereto as Exhibit 99.1.

Section 9 -
Financial Statements and Exhibits
    
Item 9.01
Financial Statements and Exhibits.
 
 
 
(d) Exhibits
 
Exhibit 99.1 - Press release dated August 20, 2015, furnished pursuant to Item 2.02.









2

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
SEARS HOLDINGS CORPORATION 
 
By:
/s/ Robert A. Riecker
 
Robert A. Riecker
 
Vice President, Controller and Chief Accounting Officer

Date: August 20, 2015

3

Exhibit Index
 
99.1
Press release dated August 20, 2015, furnished pursuant to Item 2.02.

4


Exhibit 99.1

NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371
   
                         FOR IMMEDIATE RELEASE:
August 20, 2015


SEARS HOLDINGS REPORTS SECOND QUARTER 2015 RESULTS

HOFFMAN ESTATES, Ill. - Sears Holdings Corporation ("Holdings," "we," "us," "our," or the "Company")(NASDAQ: SHLD) today announced financial results for its second quarter ended August 1, 2015, which are in line with the guidance the Company provided on August 3, 2015. As a supplement to this announcement, a presentation, pre-recorded conference and audio webcast are available at our website http://searsholdings.com/invest.
In summary, we reported:
•
Domestic Adjusted EBITDA of $(200) million, excluding Seritage Growth Properties and joint venture rent, in the second quarter of 2015 compared to $(298) million in the prior year second quarter, which is the fourth consecutive quarter of improved EBITDA performance on a year-over-year basis;
•
Net income attributable to Holdings' shareholders of $208 million ($1.84 earnings per diluted share) for the second quarter of 2015 compared to a net loss of $573 million ($5.39 loss per diluted share) for the prior year second quarter. Adjusted for significant items, we would have reported a net loss of $256 million ($2.40 loss per diluted share) for the quarter compared to a net loss of $293 million ($2.76 loss per diluted share) in the prior year quarter;
•
Sales to Shop Your Way® members in Sears Full-line and Kmart stores were 74% of eligible sales for the second quarter;
•
Kmart and Sears Domestic comparable store sales declined 7.3% and 14.0%, respectively, in the second quarter of 2015 driven in part by highly targeted promotional and marketing spend to better align with member needs, and a shift away from low margin categories, such as consumer electronics;
•
Kmart's gross margin rate for the second quarter improved 80 basis points over the prior year second quarter, while Sears Domestic's gross margin rate improved 210 basis points;
•
The completion on July 7, 2015 of the Company's rights offering and sale-leaseback transaction with Seritage Growth Properties, a recently formed, independent publicly traded real estate investment trust ("REIT") and received aggregate gross proceeds from the transaction of $2.7 billion;
•
The completion on July 21, 2015 of an amendment and extension of our $3.275 billion domestic credit facility with approximately $2.0 billion maturing in 2020 and the remaining approximately $1.3 billion of the existing credit facility in place until April of 2016;
•
The Company continues to demonstrate that it has the financial flexibility to fund its transformation and meet its obligations. As of August 1, 2015, the Company had $1.8 billion in cash, no revolver borrowings and $657 million of letters of credit outstanding. Availability under the Credit Agreement was approximately $1.2 billion; and
•
Approximately $936 million principal amount of notes were validly tendered as part of our recent cash tender offer (the "Offer") for our 6 5/8% Senior Secured Notes due 2018 (the "Notes").

Edward S. Lampert, Holdings' Chairman and Chief Executive Officer, said, "The second quarter marked our fourth consecutive quarter of improved results. During the quarter we completed many of the objectives we laid out to

1


transform Holdings from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way platform. The successful completion of these actions has positioned Sears Holdings for long-term success and is consistent with our strategy to focus on our best stores, reward our best members and pursue our best categories as part of our transformation. As our results over the last four consecutive quarters demonstrate, we are successfully enhancing our margin rates and improving EBITDA performance as we become more efficient with our promotional programs and the use of Shop Your Way to replace more traditional forms of marketing with more targeted and personalized digital interactions with our members."
Rob Schriesheim, Holdings' Chief Financial Officer, said, "In the second quarter of 2015, the Company completed its rights offering and sale-leaseback transaction with Seritage Growth Properties and received aggregate gross proceeds from the transaction of $2.7 billion. In addition, we completed an amendment and extension of the Company's existing asset-based credit facility. With the successful completion of the amendment and extension of the domestic credit facility and the Seritage transaction, we have substantially enhanced our financial flexibility and achieved our objective of reducing our reliance on inventory as a source of financing. We are pleased with the outcome of the Offer, which was in line with our expectations and helped mitigate our annualized cash interest expense. We intend to continue taking significant actions to alter our capital structure, as circumstances allow, to position Sears Holdings for success and profitability, which could include further reductions in debt or changes in the composition of our debt."
Financial Results
We had Domestic Adjusted EBITDA of $(200) million, excluding Seritage Growth Properties and joint venture rent, in the second quarter of 2015 compared to $(298) million in the prior year second quarter. The terms of our leases with Seritage and the joint venture partners provide us with the ability to accelerate the transformation of our physical stores. We expect that our cash rent obligations will decrease significantly as space in these stores is recaptured.
Revenues decreased approximately $1.8 billion to $6.2 billion for the quarter ended August 1, 2015, as compared to revenues of $8.0 billion for the quarter ended August 2, 2014, with a significant portion of the decline related to actions taken by the Company in 2014 to streamline our operations and focus on our transformation into a member-centric retailer. The decrease in revenue included a decrease of $780 million associated with Sears Canada, which was de-consolidated in October 2014, and $386 million as a result of fewer Kmart and Sears Full-line stores. In addition, comparable store sales declined 10.8% during the quarter, comprised of decreases of 7.3% and 14.0% at Kmart and Sears Domestic, respectively, which accounted for $584 million of the revenue decline.
At Kmart, comparable store sales increased in the home appliances and toys categories, but were offset by declines in consumer electronics, grocery & household, apparel and drugstore. Excluding the impact of the consumer electronics business, which is a business we continue to alter to meet our members' needs, Kmart comparable store sales would have decreased 5.4%. Sears Domestic was also negatively impacted by the consumer electronics business. Excluding the impact of consumer electronics, Sears Domestic comparable store sales would have decreased 12.5%, primarily driven by decreases in home appliances, apparel, lawn & garden and Sears Auto Centers, which were partially offset by an increase in the mattresses category.
During the quarter, gross margin decreased $307 million, as the above noted decline in sales was partially offset by an improvement in gross margin rate. Gross margin for the second quarter of 2015 included one-time vendor credits of $33 million, as well as a credit of $7 million related to the amortization of the deferred gain on sale of assets associated with the Seritage transaction, while the second quarter of 2014 also included gross margin of $184 million from Sears Canada. Gross margin for the quarter also included charges of $5 million and $10 million in 2015 and 2014, respectively, related to store closures.
Kmart's gross margin rate for the second quarter improved 80 basis points, with increases experienced in several categories, particularly grocery & household and electronics. Sears Domestic's gross margin rate improved 210 basis points for the quarter. Excluding the impact of significant items recorded in gross margin during the quarter, which aggregated to a benefit of $38 million in 2015, Sears Domestic's gross margin rate improved 110 basis points, with the most notable increases experienced in the apparel and tools categories. The improvement in gross margin rate in both formats was primarily driven by less clearance markdowns and promotional activity. In addition, as a result of

2


the Seritage and JV transactions, the second quarter of 2015 includes additional rent expense of approximately $26 million.
Selling and administrative expenses decreased $424 million in the second quarter of 2015 compared to the prior year quarter. Excluding significant items noted in our Adjusted Earnings Per Share tables, domestic selling and administrative expenses declined $240 million primarily due to decreases in payroll and advertising expenses.
During the quarter, the Company realized a significant tax benefit on the deferred taxes related to indefinite-life assets associated with the properties sold in the transaction with Seritage. As such, our effective tax rate for the second quarter of 2015 was a benefit of 1,700.0%, compared to an expense of 5.8% in the prior year quarter. In addition, the application of the requirements for accounting for income taxes in interim periods, after consideration of our valuation allowance, causes a significant variation in the typical relationship between income tax expense and pretax income.
The total gain on the sale-leaseback transaction with Seritage Growth Properties was approximately $1.4 billion, of which approximately $508 million was recognized during the second quarter of 2015 and the balance of approximately $894 million was deferred and will be recognized in proportion to the related rent expense over the lease term.
The Company reported net income of $208 million for the second quarter of 2015 compared to a net loss of $573 million for the prior year period. Net income for the second quarter of 2015 and net loss for the second quarter of 2014 included significant items, which aggregated to income of $464 million and expense of $280 million, respectively. Adjusting for these significant items, we would have reported a net loss of $256 million and $293 million in the second quarter of 2015 and 2014, respectively.
Financial Position
The Company's cash balances were $1.8 billion at August 1, 2015 compared with $250 million at January 31, 2015.
Domestic merchandise inventories at August 1, 2015 were $5.0 billion, compared to $5.8 billion at August 2, 2014, with the decline being driven by improved productivity and store closures.
Since the first quarter of 2012, we have reduced our net inventory investment by approximately $2.2 billion. By reducing our inventory investment and our payables, we have decreased the level of vendor support needed to run our business, de-risking our business model in a way that benefits both us and our vendor partners.
Short-term borrowings totaled $6 million at the end of the second quarter of 2015 consisting of commercial paper outstanding, as compared to $615 million at January 31, 2015, consisting of $213 million outstanding on our domestic credit facility, a $400 million secured short-term loan and $2 million of commercial paper outstanding.
At August 1, 2015, the amount available to borrow under our credit facility was approximately $1.2 billion, which reflects the effect of our springing fixed charge coverage ratio covenant and the borrowing base limitation in our revolving credit facility.
Total long-term debt (long-term debt and capital lease obligations) was $3.1 billion and $3.2 billion at August 1, 2015 and January 31, 2015, respectively.
As of the "Early Tender Date" of August 17, 2015, approximately $936 million principal amount of the Notes were validly tendered and not validly withdrawn in the Offer. Pursuant to the terms of the Offer, holders of Notes may tender additional Notes at or prior to 11:59 p.m., New York City time, on August 28, 2015, unless the Offer is earlier terminated or extended by the Company in its sole discretion. As such, the unused balance of our debt repurchase authorization is $74 million at August 20, 2015. As a result of the Notes received as of the Early Tender Date, we have mitigated our annualized cash interest expense by approximately $62 million. The Company may consider repurchasing other outstanding debt securities in order to further mitigate our interest expense.
Adjusted EBITDA
In addition to our net income (loss) from continuing operations attributable to Sears Holdings' shareholders determined in accordance with Generally Accepted Accounting Principles ("GAAP"), for purposes of evaluating operating performance, we use Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted

3


EBITDA"), Domestic Adjusted EBITDA, Domestic Adjusted EBITDA excluding Seritage/JV rent and Adjusted Earnings Per Share. The tables attached to this press release provide a reconciliation of GAAP to as adjusted amounts. We believe that our use of Adjusted EBITDA, Domestic Adjusted EBITDA, Domestic Adjusted EBITDA excluding Seritage/JV rent and Adjusted EPS provides an appropriate measure for investors to use in assessing our performance across periods, given that these measures provide adjustments for certain significant items which may vary significantly from period to period, improving the comparability of year-to-year results and is therefore representative of our ongoing performance. Therefore, we have adjusted our results for them to make our statements more useful and comparable. However, we do not, and do not recommend that you, solely use Adjusted EBITDA, Domestic Adjusted EBITDA, Domestic Adjusted EBITDA excluding Seritage/JV rent or Adjusted EPS to assess our financial and earnings performance. We also use, and recommend that you use, diluted earnings per share in addition to Adjusted EPS in assessing our earnings performance.
Forward-Looking Statements
Results are unaudited. This press release contains forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about our transformation through our integrated retail strategy, our plans to redeploy and reconfigure our assets, our liquidity, our ability to exercise financial flexibility as we meet our obligations and pursue possible strategic transactions and other statements that describe the Company’s plans. Whenever used, words such as “will,” “expect,” and other terms of similar meaning are intended to identify such forward-looking statements.  Forward-looking statements, including these, are based on the current beliefs and expectations of our management and are subject to significant risks, assumptions and uncertainties, many of which are beyond the Company’s control, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These include, but are not limited to, risks and uncertainties relating to the domestic credit facility transaction and the Seritage transaction, such as the impact of the evaluation and/or completion of any such transaction on our other businesses, and risks and uncertainties relating to the Offer, such as the timing and certainty of the completion of that transaction and the operational and financial profile of the Company or any of its businesses after giving effect to it. There can be no assurance that any of these efforts will be successful. Detailed descriptions of other risks, uncertainties and factors relating to Sears Holdings are discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.
About Sears Holdings Corporation
Sears Holdings Corporation (NASDAQ: SHLD) is a leading integrated retailer focused on seamlessly connecting the digital and physical shopping experiences to serve our members - wherever, whenever and however they want to shop. Sears Holdings is home to Shop Your Way®, a social shopping platform offering members rewards for shopping at Sears and Kmart, as well as with other retail partners across categories important to them. The Company operates through its subsidiaries, including Sears, Roebuck and Co. and Kmart Corporation, with full-line and specialty retail stores across the United States. For more information, visit www.searsholdings.com.

4


Sears Holdings Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
 
13 Weeks Ended
 
26 Weeks Ended
millions, except per share data
August 1,
2015
 
August 2,
2014
 
August 1,
2015
 
August 2,
2014
REVENUES
 
 
 
 
 
 
 
Merchandise sales and services
$
6,211

 
$
8,013

 
$
12,093

 
$
15,892

COSTS AND EXPENSES
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
4,776

 
6,271

 
9,140

 
12,322

Gross margin dollars
1,435

 
1,742

 
2,953

 
3,570

Gross margin rate
23.1
%
 
21.7
%
 
24.4
%
 
22.5
%
Selling and administrative
1,694

 
2,118

 
3,375

 
4,207

Selling and administrative expense as a percentage of total revenues
27.3
%
 
26.4
%
 
27.9
%
 
26.5
%
Depreciation and amortization
114

 
152

 
236

 
307

Impairment charges
54

 
20

 
54

 
25

Gain on sales of assets
(526
)
 
(34
)
 
(633
)
 
(80
)
Total costs and expenses
6,112

 
8,527

 
12,172

 
16,781

Operating income (loss)
99

 
(514
)
 
(79
)
 
(889
)
Interest expense
(85
)
 
(72
)
 
(175
)
 
(143
)
Interest and investment income (loss)
(26
)
 
32

 
(44
)
 
36

Other income (loss)
(1
)
 
5

 
—

 
2

Loss before income taxes
(13
)
 
(549
)
 
(298
)
 
(994
)
Income tax (expense) benefit
221

 
(32
)
 
203

 
(29
)
Net income (loss)
208

 
(581
)
 
(95
)
 
(1,023
)
Loss attributable to noncontrolling interests
—

 
8

 
—

 
48

NET INCOME (LOSS) ATTRIBUTABLE TO HOLDINGS' SHAREHOLDERS
$
208

 
$
(573
)
 
$
(95
)
 
$
(975
)
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO HOLDINGS' SHAREHOLDERS
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
1.95

 
$
(5.39
)
 
$
(0.89
)
 
$
(9.17
)
Diluted earnings (loss) per share
$
1.84

 
$
(5.39
)
 
$
(0.89
)
 
$
(9.17
)
Basic weighted average common shares outstanding
106.5

 
106.3

 
106.5

 
106.3

Diluted weighted average common shares outstanding
113.3

 
106.3

 
106.5

 
106.3





5


Sears Holdings Corporation
 Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
 
 
 
 
 
 
millions
 
August 1,
2015
 
August 2,
2014
 
January 31,
2015
ASSETS
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,819

 
$
829

 
$
250

Restricted cash
 
—

 
10

 
—

Accounts receivable
 
460

 
516

 
429

Merchandise inventories
 
5,028

 
6,383

 
4,943

Prepaid expenses and other current assets
 
270

 
419

 
241

Total current assets
 
7,577

 
8,157

 
5,863

Property and equipment, net
 
2,732

 
5,091

 
4,449

Goodwill
 
269

 
269

 
269

Trade names and other intangible assets
 
2,091

 
2,302

 
2,097

Other assets
 
517

 
619

 
531

TOTAL ASSETS
 
$
13,186

 
$
16,438

 
$
13,209

LIABILITIES
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Short-term borrowings
 
$
6

 
$
1,404

 
$
615

Current portion of long-term debt and capitalized lease obligations
 
70

 
85

 
75

Merchandise payables
 
1,704

 
2,506

 
1,621

Other current liabilities
 
2,068

 
2,374

 
2,087

Unearned revenues
 
802

 
889

 
818

Other taxes
 
363

 
436

 
380

Short-term deferred tax liabilities
 
472

 
484

 
480

Total current liabilities
 
5,485

 
8,178

 
6,076

Long-term debt and capitalized lease obligations
 
3,068

 
2,815

 
3,110

Pension and postretirement benefits
 
2,258

 
1,721

 
2,404

Deferred gain on sale-leaseback
 
798

 
—

 
—

Sale-leaseback financing obligation
 
164

 
—

 
—

Other long-term liabilities
 
1,830

 
2,007

 
1,849

Long-term deferred tax liabilities
 
489

 
798

 
715

Total Liabilities
 
14,092

 
15,519

 
14,154

EQUITY (DEFICIT)
 
 
 
 
 
 
   Total Equity (Deficit)
 
(906
)
 
919

 
(945
)
   TOTAL LIABILITIES AND EQUITY (DEFICIT)
 
$
13,186

 
$
16,438

 
$
13,209

 
 
 
 
 
 
 
Total common shares outstanding
 
106.6

 
106.5

 
106.5




6


Sears Holdings Corporation
Segment Results
(Unaudited)
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended August 1, 2015
 
 
millions, except store data
Kmart
 
Sears
Domestic
 
Sears
Holdings
 
 
Merchandise sales and services
$
2,459

 
$
3,752

 
$
6,211

 
 
 
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
1,950

 
2,826

 
4,776

 
 
Gross margin dollars
509

 
926

 
1,435

 
 
Gross margin rate
20.7
%
 
24.7
%
 
23.1
%
 
 
 
 
 
 
 
 
 
 
Selling and administrative
594

 
1,100

 
1,694

 
 
Selling and administrative expense as a percentage of total revenues
24.2
%
 
29.3
%
 
27.3
%
 
 
Depreciation and amortization
19

 
95

 
114

 
 
Impairment charges
2

 
52

 
54

 
 
Gain on sales of assets
(143
)
 
(383
)
 
(526
)
 
 
           Total costs and expenses
2,422

 
3,690

 
6,112

 
 
Operating income
$
37

 
$
62

 
$
99

 
 
 
 
 
 
 
 
 
 
Number of:
 
 
 
 
 
 
 
  Kmart Stores
963

 
—

 
963

 
 
  Full-Line Stores
—

 
711

 
711

 
 
  Specialty Stores
—

 
28

 
28

 
 
  Total Stores
963

 
739

 
1,702

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended August 2, 2014
millions, except store data
 Kmart
 
Sears Domestic
 
Sears Canada
 
Sears Holdings
Merchandise sales and services
$
2,923

 
$
4,310

 
$
780

 
$
8,013

 
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
2,341

 
3,334

 
596

 
6,271

Gross margin dollars
582

 
976

 
184

 
1,742

Gross margin rate
19.9
%
 
22.6
%
 
23.6
%
 
21.7
%
 
 
 
 
 
 
 
 
Selling and administrative
729

 
1,184

 
205

 
2,118

Selling and administrative expense as a percentage of total revenues
24.9
%
 
27.5
%
 
26.3
%
 
26.4
%
Depreciation and amortization
24

 
110

 
18

 
152

Impairment charges
2

 
3

 
15

 
20

Gain on sales of assets
(31
)
 
(3
)
 
—

 
(34
)
           Total costs and expenses
3,065

 
4,628

 
834

 
8,527

Operating loss
$
(142
)
 
$
(318
)
 
$
(54
)
 
$
(514
)
 
 
 
 
 
 
 
 
Number of:
 
 
 
 
 
 
 
  Kmart Stores
1,077

 
—

 
—

 
1,077

  Full-Line Stores
—

 
757

 
113

 
870

  Specialty Stores
—

 
36

 
319

 
355

  Total Stores
1,077

 
793

 
432

 
2,302


7


Sears Holdings Corporation
Segment Results
(Unaudited)
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26 Weeks Ended August 1, 2015
 
 
millions, except store data
Kmart
 
Sears
Domestic
 
Sears
Holdings
 
 
Merchandise sales and services
$
4,815

 
$
7,278

 
$
12,093

 
 
 
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
3,788

 
5,352

 
9,140

 
 
Gross margin dollars
1,027

 
1,926

 
2,953

 
 
Gross margin rate
21.3
%
 
26.5
%
 
24.4
%
 
 
 
 
 
 
 
 
 
 
Selling and administrative
1,217

 
2,158

 
3,375

 
 
Selling and administrative expense as a percentage of total revenues
25.3
%
 
29.7
%
 
27.9
%
 
 
Depreciation and amortization
39

 
197

 
236

 
 
Impairment charges
2

 
52

 
54

 
 
Gain on sales of assets
(161
)
 
(472
)
 
(633
)
 
 
           Total costs and expenses
4,885

 
7,287

 
12,172

 
 
Operating loss
$
(70
)
 
$
(9
)
 
$
(79
)
 
 
 
 
 
 
 
 
 
 
Number of:
 
 
 
 
 
 
 
  Kmart Stores
963

 
—

 
963

 
 
  Full-Line Stores
—

 
711

 
711

 
 
  Specialty Stores
—

 
28

 
28

 
 
  Total Stores
963

 
739

 
1,702

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26 Weeks Ended August 2, 2014
millions, except store data
Kmart
 
Sears
Domestic
 
Sears
Canada
 
Sears
Holdings
Merchandise sales and services
$
5,820

 
$
8,595

 
$
1,477

 
$
15,892

 
 
 
 
 
 
 
 
Cost of sales, buying and occupancy
4,643

 
6,550

 
1,129

 
12,322

Gross margin dollars
1,177

 
2,045

 
348

 
3,570

Gross margin rate
20.2
%
 
23.8
%
 
23.6
%
 
22.5
%
 
 
 
 
 
 
 
 
Selling and administrative
1,420

 
2,356

 
431

 
4,207

Selling and administrative expense as a percentage of total revenues
24.4
%
 
27.4
%
 
29.2
%
 
26.5
%
Depreciation and amortization
47

 
224

 
36

 
307

Impairment charges
2

 
8

 
15

 
25

(Gain) loss on sales of assets
(52
)
 
(29
)
 
1

 
(80
)
           Total costs and expenses
6,060

 
9,109

 
1,612

 
16,781

Operating loss
$
(240
)
 
$
(514
)
 
$
(135
)
 
$
(889
)
 
 
 
 
 
 
 
 
Number of:
 
 
 
 
 
 
 
  Kmart Stores
1,077

 
—

 
—

 
1,077

  Full-Line Stores
—

 
757

 
113

 
870

  Specialty Stores
—

 
36

 
319

 
355

  Total Stores
1,077

 
793

 
432

 
2,302


8


Sears Holdings Corporation
Adjusted EBITDA
(Unaudited)
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
13 Weeks Ended
 
26 Weeks Ended
millions
August 1,
2015
 
August 2,
2014
 
August 1,
2015
 
August 2,
2014
Net income (loss) attributable to Holdings per statement of operations
$
208

 
$
(573
)
 
$
(95
)
 
$
(975
)
Loss attributable to noncontrolling interests
—

 
(8
)
 
—

 
(48
)
Income tax expense (benefit)
(221
)
 
32

 
(203
)
 
29

Interest expense
85

 
72

 
175

 
143

Interest and investment (income) loss
26

 
(32
)
 
44

 
(36
)
Other (income) loss
1

 
(5
)
 
—

 
(2
)
Operating income (loss)
99

 
(514
)
 
(79
)
 
(889
)
Depreciation and amortization
114

 
152

 
236

 
307

Gain on sales of assets
(526
)
 
(34
)
 
(633
)
 
(80
)
Before excluded items
(313
)
 
(396
)
 
(476
)
 
(662
)
 
 
 
 
 
 
 
 
Closed store reserve and severance
(2
)
 
40

 
37

 
68

Domestic pension expense
57

 
23

 
114

 
45

Other(1)
(15
)
 
—

 
(89
)
 
—

Amortization of deferred Seritage gain
(7
)
 
—

 
(7
)
 
—

Impairment charges
54

 
20

 
54

 
25

Adjusted EBITDA
(226
)
 
(313
)
 
(367
)
 
(524
)
 
 
 
 
 
 
 
 
Lands' End separation
—

 
—

 
—

 
(10
)
Adjusted EBITDA as defined(2)
$
(226
)
 
$
(313
)
 
$
(367
)
 
$
(534
)
 
 
 
 
 
 
 
 
Sears Canada segment
—

 
15

 
—

 
58

Domestic Adjusted EBITDA as defined(2)
$
(226
)
 
$
(298
)
 
$
(367
)
 
$
(476
)
 
 
 
 
 
 
 
 
Seritage/JV rent
26

 
—

 
26

 
—

Domestic Adjusted EBITDA as defined(2) excluding Seritage/JV rent
$
(200
)
 
$
(298
)
 
$
(341
)
 
$
(476
)
(1) Consists of one-time credits from vendors, expenses associated with legal matters, transaction costs associated with strategic initiatives and other expenses.
(2) Adjusted to reflect the results of the Lands' End business that were included in our results of operations prior to the separation.

9


Sears Holdings Corporation
Adjusted EBITDA
(Unaudited)
 
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
August 1, 2015
 
August 2, 2014
millions
Kmart
Sears Domestic
Sears Holdings
 
Kmart
Sears Domestic
Sears Canada
Sears Holdings
Operating income (loss) per statement of operations
$
37

$
62

$
99

 
$
(142
)
$
(318
)
$
(54
)
$
(514
)
Depreciation and amortization
19

95

114

 
24

110

18

152

Gain on sales of assets
(143
)
(383
)
(526
)
 
(31
)
(3
)
—

(34
)
Before excluded items
(87
)
(226
)
(313
)
 
(149
)
(211
)
(36
)
(396
)
 
 
 
 
 
 
 
 
 
Closed store reserve and severance
5

(7
)
(2
)
 
27

7

6

40

Domestic pension expense
—

57

57

 
—

23

—

23

Other(1)
—

(15
)
(15
)
 
—

—

—

—

Amortization of deferred Seritage gain
(1
)
(6
)
(7
)
 
—

—

—

—

Impairment charges
2

52

54

 
2

3

15

20

Adjusted EBITDA
(81
)
(145
)
(226
)
 
(120
)
(178
)
(15
)
(313
)
% to revenues
(3.3
)%
(3.9
)%
(3.6
)%
 
(4.1
)%
(4.1
)%
(1.9
)%
(3.9
)%
 
 
 
26 Weeks Ended
 
August 1, 2015
 
August 2, 2014
millions
Kmart
Sears Domestic
Sears Holdings
 
Kmart
Sears Domestic
Sears Canada
Sears Holdings
Operating loss per statement of operations
$
(70
)
$
(9
)
$
(79
)
 
$
(240
)
$
(514
)
$
(135
)
$
(889
)
Depreciation and amortization
39

197

236

 
47

224

36

307

(Gain) loss on sales of assets
(161
)
(472
)
(633
)
 
(52
)
(29
)
1

(80
)
Before excluded items
(192
)
(284
)
(476
)
 
(245
)
(319
)
(98
)
(662
)
 
 
 
 
 
 
 
 
 
Closed store reserve and severance
41

(4
)
37

 
36

7

25

68

Domestic pension expense
—

114

114

 
—

45

—

45

Other(1)
8

(97
)
(89
)
 
—

—

—

—

Amortization of deferred Seritage gain
(1
)
(6
)
(7
)
 
—

—

—

—

Impairment charges
2

52

54

 
2

8

15

25

Adjusted EBITDA
(142
)
(225
)
(367
)
 
(207
)
(259
)
(58
)
(524
)
 
 
 
 
 
 
 
 
 
Lands' End separation
—

—

—

 
—

(10
)
—

(10
)
Adjusted EBITDA as defined(2)
$
(142
)
$
(225
)
$
(367
)
 
$
(207
)
$
(269
)
$
(58
)
$
(534
)
% to revenues(3)
(2.9
)%
(3.1
)%
(3.0
)%
 
(3.6
)%
(3.2
)%
(3.9
)%
(3.4
)%

(1) Consists of one-time credits from vendors, expenses associated with legal matters, transaction costs associated with strategic initiatives and other expenses.
(2) Adjusted to reflect the results of the Lands' End business that were included in our results of operations prior to the separation.
(3) Excludes revenues of the Lands' End business that were included in our results of operations prior to the separation.

10


Sears Holdings Corporation
Adjusted Earnings per Share
(Unaudited)
 
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
13 Weeks Ended August 1, 2015
 
 
Adjustments
millions, except per share data
GAAP
Domestic Pension Expense
Domestic Closed Store Reserve, Store Impairments and Severance
Domestic Gain on Sales of Assets
Mark-to-Market Adjustments
Amortization of Deferred Seritage Gain
Other(1)
Domestic Tax Matters
As
Adjusted
Gross margin impact
$
1,435

$
—

$
5

$
—

$
—

$
(7
)
$
(33
)
$
—

$
1,400

Selling and administrative impact
1,694

(57
)
7

—

—

—

(18
)
—

1,626

Depreciation and amortization impact
114

—

(2
)
—

—

—

—

—

112

Impairment charges impact
54

—

(54
)
—

—

—

—

—

—

Gain on sales of assets impact
(526
)
—

—

508

—

—

—

—

(18
)
Operating income impact
99

57

54

(508
)
—

(7
)
(15
)
—

(320
)
Interest and investment loss impact
(26
)
—

—

—

23

—

—

—

(3
)
Income tax benefit impact
221

(21
)
(20
)
190

(9
)
2

6

(216
)
153

After tax and noncontrolling interests impact
208

36

34

(318
)
14

(5
)
(9
)
(216
)
(256
)
Diluted earnings per share impact
$
1.84

$
0.32

$
0.30

$
(2.81
)
$
0.12

$
(0.04
)
$
(0.08
)
$
(1.91
)
$
(2.40
)
 
13 Weeks Ended August 2, 2014
 
 
Adjustments
 
millions, except per share data
GAAP
Domestic
Pension
Expense
Domestic Closed Store Reserve, Store Impairments and Severance
Domestic Gain on Sales of Assets
Domestic Tax Matters
Sears Canada Segment
As Adjusted(2)
Gross margin impact
$
1,742

$
—

$
10

$
—

$
—

$
(184
)
$
1,568

Selling and administrative impact
2,118

(23
)
(24
)
—

—

(205
)
1,866

Depreciation and amortization impact
152

—

(1
)
—

—

(18
)
133

Impairment charges impact
20

—

(5
)
—

—

(15
)
—

Gain on sales of assets impact
(34
)
—

—

10

—

—

(24
)
Operating loss impact
(514
)
23

40

(10
)
—

54

(407
)
Interest expense impact
(72
)
—

—

—

—

2

(70
)
Interest and investment income impact
32

—

—

—

—

(24
)
8

Other income impact
5

—

—

—

—

(5
)
—

Income tax expense impact
(32
)
(9
)
(15
)
4

238

(10
)
176

Loss attributable to noncontrolling interests impact
8

—

—

—

—

(8
)
—

After tax and noncontrolling interests impact
(573
)
14

25

(6
)
238

9

(293
)
Diluted loss per share impact
$
(5.39
)
$
0.13

$
0.24

$
(0.06
)
$
2.24

$
0.08

$
(2.76
)

(1) Consists of one-time credits from vendors and transaction costs associated with strategic initiatives.
(2) Adjusted to reflect the results of the Sears Canada business that were included in our results prior to the disposition.








11





Sears Holdings Corporation
Adjusted Earnings per Share
(Unaudited)
 
 
 
 
 
 
 
 
 
Amounts are Preliminary and Subject to Change
 
 
 
 
 
 
 
26 Weeks Ended August 1, 2015
 
 
Adjustments
 
millions, except per share data
GAAP
Domestic Pension Expense
Domestic Closed Store Reserve, Store Impairments and
Severance
Domestic Gain on Sales of Assets
Mark-to-Market Adjustments
Amortization of Deferred Seritage Gain
Other(1)
Domestic Tax Matters
As
Adjusted
Gross margin impact
$
2,953

$
—

$
11

$
—

$
—

$
(7
)
$
(126
)
$
—

$
2,831

Selling and administrative impact
3,375

(114
)
(26
)
—

—

—

(37
)
—

3,198

Depreciation and amortization impact
236

—

(2
)
—

—

—

—

—

234

Impairment charges
54

—

(54
)
—

—

—

—

—

—

Gain on sales of assets impact
(633
)
—

—

604

—

—

—

—

(29
)
Operating loss impact
(79
)
114

93

(604
)
—

(7
)
(89
)
—

(572
)
Interest and investment loss impact
(44
)
—

—

—

42

—

—

—

(2
)
Income tax benefit impact
203

(43
)
(35
)
226

(16
)
2

33

(89
)
281

After tax and noncontrolling interests impact
(95
)
71

58

(378
)
26

(5
)
(56
)
(89
)
(468
)
Diluted loss per share impact
$
(0.89
)
$
0.67

$
0.55

$
(3.55
)
$
0.24

$
(0.05
)
$
(0.52
)
$
(0.84
)
$
(4.39
)
 
26 Weeks Ended August 2, 2014
 
 
Adjustments
 
millions, except per share data
GAAP
Domestic
Pension
Expense
Domestic Closed Store Reserve, Store Impairments and Severance
Domestic Gain on Sales of Assets
Domestic Tax Matters
Sears Canada Segment
Lands' End Separation
As Adjusted(2)
Gross margin impact
$
3,570

$
—

$
17

$
—

$
—

$
(348
)
$
(87
)
$
3,152

Selling and administrative impact
4,207

(45
)
(26
)
—

—

(431
)
(77
)
3,628

Depreciation and amortization impact
307

—

(1
)
—

—

(36
)
(3
)
267

Impairment charges impact
25

—

(10
)
—

—

(15
)
—

—

Gain on sales of assets impact
(80
)
—

—

23

—

(1
)
—

(58
)
Operating loss impact
(889
)
45

54

(23
)
—

135

(7
)
(685
)
Interest expense impact
(143
)
—

—

—

—

4

—

(139
)
Interest and investment income impact
36

—

—

—

—

(26
)
—

10

Other income impact
2

—

—

—

—

(2
)
—

—

Income tax expense impact
(29
)
(17
)
(20
)
9

371

(12
)
3

305

Loss attributable to noncontrolling interest impact
48

—

—

—

—

(48
)
—

—

After tax and noncontrolling interest impact
(975
)
28

34

(14
)
371

51

(4
)
(509
)
Diluted loss per share impact
$
(9.17
)
$
0.26

$
0.32

$
(0.13
)
$
3.49

$
0.48

$
(0.04
)
$
(4.79
)

(1) Consists of one-time credits from vendors, expenses associated with legal matters, transaction costs associated with strategic initiatives and other expenses.
(2) Adjusted to reflect the results of the Lands' End and Sears Canada businesses that were included in our results prior to the separation/disposition.

12

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