UNITED STATES 		 SECURITIES AND EXCHANGE COMMISSION 			 Washington, D.C. 20549 			 				 FORM 10-Q 				 	 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 		 THE SECURITIES EXCHANGE ACT OF 1934 		 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998 	 				 OR 				 	 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 		 THE SECURITIES EXCHANGE ACT OF 1934 			 			 Commission file number 1-416 			 			 SEARS, ROEBUCK AND CO. 	 (Exact name of registrant as specified in its charter) 	 	 New York 36-1750680 (State of Incorporation) (I.R.S. 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 	 Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. 			Yes X No 	 As of March 31, 1998 the Registrant had 391,052,503 common shares, $.75 par value, outstanding. 								 					 				 			 Sears, Roebuck and Co. 		 Index to Quarterly Report on Form 10-Q 			 13 Weeks Ended April 4, 1998 			 									Page Part I - Financial Information. 	 Item 1. Financial Statements. 	 	 Condensed Consolidated Statements of Income (Unaudited) - 	 13 Weeks Ended April 4, 1998 and March 29, 1997. 1 	 Condensed Consolidated Balance Sheets - 	 April 4, 1998 (Unaudited), March 29, 1997 (Unaudited) 	 and January 3, 1998. 2 	 	 Condensed Consolidated Statements of Cash Flows (Unaudited) - 	 13 Weeks Ended April 4, 1998 and March 29, 1997. 3 	 	 Notes to Condensed Consolidated Financial Statements 	 (Unaudited). 4 	 Independent Accountants' Review Report. 7 Item 2. Management's Discussion and Analysis of Financial Condition 	 and Results of Operations. 8 Part II - Other Information. Item 1. Legal Proceedings. 14 							 Item 5. Other Information. 15 Item 6. Exhibits and Reports on Form 8-K. 16 				 -1- 				 			PART I. FINANCIAL INFORMATION 			ITEM I. FINANCIAL STATEMENTS 			 SEARS, ROEBUCK AND CO. 		 CONDENSED CONSOLIDATED STATEMENTS OF INCOME 				 (Unaudited) 							 13 Weeks Ended 							April 4, March 29, (millions, except per share and common 1998 1997 share data) Revenues Merchandise and services $ 7,955 $ 7,543 Credit revenues 1,208 1,189 Total revenues 9,163 8,732 Costs and expenses Cost of sales, buying and occupancy 6,034 5,691 Selling and administrative 1,929 1,896 Depreciation and amortization 208 182 Provision for uncollectible accounts 394 254 Interest 376 352 Total costs and expenses 8,941 8,375 Operating income 222 357 Other income (loss) 6 (11) Income before income taxes and minority interest 228 346 Income taxes 92 165 Minority interest (3) 1 Net income $ 133 $ 182 Net income (loss) consists of: Domestic operations $ 133 $ 227 International operations -- (45) Net income $ 133 $ 182 Earnings per share: Basic $ 0.34 $ 0.46 Diluted $ 0.34 $ 0.46 Cash dividends declared per share $ 0.23 $ 0.23 Average common and common equivalent shares outstanding 394.5 398.6 <FN> See accompanying notes. </FN> 									 									 				 -2- 			 SEARS, ROEBUCK AND CO. 		 CONDENSED CONSOLIDATED BALANCE SHEETS 						 (Unaudited) (millions) April 4, March 29, Jan. 3, 					 1998 1997 1998 Assets Current assets Cash and cash equivalents $ 344 $ 248 $ 358 Retained interest in transferred credit card receivables 3,113 2,138 3,316 Credit card receivables, net 18,962 18,921 19,843 Other receivables 403 355 335 Merchandise inventories 5,465 4,939 5,044 Prepaid expenses and deferred charges 568 414 518 Deferred income taxes 773 856 830 Total current assets 29,628 27,871 30,244 Property and equipment, net 6,391 5,777 6,414 Deferred income taxes 659 901 666 Other assets 1,376 1,080 1,376 Total assets $ 38,054 $ 35,629 $ 38,700 Liabilities Current liabilities Short-term borrowings $ 4,095 $ 3,693 $ 5,208 Current portion of long-term debt and capitalized leases 2,723 2,349 2,561 Accounts payable and other liabilities 6,009 6,610 6,637 Unearned revenues 828 885 830 Other taxes 393 465 554 Total current liabilities 14,048 14,002 15,790 Long-term debt and capitalized leases 14,161 12,401 13,071 Postretirement benefits 2,516 2,715 2,564 Minority interest and other liabilities 1,418 1,369 1,413 Total liabilities 32,143 30,487 32,838 Commitments and Contingent Liabilities (note 5) Shareholders' Equity Common shares 323 323 323 Capital in excess of par value 3,593 3,611 3,598 Retained income (note 2) 4,201 3,422 4,158 Treasury stock - at cost (1,699) (1,632) (1,702) Minimum pension liability (217) (277) (217) Deferred ESOP expense (198) (225) (204) Cumulative translation adjustments (92) (80) (94) Total shareholders' equity 5,911 5,142 5,862 Total liabilities and shareholders' equity $ 38,054 $ 35,629 $ 38,700 Total common shares outstanding 391.1 392.0 390.9 <FN> See accompanying notes. </FN> 				 -3- 			 			 SEARS, ROEBUCK AND CO. 		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 				 (Unaudited) 							 13 Weeks Ended 						 April 4, March 29, (millions) 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: 					 Net income $ 133 $ 182 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and other noncash items 226 196 Provision for uncollectible accounts 394 254 Loss (gain) on sales of property and investments (6) 32 Change in (net of acquisitions): Deferred income taxes 63 44 Retained interest in transferred credit card receivables 203 123 Credit card receivables 484 (39) Merchandise inventories (419) (357) Other operating assets (117) (79) Other operating liabilities (739) (622) Net cash provided by (used in) operating activities 222 (266) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired -- (115) Proceeds from sales of property and investments 7 6 Purchases of property and equipment (285) (159) Net cash used in investing activities (278) (268) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 1,782 725 Repayments of long-term debt (558) (866) Increase (decrease) in short-term borrowings, primarily 90 days or less (1,113) 319 Repayments of ESOP note receivable 23 16 Common shares purchased for employee stock plans (24) (14) Common shares issued for employee stock plans 22 30 Dividends paid to shareholders (90) (88) Net cash provided by financing activities 42 122 Net decrease in cash and cash equivalents (14) (412) 								 Balance at beginning of year 358 660 Balance at end of period $ 344 $ 248 <FN> See accompanying notes. </FN> 				 -4- 				 			 SEARS, ROEBUCK AND CO. 		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 				 (Unaudited) 1. Condensed Consolidated Financial Statements The Condensed Consolidated Balance Sheets as of April 4, 1998 and March 29, 1997 and the related Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flows for the 13 weeks then ended are unaudited. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Sears, Roebuck and Co. 1997 Annual Report to Shareholders and Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year. Certain reclassifications have been made in the 1997 financial statements to conform with current year presentation. 2. Shareholders' Equity and Dividend Restrictions Under terms of indentures entered into in 1981 and thereafter, Sears cannot take specified actions, including the declaration of cash dividends, which would cause its consolidated unencumbered assets, as defined, to fall below 150% of its consolidated liabilities, as defined. At April 4, 1998 approximately $3.5 billion could be paid in dividends to shareholders under the most restrictive indentures. On February 3, 1998 the Board of Directors extended for an additional two years the common share repurchase program which is used to acquire shares for distribution in connection with the expected exercise of stock options, the grant of restricted shares and the exchange of deferred shares under the Company's stock plans. The program authorizes the Company to acquire up to 20 million Sears common shares on the open market. Through April 4, 1998 7.4 million common shares had been acquired under the repurchase program. 3. Earnings Per Share The following table sets forth the computations of basic and diluted earnings per share: 							 13 Weeks Ended (millions, except per share data) April 4, March 29, 							 1998 1997 Basic: Net income $ 133 $ 182 Average shares outstanding 390.9 391.7 Earnings per share -basic $ 0.34 $ 0.46 Diluted: Net income $ 133 $ 182 Average shares outstanding 390.9 391.7 Dilutive stock options 3.6 6.9 Average shares and equivalent shares outstanding 394.5 398.6 Earnings per share -diluted $ 0.34 $ 0.46 				 -5- 			 SEARS, ROEBUCK AND CO. 	 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 			 (Unaudited) Options to purchase 3.8 million and .1 million shares of stock at prices ranging from $52 to $64 and $53 to $57 per share were outstanding at April 4, 1998 and March 29, 1997, respectively, but were not included in the computation of diluted earnings per share because they would have been antidilutive. 4. Effect of New Accounting Standards and Statements Effective January 4, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement requires that the Company report the change in its net assets during the period from nonowner sources. For the 13 weeks ended April 4, 1998, components of other comprehensive loss include foreign currency translation adjustments related to Sears Canada. For the 13 weeks ended March 29, 1997, components of other comprehensive income primarily related to the foreign currency translation adjustment recognized on the sale of Sears Mexico. 			 						 13 Weeks Ended (millions) April 4, March 29, 						1998 1997 Net income $ 133 $ 182 Other comprehensive income (loss) (2) 84 Total comprehensive income $ 131 $ 266 Effective January 4, 1998, the Company adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires certain software development costs to be capitalized. Generally, once the capitalization criteria of the SOP have been met, external direct costs of materials and services used in development of internal-use software, payroll and payroll related costs for employees directly involved in the development of internal-use software, and interest costs incurred when developing software for internal use are to be capitalized. The adoption of this SOP did not have a material effect on the Company's consolidated financial position, results of operations or cash flows in the first quarter of 1998. In February 1998 the Financial Accounting Standards Board (FASB) issued SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits", which is effective for fiscal years beginning after December 15, 1997. The new statement will change disclosure requirements related to pension and other postretirement benefit obligations. The new statement will be implemented in 1998 and will not impact the Company's consolidated financial position, results of operations or cash flows. The effect of the new statement will be limited to the form and content of disclosures. 				 -6- 				 			 SEARS, ROEBUCK AND CO. 		 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 				 (Unaudited) 5. Legal Proceedings On June 3, 1997, the Company entered into a settlement of the consolidated debtor class action lawsuits filed in the United States Bankruptcy and District Courts for the District of Massachusetts by certain current and former credit card holders of the Company who had declared personal bankruptcy (the "Settlement"). These lawsuits alleged that the Company had violated the United States Bankruptcy Code and consumer protection laws in various states through activities related to certain debt reaffirmation agreements. A federal civil and criminal investigation of these matters is ongoing. As previously reported, the Company has reached an agreement in principle to settle six purported shareholders' derivative actions filed on behalf of the Company against its directors and certain of its officers, alleging breach of fiduciary duty for failing to prevent the improper handling of certain of the Company's debt reaffirmation agreements. On May 7, 1998, the court approved the settlement, which is conditioned upon satisfactory resolution of the securities class action lawsuits referred to below. On October 9, 1997, the Company reached an agreement in principle to settle several consolidated securities class action lawsuits against the Company and one of its officers in the United States District Court for the Northern District of Illinois. The amended consolidated complaint alleges violations of the Securities Exchange Act of 1934 for failure to disclose the bankruptcy collection practices described above in periodic filings with the Securities and Exchange Commission prior to April 10, 1997. The settlement agreement is subject to court approval at a hearing which has been set for August 6, 1998. The Company recorded a pretax charge of $475 million ($320 million on an after-tax basis) in the second quarter of 1997 for the estimated cost of the matters referred to above, including other related expenses. This estimate is based on management's assumptions as to the ultimate outcome of future events and actual results could differ from this estimate. As such, it is possible that additional costs relating to the civil and criminal investigation referred to above could be incurred. However, management believes that its current reserves adequately provide for the costs relating to the matters referred to above and does not expect such costs to have a material effect on the annual results of operations, financial position, liquidity or capital resources of the Company. The Company is subject to various other legal and governmental proceedings pending against the Company, many involving routine litigation incidental to the businesses. Other matters contain allegations which are nonroutine and involve compensatory, punitive or antitrust treble damage claims in very large amounts, as well as other types of relief. The consequences of these matters are not presently determinable but, in the opinion of management of the Company after consulting with legal counsel, the ultimate liability in excess of reserves currently recorded is not expected to have a material effect on annual results of operations, financial position, liquidity or capital resources of the Company. 				 -7- 			 			 SEARS, ROEBUCK AND CO. 		 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Shareholders and Board of Directors of Sears, Roebuck and Co. We have reviewed the accompanying Condensed Consolidated Balance Sheets of Sears, Roebuck and Co. as of April 4, 1998 and March 29, 1997, and the related Condensed Consolidated Statements of Income for the 13-week periods ended April 4, 1998 and March 29, 1997, and the Condensed Consolidated Statements of Cash Flows for the 13-week periods ended April 4, 1998 and March 29, 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the Consolidated Balance Sheet of Sears, Roebuck and Co. as of January 3, 1998, and the related Consolidated Statements of Income, Shareholders' Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated February 20, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying Condensed Consolidated Balance Sheet as of January 3, 1998, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived. Deloitte & Touche LLP Chicago, Illinois May 13, 1998 				 -8- 		 ITEM 2. - SEARS, ROEBUCK AND CO. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 		 CONDITION AND RESULTS OF OPERATIONS 	 13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 Operating Results Domestic operations include the Company's operations in the United States and Puerto Rico. Domestic operations are comprised of: Retail - consisting of: Credit - which manages Sears Card - Full-line Stores operations. - Specialty stores (Home Stores and Auto Stores) Corporate - administrative acitivities 						 of a holding company Services - consisting of: nature, the cost of which - Home Services are not allocated to the - Direct Response Marketing Company's businesses. International operations consist of similar retail, services and credit operations conducted in Canada through Sears Canada, Inc. ("Sears Canada"), a 54.8% owned consolidated subsidiary. International operations were also conducted through Sears, Roebuck de Mexico, S.A. de C.V. ("Sears Mexico"), a previously 75.5% owned subsidiary until March 29, 1997. At that time, the Company sold 60% of the outstanding shares of Sears Mexico to Grupo Carso S.A. de C.V. Thereafter, Sears Mexico's results are no longer included in the Company's consolidated operations. For the 13 weeks ended April 4, 1998, net income declined 26.6% to $133 million, or $0.34 per share, from $182 million, or $0.46 per share for the comparable prior year period. Consistent with Company expectations, the decline in net income was primarily due to the increase in the provision for uncollectible accounts over the prior-year period. The domestic retail business performance was also below prior year because of the shift of the Easter holiday selling season to the second quarter and increased clearance markdowns. Partially offsetting these declines was a strong performance by the services businesses coupled with a favorable comparison to prior year within the international segment. The first quarter of 1998 includes the positive impact of $0.06 per share due to SFAS No. 125 accounting. The first quarter of 1997 included the positive impact of $0.10 per share due to SFAS No. 125, which was offset by a $0.09 per share loss from the sale of the Company's controlling interest in Sears Mexico. Due to holiday buying patterns, merchandise sales are traditionally higher in the fourth quarter than other quarterly periods and a disproportionate share of operating income is typically earned in the fourth quarter. Similarly, traditional business patterns generally result in the lowest sales and operating income in the first quarter. 				 -9- 				 				 			ITEM 2. - SEARS, ROEBUCK AND CO. 		 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 		 CONDITION AND RESULTS OF OPERATIONS 		 13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 Domestic Operations Merchandise and services revenues increased 6.3% to $7.3 billion for the 13 weeks ended April 4, 1998 from the comparable 1997 period. Merchandise and services revenues and related information are as follows: 						13 Weeks Ended (millions, except number of stores) April 4, March 29, 					 1998 1997 Change Revenues: Full-line Stores $ 4,936 $ 4,586 7.6% Specialty stores 1,669 1,635 2.1 Total retail 6,605 6,221 6.2 Services 692 640 8.1 Merchandise and services $ 7,297 $ 6,861 6.3% Number of Full-line Stores 834 823 Number of specialty stores 2,726 2,558 Total retail stores 3,560 3,381 Comparable store sales percentage increase 4.9% 2.5% Full-line Stores revenues increased 7.6% over first quarter 1997. Apparel revenues gained 5.4% during the first quarter after a 16.9% gain in 1997. Women's ready to wear, especially sportswear and special sizes, as well as home fashions, fine jewelry and footwear posted strong sales increases. Children's and men's apparel sales were even in the first quarter compared with the prior year. Hardlines revenues, comprised of Home Electronics, Home Appliances, and Home Improvement merchandise sales, increased 8.4% for the first quarter with gains in Home Appliances and Home Electronics. Home Improvement sales were approximately even with the prior year. Specialty stores revenues increased 2.1% over first quarter 1997. Home Stores revenues increased 16.3% over 1997 due to the addition of new stores and strong comparable store sales increases. Hardware and Sears Dealer stores had solid revenue increases from a year ago benefiting from 136 net new store openings. HomeLife furniture stores revenues increased slightly despite having five fewer stores than a year ago. Auto Stores, consisting of the Sears Tire Group and Parts Group, experienced a 9.1% decline in revenue from 1997 as the Sears Tire Group experienced weak comparable store sales and the Parts Group revenue decreased primarily as a result of a change in store format. The new Parts America format sells automotive merchandise and no longer provides repair services. 				 -10- 				 			ITEM 2. - SEARS, ROEBUCK AND CO. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 		 CONDITION AND RESULTS OF OPERATIONS 		 13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 		 Services revenues, which are generated by the Home Services and Direct Response Marketing businesses, were up 8.1% in the first quarter of 1998 versus the 1997 comparable period primarily due to strong revenue gains by Home Services on increased service contract sales and growth in major home improvement services. Domestic credit revenues for the 13 weeks ended April 4, 1998 were $1.1 billion, an increase of 2.8% from the prior year period. A summary of credit information (for the managed portfolio) is as follows: 							 13 Weeks Ended 						 April 4, March 29, 							1998 1997 Sears Card as a % of sales 53.2% 55.5% Average account balance (dollars) $ 1,071 $ 1,020 Average managed credit card receivables (millions) $ 28,425 $ 26,815 The percentage of merchandise sales and services transacted with the Sears Card in the first quarter of 1998 declined to 53.2% compared to 55.5% a year ago due primarily to fewer new accounts. Gross margin as a percentage of domestic merchandise and services revenues for the first quarter was 24.2% versus 24.6% in the comparable prior year period. The improved services gross margin was more than offset by the decline in retail gross margin due to the later Easter holiday selling season and increased clearance markdowns. Selling and administrative expense as a percentage of total revenues for domestic operations improved to 20.9% in the first quarter of 1998 from 21.6% in the comparable prior year period. The improvement was primarily due to the leveraging of employee-related costs and marketing expense. The domestic provision for uncollectible accounts and related information is as follows: 						 13 Weeks Ended (millions) April 4, March 29, 						 1998 1997 Provision for uncollectible accounts $ 387 $ 242 							 Net credit charge-offs as a percentage of average managed credit card receivables 8.12% 4.97% Allowance for uncollectible credit card receivables $ 1,091 $ 773 Delinquency rates (as of Apr. 4, 1998 and Mar. 29, 1997) 6.97% 5.61% The provision for uncollectible accounts was $387 million in the first quarter, a 59.6% increase from the same period last year. The increase was primarily attributable to the higher delinquency and charge-off rates of the credit card portfolio in the first quarter of 1998 versus the prior-year first quarter. If the Company's current level of delinquency and charge-off rates continues, the Company will face difficult year-over-year comparisons in the second and third quarters of 1998. 				 -11- 		 ITEM 2. - SEARS, ROEBUCK AND CO. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 		 CONDITION AND RESULTS OF OPERATIONS 		13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 	 Domestic operations depreciation and amortization expense was $192 million in the first quarter, an increase of $27 million from the comparable 1997 period. The increase reflects the continuation of the Full-line Stores remodeling program and the growth in the number of specialty stores in operation. Interest expense, as presented on the statements of income, is combined with the funding costs on receivables sold through securitizations to represent total funding costs as follows: 							 13 Weeks Ended (millions) April 4, March 29, 						 1998 1997 Interest expense $ 349 $ 311 Funding cost on securitized receivables (1) 106 108 Total funding costs $ 455 $ 419 % of revenues 5.4% 5.3% <FN> (1) Funding cost on securitized receivables represents the interest paid on securitized receivables and is presented as a reduction of credit revenues in the statements of income at the time receivables are sold. </FN> 								 Total domestic funding costs as a percentage of revenues were 5.4% in 1998 compared to 5.3% in 1997. The increase in funding costs reflects higher funding requirements due to a larger managed credit card receivables portfolio, partially offset by lower effective funding rates. Operating income in the first quarter of 1998 declined 41.4% from the comparable 1997 period primarily due to the decline in credit and retail results, partially offset by improved services results. Operating income by business format is as follows: 					 					 13 Weeks Ended (millions) April 4, March 29, 					 1998 1997 Retail $ (60) $ (29) Services 80 67 Credit 252 382 Corporate (60) (58) Total domestic operating income $ 212 $ 362 				 -12- 			 ITEM 2. - SEARS, ROEBUCK AND CO. 		 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 			 CONDITION AND RESULTS OF OPERATIONS 		 13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 International Operations International operations in 1998 include only the Company's 54.8% interest in Sears Canada. In the first quarter of 1997, the Company sold 60% of the outstanding shares of Sears Mexico to Grupo Carso S.A. de C.V. The transaction reduced the Company's ownership in Sears Mexico to 15.5 percent. Proceeds from the sale were $103 million and resulted in a loss of $21 million which was recorded in the consolidated statements of income as other income (loss). Additionally, tax expense of $15 million was recorded which resulted in a net after-tax loss of $36 million. Excluding the impact of this transaction, the Company's first quarter 1997 consolidated effective tax rate would have been 40.7% versus 47.4% as reported. International revenues for the first quarter of 1998 decreased 4.6% from the same period a year ago as revenues from Sears Mexico are no longer included. Revenues improved 9.7% at Sears Canada due to the strong retail and catalog sales performance. Gross margins as a percentage of merchandise and services revenues decreased to 23.5% in the first quarter from 23.6% in 1997. Sears Canada gross margin rates declined 20 basis points in 1998 reflecting higher retail promotional markdowns compared to the prior year. Selling and administrative expense as a percentage of total revenues decreased to 22.4% in 1998 from 23.2% in the first quarter of 1997. The improvement was primarily due to leveraging employee-related costs and marketing expense. Financial Condition The consolidated owned net credit card receivables balance of $18.96 billion excludes credit card receivables transferred to a securitization Master Trust as follows: (millions) April 4, March 29, January 3, 					 1998 1997 1998 Domestic: Managed credit card receivables $ 27,875 $ 26,562 $ 28,945 Securitized balances sold (6,255) (6,248) (6,404) Retained interest in transferred credit card receivables (3,113) (2,138) (3,316) Other customer receivables 189 188 161 Domestic owned credit card receivables 18,696 18,364 19,386 International credit card receivables 1,393 1,363 1,570 Consolidated credit card receivables $ 20,089 $ 19,727 $ 20,956 Less: Allowance for uncollectible 	 accounts 1,127 806 1,113 Credit card receivables, net $ 18,962 $ 18,921 $ 19,843 Consolidated credit card receivables (before allowance for uncollectible accounts) increased $362 million in 1998 compared with first quarter 1997. The increase is primarily from higher sales volume in the retail stores. As compared to 1997 year-end, consolidated credit card receivables (before allowance for uncollectible accounts) decreased $867 million due to the normal seasonal nature of the retail industry. 				 -13- 				 			ITEM 2. - SEARS, ROEBUCK AND CO. 		 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 			CONDITION AND RESULTS OF OPERATIONS 		 13 WEEKS ENDED APRIL 4, 1998 AND MARCH 29, 1997 		 As of April 4, 1998, consolidated merchandise inventories on the first-in, first-out (FIFO) basis were $6.19 billion, compared with $5.68 billion at March 29, 1997 and $5.76 billion at January 3, 1998. The increase in the inventory levels reflects the additional inventory to support higher sales volume and the addition of new Full-line and specialty stores. Total property and equipment, net of accumulated depreciation, was $6.39 billion at April 4, 1998 compared with $5.78 billion a year earlier. The increase is primarily due to the net addition of 11 Full-line Stores and 168 specialty stores. Total net funding for the Company at April 4, 1998 was $27.23 billion compared with $24.69 billion a year earlier and was used primarily to fund the managed credit card receivables portfolio. Net funding includes debt recorded on the balance sheet and investor certificates related to credit card receivables sold through securitizations as follows: (millions) April 4, March 29, January 3, 					 1998 1997 1998 Short-term borrowings $ 4,095 $ 3,693 $ 5,208 Long-term debt and capitalized lease obligations 16,884 14,750 15,632 Securitized balances sold 6,255 6,248 6,404 Total funding $ 27,234 $ 24,691 $ 27,244 								 				 -14- 				 			PART II. OTHER INFORMATION 			 Item 1. Legal Proceedings On June 3, 1997, the Company entered into a settlement of the consolidated debtor class action lawsuits filed in the United States Bankruptcy and District Courts for the District of Massachusetts by certain current and former credit card holders of the Company who had declared personal bankruptcy (the "Settlement"). These lawsuits alleged that the Company had violated the United States Bankruptcy Code and consumer protection laws in various states through activities related to certain debt reaffirmation agreements. A federal civil and criminal investigation of these matters is ongoing. As previously reported, the Company has reached an agreement in principle to settle six purported shareholders' derivative actions filed on behalf of the Company against its directors and certain of its officers, alleging breach of fiduciary duty for failing to prevent the improper handling of certain of the Company's debt reaffirmation agreements. On May 7, 1998, the court approved the settlement, which is conditioned upon satisfactory resolution of the securities class action lawsuits referred to below. On October 9, 1997, the Company reached an agreement in principle to settle several consolidated securities class action lawsuits against the Company and one of its officers in the United States District Court for the Northern District of Illinois. The amended consolidated complaint alleges violations of the Securities Exchange Act of 1934 for failure to disclose the bankruptcy collection practices described above in periodic filings with the Securities and Exchange Commission prior to April 10, 1997. The settlement agreement is subject to court approval at a hearing which has been set for August 6, 1998. The Company recorded a pretax charge of $475 million ($320 million on an after-tax basis) in the second quarter of 1997 for the estimated cost of the matters referred to above, including other related expenses. This estimate is based on management's assumptions as to the ultimate outcome of future events and actual results could differ from this estimate. As such, it is possible that additional costs relating to the civil and criminal investigation referred to above could be incurred. However, management believes that its current reserves adequately provide for the costs relating to the matters referred to above and does not expect such costs to have a material effect on the annual results of operations, financial position, liquidity or capital resources of the Company. The Company is subject to various other legal and governmental proceedings pending against the Company, many involving routine litigation incidental to the businesses. Other matters contain allegations which are nonroutine and involve compensatory, punitive or antitrust treble damage claims in very large amounts, as well as other types of relief. The consequences of these matters are not presently determinable but, in the opinion of management of the Company after consulting with legal counsel, the ultimate liability in excess of reserves currently recorded is not expected to have a material effect on annual results of operations, financial position, liquidity or capital resources of the Company. 	 				 -15- 			PART II. OTHER INFORMATION 			 Item 5. Other Information The following discussion and analysis of the Company's conversion to a new credit card receivables processing system contains forward-looking statements that involve risks and uncertainties. The actual timing and effects of this conversion could differ materially from those anticipated in the forward- looking statements as a result of certain factors including, but not limited to, operational and logistical developments with respect to the conversion and changes in social and economic factors and credit policies that affect delinquencies, charge-offs and customer payment behaviors. In addition, numerous other social and economic factors and credit policies may also affect delinquency and charge-off levels following the conversion. In May 1998, the Company entered into an agreement with Total System Services, Inc. to provide certain processing services related to the Company's domestic credit card receivables portfolio. The new system will enable the Company to enhance its customer relationships and to improve service suport of the Company's multiple business formats. The Company currently plans to convert to the new processing system in three phases, beginning with the first phase in late 1998, and ending with the last phase ending in the second quarter of 1999. The new processing system will also enable the Company to change its methodology for aging and charging off accounts. The new aging methodology will differ from that used currently by the Company in that it will determine delinquency levels based on the number of billing cycles that have commenced since the customer failed to make a required payment. Under the Company's current credit system, an account is generally considered delinquent when the past due balance is three times the scheduled minimum monthly payment. As a result, certain accounts generally will be considered delinquent earlier and charged off sooner than is currently the case. These changes will reflect a reclassification of account status rather than a change in actual performance of the accounts. To assess the potential effect of the new aging methodology, the Company used historical account activity for a 10% random sample of accounts to simulate the differences between the current methodology and the new methodolgy. Under the simulations, delinquencies as a percentage of managed receivables at the conversion date were approximately 275 to 300 basis points higher than under the Company's current methodology. After a transition period of approximately eight months, the change in delinquency levels decreased to approximately 200 basis points above the levels reported under the current methodology. Based on the simulations, the Company believes that delinquency trends over the past three years would have been consistent under either aging methodology. The simulations also modeled the gross charge-offs that would have been reported under the new methodology based upon the actual transaction activity of the 10% sample of accounts. Under the simulation, using historical account activity, the percentage of account balances charged off as uncollectible increased in the range of 75 to 100 basis points during the eight-month period after the conversion date. This increase then declined over the next four months. An increase in gross charge-off levels in the range of 15 to 25 basis points remained after a twelve month period. The actual effect of the new aging methodology on charge-offs cannot be predicted with precision, and may be offset in part by benefits of earlier collection efforts due to an earlier recognition of delinquencies, and improved authorization and line management strategies. In addition, this accelertion of charge-offs reflects a timing change rather than a change in account performance; accordingly, the Company believes that the current allowance for uncollectible accounts remains appropriate. The Company believes that the change in aging methodology and the resultant change in delinquency and charge-off levels will not have a material effect on the results of operations, financial position, liquidity or capital resources of the Company. 				 -16- 				 			 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 	(a) Exhibits. 	 An Exhibit Index has been filed as part of this Report on 	 Page E-1. 	(b) Reports on Form 8-K. 	 Registrant filed Current Reports on Form 8-K dated January 22, 	 1998 and February 18, 1998 (Item 5). 				 -17- 				 				 SIGNATURE 				 		 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 thereunto duly authorized. 		 					 Sears, Roebuck and Co. 					 (Registrant) 					 					 May 14, 1998 By /s/ James A. Blanda 					 James A. Blanda 					 Vice President and Controller 					 						(Principal Accounting 						 Officer and duly authorized 						 Officer of Registrant) 				 E-1 				 			 EXHIBIT INDEX 			 SEARS, ROEBUCK AND CO. 		 13 WEEKS ENDED APRIL 4, 1998 		 Exhibit No. 3(a). Restated Certificate of Incorporation as in effect on May 13, 1996 	 (incorporated by reference to Exhibit 3(a) to Registrant's 	 Statement No. 333-8141). 	 3(b.) By-laws, as amended to February 3, 1998 (incorporated by reference 	 to Exhibit 3.(ii) to the Registrants Annual Report on Form 10-K 	 for the year ended January 3, 1998). 4. Registrant hereby agrees to furnish the Commission, upon request, 	 with the instruments defining the rights of holders of each issue 	 of long-term debt of the Registrant and its consolidated 	 subsidiaries. 10. Description of Registrant's Non-Employee Director Life Insurance 	 Plan (incorporated by reference to the first paragraph on page 10 	 of the Registrant's proxy statement dated March 26, 1998). 12(a). Computation of ratio of income to fixed charges for Sears, 	 Roebuck and Co. and consolidated subsidiaries for each of the 	 five years ended January 3, 1998 and for the three- and twelve- 	 month periods ended April 4, 1998. 12(b). Computation of ratio of income to combined fixed charges and 	 preferred share dividends for Sears, Roebuck and Co. and 	 consolidated subsidiaries for each of the four years: 1996, 1995, 	 1994, and 1993. 15. Acknowledgment of awareness from Deloitte & Touche LLP, dated 	 May 13, 1998, concerning unaudited interim financial information. 27(a). Financial Data Schedule. 	 27(b). Restated Financial Data Schedules. 27(c). Restated Financial Data Schedules.