Sears (SHLDQ) 8-K Entry into a Material Definitive Agreement

Exhibit 99.1

NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371

FOR IMMEDIATE RELEASE:
September 8, 2005

SEARS HOLDINGS CORPORATION REPORTS
SECOND QUARTER 2005 RESULTS AND
ANNOUNCES LEADERSHIP CHANGES

AYLWIN LEWIS NAMED SEARS HOLDINGS CEO

     HOFFMAN ESTATES, Ill. — Sears Holdings Corporation (Nasdaq: SHLD) issued its financial statements for the quarter ended July 30, 2005. Sears Holdings Corporation (“Holdings” or the “Company”) was created in connection with the merger of Kmart Holding Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”) which was completed on March 24, 2005. Sears Holdings is the nation’s third largest broadline retailer with approximately 2,300 full-line and 1,200 specialty retail stores in the United States operating through Kmart and Sears and 368 full-line and specialty stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 54%-owned subsidiary.

The statements of operations included below for the 13 and 26 weeks ended July 30, 2005 are not comparable to the prior year periods because the prior year periods do not include Sears results. Additionally, the statement of operations for the 26 weeks ended July 30, 2005 is not representative of the Company’s on-going results as it only includes the results of Sears from March 25, 2005 forward. In order to provide information on the trends and on-going performance of the combined Company, pro forma results are presented as though Kmart and Sears had been combined as of the beginning of 2004. The Company has also provided its calculation of Pro Forma Adjusted EBITDA for Holdings, including a breakdown of Pro Forma Adjusted EBITDA between its domestic and Canadian operations. Reconciliation of the pro forma results of operations to the GAAP results of operations has also been included.

Financial Position

As of July 30, 2005, Holdings had approximately $30 billion of assets and $11 billion of equity, as follows:

	July 30,		July 28,		Jan. 26,
(in billions)	2005		2004(1)		2005(1)
Total assets	$	30.4	$	6.6	$	8.7
Total liabilities		19.1		4.1		4.2
Shareholders’ equity	$	11.3	$	2.5	$	4.5

⁽¹⁾ For accounting purposes, the business combination was treated as a purchase of Sears by Kmart. As such, the historical financial statements of Kmart become the historical financial statements for Holdings.

As of July 30, 2005, the Company had over $2.0 billion of cash and cash equivalents (approximately $1.9 billion domestically), up from $1.6 billion at the end of the first quarter. During the second quarter of 2005, the Company reduced its outstanding debt and capital lease obligations by $227 million to $4.2 billion ($3.4 billion domestically).

Holdings’ inventory level at July 30, 2005 was approximately $9.0 billion, an increase of $5.8 billion over the prior year as a result of the merger. As of the end of the prior year period, the combined inventory on a FIFO basis of Sears and Kmart was approximately $9.4 billion. The merchandise payable balance was $3.5 billion at July 30, 2005 compared to $3.8 billion for Sears and Kmart combined as of July 28, 2004.

1

Exhibit 99.1

During the quarter ended July 30, 2005, the Company spent $114 million on capital expenditures compared to $69 million and $218 million spent by Kmart and Sears, respectively, during their second quarters of the prior year.

Comparable Sales in Second Quarter

Kmart comparable store sales and total sales decreased 0.3% and 3.2%, respectively, for the 13-week period ended July 30, 2005 compared to the 13-week period ended July 28, 2004. Total sales were negatively impacted by a reduction in the total number of operating Kmart stores. While Kmart’s same-store sales declined as a result of lower transaction volumes, several businesses, including apparel, had positive same-store sales during the period.

Sears Domestic sales declined 3.0% for the quarter. The decline was due to a 7.4% decrease in domestic comparable store sales partially offset by strong home services sales. The decline in Sears Domestic comparable store sales reflects efforts initiated in 2005 to improve gross margin by reducing reliance on certain promotional events and reducing inventory levels to lower merchandise holding costs.

Statements of Operations

Holdings’ statements of operations for the 13 and 26 weeks ended July 30, 2005 and July 28, 2004 are as follows:

	13 Weeks Ended						26 Weeks Ended
	July 30,			July 28,			July 30,			July 28,
(in millions, except per share amounts)	2005			2004			2005			2004
Total revenues	$	13,192		$	4,797		$	20,818		$	9,424
Cost of sales, buying and occupancy		9,550			3,607			15,205			7,152
Selling and administrative		2,984			983			4,699			1,928
Depreciation and amortization		280			4			387			8
Gain on sales of assets		(4	)		(72	)		(10	)		(104	)
Provision for uncollectible accounts		16			—			17			—
Restructuring charges		42			—			45			—
Total costs and expenses		12,868			4,522			20,343			8,984
Operating income		324			275			475			440
Interest expense, net		(72	)		(33	)		(114	)		(61	)
Bankruptcy-related recoveries		15			5			32			12
Other income		2			—			11			3
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			247			404			394
Income taxes		103			93			155			149
Minority interest		5			—			7			—
Income before change in accounting principle	$	161		$	154		$	242		$	245
Cumulative effect of change in accounting principle		—			—			(90	)		—
Net income	$	161		$	154		$	152		$	245
Per share (diluted basis)
Earnings per share before change in accounting principle	$	0.98		$	1.54		$	1.66		$	2.47
Cumulative effect of change in accounting principle		—			—			(0.61	)		—
Earnings per share	$	0.98		$	1.54		$	1.05		$	2.47
Diluted weighted average shares outstanding		165.1			101.5			145.4			101.1

Operating income for the quarter increased $49 million reflecting the inclusion of Sears, which had $225 million in operating income in the quarter, partially offset by $68 million less in gains on the sale of assets realized this year and $42 million in restructuring charges recognized in the current quarter related to the merger. In addition, the effect of purchase accounting adjustments that resulted from the merger reduced operating income by $75 million. On a combined basis, the merger-related restructuring charges and purchase accounting adjustments reduced reported earnings per share by $0.41 for the quarter. These costs were partially offset by bankruptcy-related recoveries of $15 million ($0.06 per share). Going forward, purchase accounting adjustments will continue to impact the Company’s reported EPS although they should not impact its cash flows.

2

Exhibit 99.1

A $90 million after-tax charge was recorded as a cumulative effect of change in accounting in the first quarter of 2005 resulting from the Company’s decision to change its method of accounting for certain indirect overhead costs included in inventory.

Leadership Changes

Sears Holdings also announced several organizational and executive changes effective September 30, 2005. Aylwin B. Lewis will assume the position of Chief Executive Officer and President of Sears Holdings, with responsibility for the Company’s 3,900 stores, as well as home services, finance, legal, supply chain, information technology, and human resources. Edward S. Lampert, Sears Holdings’ Chairman, will lead Sears Holdings’ initiatives to become more responsive to its customers. Mr. Lampert will direct the marketing, merchandising, design, and on-line businesses of Sears Holdings, as well as Lands’ End, to ensure that these initiatives are clearly focused on responding to customer needs. William C. Crowley, Sears Holdings’ Chief Financial Officer, will assume additional responsibilities associated with the newly created role of Chief Administrative Officer. Alan J. Lacy will continue to serve as Vice Chairman and a Director and as a member of the Office of the Chairman. Mr. Lacy will also continue to serve as the Chairman of the Board of Directors of Sears Canada and, together with Mr. Lampert, will focus on merger integration and strategic issues.

Mr. Lampert said, “Alan, Aylwin and I believe these changes will achieve greater clarity in our operating management and align this corporate structure with our vision of Sears Holdings. Our goal is to build one company with multiple ways of connecting with our customers, including our various store formats, on-line offerings, service relationships, and credit products. Alan will continue to make substantial contributions to Sears Holdings and to provide his leadership and judgment on our merger integration opportunities and strategic issues.”

Mr. Lacy said, “As a result of the hard work and commitment of the Sears Holdings executives and associates, we have made rapid progress in integrating the two companies. This is the next logical step in the transformation of the Company into a more customer-focused organization.”

Mr. Lewis said, “Sears Holdings has the potential to be a great retailer, and we are striving to create a great retail experience for consumers wherever and however they choose to shop. Our focus will be the customer.”

Sale of Sears Canada Credit Card Business

On August 31, 2005, Sears Canada announced that it had entered into an agreement to sell its Credit and Financial Services business to JP Morgan Chase & Co. The sale is expected to generate cash proceeds to Sears Canada of $1.8 billion and to close by the end of 2005, subject to regulatory approvals and closing conditions. Although Sears Canada has not yet made any final determination as to the use of the proceeds, it expects to return a substantial portion of the proceeds to shareholders.

Pro Forma Results

The statements of operations for the 13 and 26 weeks ended July 30, 2005 are not comparable to the prior year periods because the prior periods do not include the results of Sears. Additionally, the statement of operations for the 26 weeks ended July 30, 2005 is not representative of the Company’s on-going results as it only includes Sears results from March 25, 2005 forward. Therefore, the Company believes that an understanding of trends and on-going performance is not complete without presenting results on a pro forma basis that include Sears results for all periods presented.

The following pro forma statements of operations summarize the results of Holdings assuming that the merger occurred at the beginning of 2004.

3

Exhibit 99.1

	13 Weeks Ended						26 Weeks Ended
(in millions, except per share amounts)	July 30,			July 28,			July 30,			July 28,
	2005			2004			2005(1)			2004
				Pro Forma			Pro Forma			Pro Forma
Total revenues	$	13,192		$	13,472		$	25,955		$	26,241
Cost of sales, buying and occupancy		9,550			9,914			18,877			19,341
Gross margin rate		27.2	%		26.0	%		26.8	%		25.8	%
Selling and administrative		2,984			3,035			6,024			5,987
Selling and administrative expense as a percentage of total revenues		22.6	%		22.5	%		23.2	%		22.8	%
Depreciation and amortization		280			305			563			588
Provision for uncollectible accounts		16			10			33			26
Gain on sales of assets		(4	)		(77	)		(11	)		(113	)
Restructuring charges		42			41			45			41
Total costs and expenses		12,868			13,228			25,531			25,870
Operating income		324			244			424			371
Interest expense, net		(72	)		(90	)		(147	)		(185	)
Bankruptcy-related recoveries		15			5			32			12
Other income		2			24			21			49
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			183			330			247
Percent to revenues		2.0	%		1.4	%		1.3	%		0.9	%
Income taxes		103			69			144			95
Minority interest		5			4			13			7
Income before change in accounting principle	$	161		$	110		$	173		$	145
Cumulative effect of change in accounting principle		—			—			(90	)		—
Net income	$	161		$	110		$	83		$	145
Diluted earnings per share	$	0.98		$	0.67		$	0.51		$	0.89

⁽¹⁾ Includes $34 million of transaction costs related to the merger.

The pro forma information is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of 2004 or that may result in the future. The pro forma information has not been adjusted to reflect any operating efficiencies that may be realized as a result of the merger.

Pro Forma Adjusted EBITDA

For purposes of evaluating operating performance, the Company’s management uses a Pro Forma Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Pro Forma Adjusted EBITDA”) measurement computed as operating income on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs and restructuring charges. Pro Forma Adjusted EBITDA is used by management to evaluate the operating performance of the Company’s businesses for comparable periods. Pro Forma Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company’s businesses.

While Pro Forma Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

1.	EBITDA excludes the effect of financing and investing activities by eliminating the effect of interest and depreciation costs; and
2.	Management considers gains (losses) on the sale of assets to result from investing decisions rather than ongoing operations.

4

Exhibit 99.1

Pro Forma Adjusted EBITDA is determined as follows:

	13 Weeks Ended						26 Weeks Ended
	July 30, 2005			July 28, 2004			July 30, 2005			July 28, 2004
				Pro Forma			Pro Forma			Pro Forma
Operating income per statement of operations	$	324		$	244		$	424		$	371
Plus depreciation and amortization		280			305			563			588
Less gain on sale of assets		(4	)		(77	)		(11	)		(113	)
Before excluded items		600			472			976			846
Merger transaction costs		—			—			34			—
Restructuring charges		42			41			45			41
Pro Forma Adjusted EBITDA as defined	$	642		$	513		$	1,055		$	887
% to revenues		4.9	%		3.8	%		4.1	%		3.4	%

Pro Forma Adjusted EBITDA for the Company’s domestic (United States operations) and Sears Canada operations is as follows:

	13 Weeks Ended										26 Weeks Ended
	Pro Forma Adjusted										Pro Forma
	EBITDA				% To Revenues						Adjusted EBITDA				% To Revenues
	July 30,		July 28,		July 30,			July 28,			July 30,		July 28,		July 30,			July 28,
	2005		2004		2005			2004			2005		2004		2005			2004
								Pro Forma							Pro Forma			Pro Forma
Domestic operations	$	588	$	449		4.9	%		3.6	%	$	952	$	776		4.0	%		3.2	%
Sears Canada		54		64		4.5	%		5.8	%		103		111		4.5	%		5.2	%
Total Pro Forma Adjusted EBITDA	$	642	$	513		4.9	%		3.8	%	$	1,055	$	887		4.1	%		3.4	%

* * * * * * * * * * * * * * * * *

For a detailed discussion of the Company’s financial results, please see the Company’s Quarterly Report on Form 10-Q, which has been filed with the Securities and Exchange Commission and posted to the Company’s website at www.searsholdings.com.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation’s third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as one of the leading retailers of tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The Company is the nation’s largest provider of home services, with more than 14 million service calls made annually. For more information, visit Sears Holdings’ website atwww.searsholdings.com.

Forward-Looking Statements

This press release contains forward-looking statements about Sears Holdings’ expectations regarding the sale of Sears Canada’s Credit and Financial Services business to JP Morgan Chase & Co., including statements concerning expected benefits to Sears Holdings and the timing of closing of the transaction. Statements preceded by, followed by or that otherwise include the word “expects” and similar expressions or future or conditional verbs are generally forward-looking in nature and not historical facts. These forward-looking statements are 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. Risks and uncertainties include the possibility that the Sears Canada transaction

5

Exhibit 99.1

does not close or other factors outside the control of Sears Holdings. 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.

PRO FORMA RECONCILIATION

The following table provides the as reported results for the 13-week period ended July 30, 2005 and a reconciliation from the as reported results to the pro forma results presented above for Sears Holdings for the 13-week period July 28, 2004, respectively.

Holdings

	13 Weeks
	Ended
	July 30,
	2005			13 Weeks Ended July 28, 2004
(millions, except per share data)							Pre-
	As						merger			Purchase			Pro
	reported			As reported			Activity(1)			Acctng			Forma
Merchandise sales and services	$	13,114		$	4,797		$	8,594		$	—		$	13,391
Credit and financial products revenues		78			—			81			—			81
Total revenue		13,192			4,797			8,675			—			13,472
Cost of sales, buying and occupancy		9,550			3,607			6,304			3	(2)		9,914
Gross margin rate		27.2	%		24.8	%		26.6	%					26.0	%
Selling and administrative		2,984			983			2,029			23	(3)		3,035
Selling and administrative as % of total revenues		22.6	%		20.5	%		23.4	%					22.5	%
Depreciation and amortization		280			4			252			49	(4)		305
Provision for uncollectible accounts		16			—			10			—			10
Gain on sales of assets		(4	)		(72	)		(5	)		—			(77	)
Restructuring charges		42			—			41			—			41
Total costs and expenses		12,868			4,522			8,631			75			13,228
Operating income (loss)		324			275			44			(75	)		244
Interest (expense) income, net		(72	)		(33	)		(64	)		7	(5)		(90	)
Bankruptcy-related recoveries		15			5			—			—			5
Other income		2			—			24			—			24
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			247			4			(68	)		183
Income tax expense (benefit)		103			93			2			(26	)(6)		69
Minority interest		5			—			4			—			4
Income before cumulative effect of change in accounting principle		161			154			(2	)		(42	)		110
NET INCOME (LOSS)	$	161		$	154		$	(2	)	$	(42	)	$	110
Diluted earnings per share	$	0.98		$	1.54								$	0.67

(1)	Represents the 2004 results of operations for the period May 2, 2004 through July 31, 2004 for Sears Domestic and the period April 4, 2004 through July 3, 2004 for Sears Canada.
(2)	Represents an increase to cost of sales, buying and occupancy expense resulting from the adjustment to Sears’ inventory based on the adjustment of such assets to fair value.
(3)	Represents an increase to selling and administrative expense resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value.
(4)	Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable intangible assets based on the adjustment of such assets to fair value.
(5)	Represents a decrease to interest expense resulting from the adjustment to Sears debt based on the adjustments of such liabilities to fair value.
(6)	Represents the aggregate pro forma income tax effect (38.4%) of notes (2) through (5) above.

6

Exhibit 99.1

The following table provides a reconciliation from the as reported results to the pro forma results presented above for Holdings for the 26-week periods ended July 30, 2005 and July 28, 2004, respectively.

Holdings

	26 Weeks Ended July 30, 2005												26 Weeks Ended July 28, 2004
(millions, except per share data)				Pre-												Pre-
				merger												merger
	As			Activity			Purchase			Pro			As			Activity			Purchase			Pro
	reported			(1)			Acctng			forma			reported			(1)			Acctng			forma
Merchandise sales and services	$	20,731		$	5,051		$	—		$	25,782		$	9,424		$	16,649		$	—		$	26,073
Credit and financial products revenues		87			86			—			173			—			168			—			168
Total revenue		20,818			5,137			—			25,955			9,424			16,817			—			26,241
Cost of sales, buying and occupancy		15,205			3,672			—			18,877			7,152			12,181			8	(2)		19,341
Gross margin rate		26.7	%		27.3	%					26.8	%		24.1	%		26.8	%					25.8	%
Selling and administrative		4,699			1,314			11	(3)		6,024			1,928			4,018			41	(3)		5,987
Selling and administrative as % of total revenues		22.6	%		25.6	%					23.2	%		20.5	%		23.9	%					22.8	%
Depreciation and amortization		387			147			29	(4)		563			8			484			96	(4)		588
Provision for uncollectible accounts		17			16			—			33			—			26			—			26
Gain on sales of assets		(10	)		(1	)		—			(11	)		(104	)		(9	)		—			(113	)
Restructuring charges		45			—			—			45			—			41			—			41
Total costs and expenses		20,343			5,148			40			25,531			8,984			16,741			145			25,870
Operating income (loss)		475			(11	)		(40	)		424			440			76			(145	)		371
Interest (expense) income, net		(114	)		(35	)		2	(5)		(147	)		(61	)		(134	)		10	(5)		(185	)
Bankruptcy-related recoveries		32			—			—			32			12			—			—			12
Other income		11			10			—			21			3			46			—			49
Income before income taxes, minority interest and cumulative effect of change in accounting principle		404			(36	)		(38	)		330			394			(12	)		(135	)		247
Income tax expense (benefit)		155			4			(15	)(6)		144			149			(4	)		(50	)(6)		95
Minority interest		7			6			—			13			—			7			—			7
Income before cumulative effect of change in accounting principle		242			(46	)		(23	)		173			245			(15	)		(85	)		145
Cumulative effect of change in accounting principle, net of tax		(90	)		—			—			(90	)		—			—			—			—
NET INCOME (LOSS)	$	152		$	(46	)	$	(23	)	$	83		$	245		$	(15	)	$	(85	)	$	145
Diluted earnings per share	$	1.05								$	0.51		$	2.47								$	0.89
Diluted earnings per share before cumulative effect of change in accounting principle	$	1.66								$	1.06		$	2.47								$	0.89

(1)	Represents the 2005 results of operations for the period January 30, 2005 through March 24, 2005 for Sears Domestic and the period January 2, 2005 through March 24, 2005 for Sears Canada and the 2004 results of operations for the period February 1, 2004 through July 31, 2004 for Sears Domestic and the period January 4, 2004 through July 3, 2004 for Sears Canada.
(2)	Represents an increase to cost of sales, buying and occupancy expense resulting from the adjustment to Sears’ inventory based on the adjustment of such assets to fair value.
(3)	Represents an increase to selling and administrative expense resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value.
(4)	Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable intangible assets based on the adjustment of such assets to fair value.
(5)	Represents a decrease to interest expense resulting from the adjustment to Sears debt based on the adjustments of such liabilities to fair value.
(6)	Represents the aggregate pro forma income tax effect (38.4%) of notes (2) through (5) above.

7

Exhibit 99.1

The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 13-week periods ended:

	July 30,			July 28,
	2005			2004
Pro Forma Adjusted EBITDA	$	642		$	513
Restructuring charges		(42	)		(41	)
Pro Forma Adjusted EBITDA after restructuring charges		600			472
Depreciation and amortization		(280	)		(305	)
Less gain on sale of assets		4			77
Pro Forma operating income		324			244
Interest expense, net		(72	)		(90	)
Bankruptcy-related recoveries		15			5
Other income		2			24
Income tax expense		(103	)		(69	)
Minority interest expense		(5	)		(4	)
Pro Forma net income		161			110
Less pre-merger activity		—			2
Less effect of purchase accounting adjustments		—			42
Net income as reported	$	161		$	154

The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 26-week periods ended:

	July 30,			July 28,
	2005			2004
Pro Forma Adjusted EBITDA	$	1,055		$	887
Merger transaction costs		(34	)		—
Restructuring charges		(45	)		(41	)
Pro Forma Adjusted EBITDA after merger-related items and restructuring charges		976			846
Depreciation and amortization		(563	)		(588	)
Less gain on sale of assets		11			113
Pro Forma operating income		424			371
Interest expense, net		(147	)		(185	)
Bankruptcy-related recoveries		32			12
Other income		21			49
Income tax expense		(144	)		(95	)
Minority interest expense		(13	)		(7	)
Change in accounting principle		(90	)		—
Pro Forma net income		83			145
Less pre-merger activity		46			15
Less effect of purchase accounting adjustments		23			85
Net income as reported	$	152		$	245

8