Fourth Quarter & Full Year 2013 Transformation Update & Financial Results. February 2014

Transcription

1 Fourth Quarter & Full Year 2013 Transformation Update & Financial Results

2 Cautionary Statement Regarding Forward-Looking Information This presentation may contain forward-looking statements about our plans and expectations for the fourth quarter of fiscal 2013, our transformation through our integrated retail strategy, our objectives with respect to the generation of additional liquidity, our plans to redeploy our capital, and possible transactions. Forward-looking statements are subject to risks and uncertainties 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. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: our ability to offer merchandise and services that our customers want, including our proprietary brand products; our ability to successfully implement our integrated retail strategy; our ability to successfully implement initiatives to improve our liquidity through inventory management and other actions; competitive conditions in the retail and related services industries; worldwide economic conditions and business uncertainty, including the availability of consumer and commercial credit, changes in consumer confidence and spending, the impact of rising fuel prices, and changes in vendor relationships; our ability to complete possible transactions with respect to Lands' End and/or Sears Auto Centers on terms that are acceptable to us, on intended timetables or at all and the impact of the evaluation and/or completion of those transactions on our other businesses or third party relationships; our ability to successfully achieve our plans to generate liquidity, reduce inventory and reduce fixed costs; conditions and possible limits, including borrowing base limits, on our access to capital markets and other financing sources, including additional second lien financings, with respect to which we do not have commitments from lenders; vendors' lack of willingness to provide acceptable payment terms or otherwise restricting financing to purchase inventory or services; the impact of seasonal buying patterns, including seasonal fluctuations due to weather conditions, which are difficult to forecast with certainty; our dependence on sources outside the United States for significant amounts of our merchandise; our extensive reliance on computer systems, including legacy systems, to implement our integrated retail strategy, process transactions, summarize results and manage our business, which may be subject to disruptions or security breaches; our reliance on third parties to provide us with services in connection with the administration of certain aspects of our business and the transfer of significant internal historical knowledge of such parties; impairment charges for goodwill and intangible assets or fixed-asset impairment for long-lived assets; our ability to attract, motivate and retain key executives and other associates; our ability to protect or preserve the image of our brands; the outcome of pending and/or future legal proceedings, including product liability claims and proceedings with respect to which the parties have reached a preliminary settlement; and the timing and amount of required pension plan funding; and other risks, uncertainties and factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. 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. 1

3 Non-GAAP Financial Measures For purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement. Adjusted EBITDA is computed as net loss attributable to Sears Holdings Corporation appearing on the statements of operations excluding (income) loss attributable to noncontrolling interests, income tax (expense) benefit, interest expense, interest and investment income, other income (loss), depreciation and amortization and gain on sales of assets. In addition, it is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses, as well as executive compensation metrics, for comparable periods. 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. While Adjusted EBITDA is a non-gaap measurement, management believes that it is an important indicator of ongoing operating performance and useful to the investors because: EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; Management considers gains/(losses) on the sale of assets to result from investing decisions rather than ongoing operations; and Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results, including the results of Sears Hometown and Outlet Stores, Inc. that were included in our results of operations prior to the separation. We have adjusted our results for these items to make our statements more comparable and therefore more useful to investors as the items are not representative of our ongoing operations and reflect past investment decisions. See appendix for reconciliations of the differences between the non-gaap financial measures used in this presentation with the most comparable financial measures calculated in accordance with GAAP. 2

4 Topics Executing our Transformation Fourth Quarter and Full Year Results Asset Redeployment and Reconfiguration 3

5 Executing our Transformation 4

6 Strategic Pillars of Transformation 5 Key Pillars of Our Strategy 1. Create lasting relationships with members by empowering them to manage their lives 2. Attain best in class productivity and efficiency 3. Build our brands 4. Reinvent the company continuously through technology and innovation 5. Reinforce The SHC Way by living our values every day Our Two Key Platforms Shop Your Way And Integrated Retail Continue To Become More Prominent In How We Run The Company And Serve Our Members 5

7 Executing Transformation to Drive Profitability Leveraging Shop Your Way and Integrated Retail as foundation of our membercentric business model Engaging members with personalized relevant content Investing to offer more capabilities to our members Investing to continually enhance member engagement Investing in platform technology Realigning our portfolio of businesses to become a more focused company More efficient to manage and easier to understand Optimize allocation of capital resources Improve ability to attract talent Enhancing financial flexibility which we believe will support and fund transformation Reconfigure asset base to redeploy capital more efficiently Assessing our physical retail footprint Meeting all of our financial obligations Allowing shareholders to participate in what we believe are value creation actions 6

8 Transitioning to a Member-Centric Integrated Retailer Membership program rewarding members for loyalty and strengthening customer relationships Utilizes multi-channel platform: in-store, in-home, digital devices How are we driving this transformation? 1. Investing in capabilities to give members access to widest assortment of products and services possible 2. Using proprietary, real-time data and analytics on member trends to personalize shopping experience 3. Expanding our reach through Sears Marketplace 1 and delivery options 4. Enhancing our membership benefits associated with Shop Your Way 5. Developing digital and social relationships with our members to improve interactions Driving Transformation Through Personalized Membership Program 1 Sears Marketplace is our innovative community that allows 3 rd party merchants to advertise or sell their products on Sears Holdings family of websites. 7

9 Investing in Integrated Retail Capabilities to Engage Members H Home Enable our members to: Shop anytime With a shopping experience that is: Simple S O Fulfill anywhere Seamless Store Online Pay any way Relevant P Phone Rewarding Developing A Deeper Connection with Customers Through Multiple Channels 8

10 Investing in Our Member- Centric Integrated Retail Model Online & Stores Traditional Cross Channel Order Online, Pick Up in Store Order Online, In-Vehicle Pick Up Order in Store, Ship to Home Digital Interactions Digital Receipts Shopping Recaps Targeted Offers Expanding Reach Two-day delivery Mobile Capabilities SHOPSears Member Assist Shop Your Way App Shop Your Way Members Always Get More Personalized Offers Social Engagement ShopYourWay.com Celebrity Partnerships Developing A Deeper Connection With Customers Through Multiple Channels 9

11 Integrated Retail Strategy Driving Consistent Online Growth 2013 Online Revenue Traditional Online Cross Channel 1 Investments Are Driving Improved Engagement Results 1 Cross channel consists of order online, pickup in store and order from store, ship to home. 2 Consists of Sears.com and Kmart.com sites. Excludes Lands End and Sears Canada sites. 10

12 SHOPSears Mobile App for Associates to Assist Members Status: Launched in early 2012 in 300+ stores As of FY13, in 400+ Sears stores Benefits for Members: Access product information and in-store availability Access product reviews and specifications Side-by-side product comparison Mobile checkout Member Lookup Points Redemption Coupon Loading ereceipts or Paper Receipts Shopper Recap Capture data from interaction with member Send recap summarizing products discussed ipad 9:24 PM Investments In Integrated Retail Empower Associates On The Sales Floor 11

13 In-Vehicle Pickup Powered by Shop Your Way Mobile App Enables Members to Buy Online and Pick Up in Store Without Getting Out of Their Car Purchase product on sears.com or shopyourway.com Select in-vehicle pickup option at checkout Input details of pickup vehicle (i.e. make, model, color, license plates) Park in designated In-Vehicle Pickup spot Shop in on Shop Your Way Mobile App Associate delivers product to member s car Investments In Integrated Retail Improving Member Experience In Sears Stores 12

14 Building Digital Relationships with Our Members Two concrete examples include: ereceipts Establishes digital connection with our members More convenient way for members to receive and archive sales receipts Shopper Recap Digital communication summarizing the items the member considered in store for future purchase considerations Investments In Technology Help Build Digital Relationships With Members 13

15 ShopYourWay.com & Shop Your Way Mobile App Changing How our Members Interact with Us ShopYourWay.com Benefits Member sweepstakes Digital coupons Real time support from store associates via Member Assist Build catalogs to share Exclusive celebrity content Brand and lifestyle interest pages Product reviews Social interactions Shop Your Way Partner network 2013 Highlights Over 10,000 sweepstakes offered Millions of sweeps participants Hundreds of millions of coupon downloads Improved Customer Interaction 14

16 Integration of Commerce & Celebrity Brands Adam Levine & Nicki Minaj on ShopYourWay.com Flagship Stores on ShopYourWay.com Flagship stores on ShopYourWay.com are the single destination where fans and members can consume both celebrity content and browse products Members can curate their experience SHOP (Commerce) Shop by category visual navigation Store locator Adam s and Nicki s favorite items PLAY (Brand Identity) Sweeps Adam s and Nicki s recent activity Fan s activity Trending products by most liked Videos featuring Adam and Nicki Shop Your Way Platform Brings Social Experience And Commerce Together 15

17 Member Engagement with Shop Your Way is Accelerating Member Sales Penetration 1 has Steadily Increased 72% 69% 58% 59% Q Q Full Year 2012 Full Year 2013 Shop Your Way Is Integral To Member Engagement And Growth 1 Member sales penetration is the percent of revenues we derive from Shop Your Way members in Sears Full-line and Kmart stores. 16

18 Fourth Quarter & Full Year Results and Financial Position 17

19 Summary of Performance Versus 2013 Planned Actions $200 million year-over-year fixed expense reductions $500 million reduction in inventory at peak As of November 30, 2013, domestic inventory reduced by $620 million $2.0 billion of additional liquidity generated vs. objective of $500 million $1.0 billion of real estate proceeds $300 million in Canada from sale of 50% interest in joint venture with The Westcliff Group $400 million in Canada from five-store transaction $300 million from a combination of domestic and Canada real estate transactions $1.0 billion five-year secured loan using accordion feature with our ABL facility Reducing Expenses, Redeploying Capital More Efficiently And Generating Liquidity While Investing In The Transformation 18

20 Sears Holdings Consolidated Results Amounts in millions, except per share amounts Fourth Quarter Full Year 2013 (a) 2012 (b) 2013 (a) 2012 (b) Revenues $ 10,593 $ 12,260 $ 36,188 $ 39,854 Gross margin dollars $ 2,482 $ 3,163 $ 8,755 $ 10,514 Gross margin rate 23.4% 25.8% 24.2% 26.4% Selling and administrative $ 2,613 $ 3,282 $ 9,384 $ 10,660 Selling and administrative rate 24.7% 26.8% 25.9% 26.7% Net loss $ (358) $ (489) $ (1,365) $ (930) EPS $ (3.37) $ (4.61) $ (12.87) $ (8.78) Adjusted net (loss) income $ (102) $ 119 $ (700) $ (266) Adjusted EPS $ (0.96) $ 1.12 $ (6.60) $ (2.51) Adjusted EBITDA $ 12 $ 429 $ (337) $ 536 For each 100 basis point improvement in margin we would see a $364 million improvement in EBITDA For each 100 basis point improvement in SG&A expense we would see a $100 million improvement in EBITDA Adjusted EBITDA By Segment: Sears Domestic $ (52) $ 197 $ (211) $ 266 Kmart (129) 201 Sears Canada Total $ 12 $ 429 $ (337) $ 536 (a) 13 week period ending February 1, 2014 (b) 14 week period ending February 2, 2013 We have significant revenue scale which provides us with substantial operating leverage from small improvements 19

21 Q4 Year-Over-Year Change: Revenue Amounts in millions See Slide 43 in Appendix for Full Year Results $12,260 ($317) ($465) Summary of Year over Year Revenue Change $ % Closed Stores $ (317) 19.0% 53rd Week (465) 27.9% Comp Sales (598) 35.9% Other (74) 4.4% Sears Canada (213) 12.8% Total $ (1,667) 100.0% ($598) ($74) ($213) $10,593 Q C lo sed St o res 53 rd W eek C o mp Sales Ot her Sears C anad a Q

22 Q4 Revenue: Domestic Business Performance See Slide 44 in Appendix for Full Year Analysis Comp Store Sales QTD Thru Jan. 6th (Per Press Release) Full Fourth Quarter Kmart -5.7% -5.1% Sears -9.2% -7.8% Q4 Comp Store Sales Drivers Declines in most categories including consumer electronics, grocery & household, toys, and drugstore Declines in most categories including consumer electronics, tools and home appliances, partially offset by an increase in the lawn & garden category Total -7.4% -6.4% Improvement In Comp Store Sales Since January Release 21

23 Q4 Year-Over-Year Changes: Margin Amounts in millions See Slide 45 in Appendix for Full Year Results $3,163 ($71) Domestic Operating Performance ($261) Summary of Year over Year Margin Change $ % Closed Stores $ (71) 10.4% 53rd Week (161) 23.6% Comp Sales (116) 17.0% Rate (145) 21.3% SYW Points (108) 15.9% Sears Canada (80) 11.8% Total $ (681) 100.0% ($161) ($116) ($145) SYW Investment ($108) $2,482 ($80) Currently carrying costs of two promotional programs: Points and Promotional Markdowns ( PMDs ) As model evolves, expect points to be substitute for PMDs, resulting in improved margin rate Higher points cost is result of higher member engagement Points expense recognized when points are issued Majority of points are valid for 12 months Expect to see margin benefit from points issued in Q4 throughout 2014 as these points are redeemed Q C lo sed Sto res 53rd Week C o mp Sales R ate SYW P o ints Sears C anada Q

24 Financial Position and Liquid Assets Amounts in millions as of February 1, 2014 Cash $ 1,028 Domestic $ 577 Canada 451 Availability on Facilities $ 885 Domestic $ 549 Canada 336 (2) Equity in Inventory $ 4,538 Total $ 6,451 SHC has a $3.275B domestic revolving credit facility 3 through 2016 secured by domestic inventory and credit card and pharmacy receivables Sears Canada has a CAD$800M revolving credit facility similar to SHC revolver 2 At the end of January, Sears Canada had $336M of availability based on borrowing base Currently no borrowings, CAD$24M in letters of credit issued under facility SHC has uncommitted $500M commercial paper capacity, $9M outstanding at Feb. 1, 2014 We are permitted to raise up to $760M in additional 2 nd lien debt 4 We Believe We Have Substantial Financial Resources And Liquid Assets (1) (1) Reflects effect of springing fixed charge coverage ratio covenant and borrowing base requirement (2) Prior to taking into consideration possible reserves (3) Availability to borrow subject to the springing fixed charge coverage ratio covenant and borrowing base requirement (4) Subject to borrowing base requirement 23

25 Net Inventory: 4 th Quarter We Are Running Our Business With Less Inventory On An Absolute And Seasonal Basis Amounts in millions ~$400M of ~$1.4B Inventory Reduction Due to 2012 SHO Separation $8,407 $7,558 $7,034 Payable Reduction of $416M Further De-Risks Our Business Model Reduced Net Inventory Investment By $957M $5,495 $4,797 $4,538 $2,912 $2,761 $2, Inventory Payables Net Inventory By Reducing Our Net 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 Us And Our Vendor-partners 24

26 Consolidated Net Debt Position Amounts in millions Year End February 1, 2014 February 2, 2013 Unsecured Commercial Paper $ 9 $ 345 Secured Borrowings 1, Total Short-Term Borrowings 1,332 1,094 Senior Secured Notes $ 1,238 $ 1,237 SRAC Notes Term Loan Other Notes/Mortgages SHC Borrowings 2,572 1,593 Domestic Capital Lease Obligations Total Domestic Long Term Debt $ 2,871 $ 1,924 Sears Canada Capital Lease Obligations $ 46 $ 102 Total Sears Holdings Long Term Debt $ 2,917 $ 2,026 Total Sears Holdings Debt $ 4,249 $ 3,120 Adjustments Less: Cash - Consolidated $ 1,028 $ 609 Add: Unfunded Pension $ 1,491 $ 2,090 "Adjusted" Net Debt Position $ 4,712 $ 4,601 Pension contributions $ 360 $ $516 Year-Over-Year Decline in Net Short Term Borrowings Revolver Borrowings Increase $ 574 Commercial Paper Decline (336) Change in Short Term Borrowings 238 Cash Increase - Consolidated (419) Change in Net Short Term Borrowings $ (181) SHC is using one form of debt, i.e. the Revolver, to fund another form of debt, the legacy pension obligation. Of the FY2013 Revolver balance of $1,323M, $876M was driven over the past 2 years by pension contributions to be distinguished from funding operating results Impact of Pension Contributions on Revolver Usage FY 2012 Revolver Borrowings $ 749 Less: FY 2012 Pension Contributions (516) Pro Forma FY 2012 Revolver Borrowings $ 233 Add: Increase in Revolver FY 2012 to FY Less: FY 2013 Pension Contributions (360) Pro Forma FY 2013 Revolver Borrowings $ 447 Reduced Net Short Term Borrowings And Continued To De-Risk Pension Liability 25

27 Domestic Revolver Borrowing Flexibility SHC Domestic Net Short Term Debt Position Amounts in millions Net Short Term Borrowings Feb. 1, 2014 Feb. 2, 2013 ABL Borrowings $1,323 $749 Commercial Paper Less Cash (577) (380) Net ST Debt $755 $714 SHC Domestic Availability on our Credit Facility Amounts in millions Feb. 1 Feb Revolver Commitments $3,275 $3,275 Borrowing Base & FCCR Impact 1 (742) (327) Capacity 2,533 2,948 Borrowings (1,323) (749) Letters of Credit (661) (754) Total Usage (1,984) (1,503) Availability to Borrow 549 1,445 Cash Availability + Cash 1,126 1,825 Incremental CP Capacity Availability + Cash + CP 3 $ 1,617 $ 1,980 We managed our Net short term debt comparable to prior year. Borrowing capacity remains more than adequate, with $350M of the year-overyear decline due to more efficient inventory management, which reduced our borrowing base at a time of year when we do not need access to the full $3.275B of commitments During the 2014 holiday season we currently anticipate that our domestic inventory will be at a level that the borrowing base will not limit access to the credit facility. The sum of our borrowing availability plus cash and our $500M uncommitted commercial paper program provides ample liquidity. 1 Combined effect of springing fixed charge coverage ratio covenant & borrowing base on capacity 2 We have an uncommitted commercial paper program of up to $500M 3 Availability with commercial paper funded to capacity 26

28 Domestic Pension History: Legacy Obligations Sears Holdings has a frozen pension plan which provides benefit for past services The company has made significant contributions to the pension plan in recent years as follows: The pension obligation declined in 2013 due to an increase in the discount rate, contributions and improved investment performance Amounts in millions 2013 $ $ 1.7B Amounts in millions Assets $3,490 $3,221 $4,051 $4,054 $3,633 Liability 4,981 5,311 6,109 5,623 5,435 Unfunded ($1,491) ($2,090) ($2,058) ($1,569) ($1,802) Discount Rate 4.60% 4.25% 4.90% 5.75% 6.00% We currently estimate the 2014 unfunded pension obligation to be $980 million, assuming contributions of about $485 million at a discount rate of 4.60% Note that a 100 basis point increase in the discount rate would reduce the pension liability by approximately $460 million 1 1 Year End Balances Continue To Honor Our Legacy Pension Obligations While De-Risking This Liability 1 In 2012, the Company offered a voluntary lump sum to certain plan participants and paid $1.4 billion in settlements thereby reducing pension risk 27

29 Consistently Reduced Lessee Obligation As We Continue To Adjust Our Store Footprint We Expect To Further Reduce Lease Obligations Amounts in millions $6,617 $6,259 $5,514 $5,060 $4,729 $4,343 $3,646 Annual Rent Expense $883 $864 $864 $813 $826 $794 $721 Reducing Net Minimum Lease Payments Decreases Corporate Obligations And Further De-Risks Our Business Model 28

30 Long-term Debt Maturities As of February 1, 2014 Amounts in millions $2,572 $2,189 $291 $12 $13 $13 $ Thereafter Total Minimal Long-Term Debt Maturities 29

31 Asset Redeployment and Reconfiguration 30

32 Reconfiguring our Asset Base to Accelerate our Transformation Separated Sears Hometown and Outlet Stores in 2012 Currently plan to separate our Lands End business Considering strategic alternatives for the Sears Auto Centers Business, subject to Board approval and other conditions We are pursuing these activities to allow both SHC and the separated entity to: 1. Become a more focused company that is more efficient to manage and easier to understand 2. Pursue their own strategic opportunities, optimize their capital structures, attract talent and allocate capital in a more focused manner 3. Provide opportunities for shareholders to participate in value creation generated by these businesses 4. Potentially enhance their financial flexibility Continue To Enhance Financial Flexibility Consistent With Our Previous Statements 31

33 Generated $2 Billion of Liquidity Through Transactions in 2013 Versus $500 Million Goal Amounts in billions Real Estate Proceeds - Sears Canada sale of joint venture interest 1 $ Sears Canada five store lease transaction Other proceeds 0.3 Term Loan - On October 2, 2013 executed a $1.0 billion, five-year secured loan using the accordion feature of our domestic ABL facility $ Reallocating Resources As We Continue Our Transformation 1 Proceeds received January 10, Proceeds received November 12,

34 Update on Asset Reconfiguration Activities Lands End Filed registration statement with SEC for pro rata distribution of Lands End shares Currently expect Lands End to pay $500M exit dividend to SHC prior to separation Expect to complete the separation in Q1 of 2014 Q4 & Full Year EBITDA improvement of $31M and $42M respectively see slide 46 in appendix Sears Canada SHC has a 51% equity stake in Sears Canada worth ~$620M as of February 25, 2014 Work with Sears Canada to increase value of our interest and realize significant cash proceeds Physical Store Footprint Flexible lease portfolio Reduce unprofitable stores as leases expire and accelerate closings when appropriate Closing 4 Wall EBITDA negative stores frees up capital, reduces losses and de-risks our model Opportunistically realize value from real estate portfolio in both the U.S. and Canada Sears Auto Centers Considering strategic alternatives, subject to approval by Board and other conditions Store Base and Inventory Improve inventory efficiency We Believe We Are Executing On A Clear Plan To Increase Financial Flexibility, Further De-Risk Our Balance Sheet And Create Shareholder Value With Lands End And Sears Canada Providing Substantial Explicit Potential Sources Of Capital 33

35 Over The Past Two Years We Have Improved the efficiency of our business model In Billions Per Share Reduced net inventory $0.9 Fixed expense reductions 0.8 $1.7 Generated significant liquidity Sears Hometown and Outlet Store separation $0.5 Real estate transactions Term loan through ABL Accordion 1.0 $2.9 Honored our commitments Funded legacy pension obligation $0.9 Generated shareholder value through transactions Distribution of 45M Sears Canada shares in 2012 $ Sears Hometown and Outlet Store separation 1.85 $9.31 All while investing in our transformation across an array of fronts: Shop Your Way Online Digital interactions Mobile Capabilities Expanding reach Social engagement 1 As of February 25,

36 APPENDIX 35

37 Sears Holdings Consolidated Results Amounts in millions, except per share amounts Fourth Quarter Full Year 2013 (a) 2012 (b) 2013 (a) 2012 (b) Revenues $ 10,593 $ 12,260 $ 36,188 $ 39,854 Net loss $ (358) $ (489) $ (1,365) $ (930) EPS $ (3.37) $ (4.61) $ (12.87) $ (8.78) Adjusted net (loss) income (102) 119 (700) (266) Adjusted EPS $ (0.96) $ 1.12 $ (6.60) $ (2.51) (a) 13 week period ending February 1, 2014 (b) 14 week period ending February 2,

38 Significant Items Amounts in millions Fourth Quarter Full Year Net loss as reported $ (358) $ (489) $(1,365) $ (930) Gain on asset sales (55) (13) (113) (254) Gain on sale of Canadian joint venture (22) (4) (22) (4) Domestic pension expense Closed store/store impairments/severance Tax matters and other 134 (54) Pension settlements Goodwill impairment SHO separation (51) Adjusted net loss $ (102) $ 119 $ (700) $ (266) 37

39 Adjusted EBITDA Amounts in millions Fourth Quarter Full Year 2013 (a) 2012 (b) 2013 (a) 2012 (b) Revenues $ 10,593 $ 12,260 $ 36,188 $ 39,854 Margin 2,511 3,166 8,812 10,117 Margin rate 23.7% 25.8% 24.4% 25.4% Expenses 2,499 2,737 9,149 9,580 Adjusted EBITDA $ 12 $ 429 $ (337) $ 536 By Segment: Sears $ (52) $ 197 $ (211) $ 266 Kmart (129) 201 Sears Canada $ 12 $ 429 $ (337) $ 536 (a) 13 week period ending February 1, 2014 (b) 14 week period ending February 2,

40 SHC Adjusted Segment Results Fourth Quarter Quarter Ended millions Kmart Sears Domestic Sears Canada Sears Holdings Revenue $ 4,007 $ 4,697 $ 5,489 $ 6,253 $ 1,097 $ 1,310 $ 10,593 $ 12,260 Gross margin dollars 886 1,102 1,332 1, ,511 3,166 Gross margin rate 22.1% 23.5% 24.3% 27.1% 26.7% 28.4% 23.7% 25.8% Selling and administrative ,384 1, ,499 2,737 Selling and administrative expense as a percentage of total revenues 21.1% 19.9% 25.2% 23.9% 24.5% 23.5% 23.6% 22.3% Adjusted EBITDA (52) Depreciation and amortization (32) (37) (121) (141) (20) (27) (173) (205) Gain on sales of assets Special items: Domestic pension expense - - (40) (41) - - (40) (41) Closed store reserve and severance (56) (38) 4 3 (51) (15) (103) (50) Impairment charges (67) (10) (140) (25) (12) (295) (219) (330) Pension settlements (452) - (3) - (455) Transaction costs (2) (2) Operating income (loss) $ (96) $ 103 $ (334) $ (450) $ 298 $ (275) $ (132) $ (622) 39

41 SHC Adjusted Segment Results Full Year Year Ended millions Kmart Sears Domestic Sears Canada Sears Holdings Revenue $13,194 $ 14,567 $ 19,198 $ 20,977 $ 3,796 $ 4,310 $ 36,188 $ 39,854 Gross margin dollars 2,910 3,430 4,885 5,452 1,017 1,235 8,812 10,117 Gross margin rate 22.1% 23.5% 25.4% 26.0% 26.8% 28.7% 24.4% 25.4% Selling and administrative 3,039 3,229 5,096 5,186 1,014 1,166 9,149 9,580 Selling and administrative expense as a percentage of total revenues 23.0% 22.2% 26.5% 24.7% 26.7% 27.1% 25.3% 24.0% Adjusted EBITDA (129) 201 (211) (337) 536 Depreciation and amortization (129) (147) (511) (572) (92) (105) (732) (824) Gain on sales of assets Special items: Domestic pension expense - - (162) (165) - - (162) (165) Closed store reserve and severance (89) (76) 31 (44) (72) (20) (130) (140) Impairment charges (70) (10) (150) (25) (13) (295) (233) (330) Pension settlements (452) - (3) - (455) Transaction costs (9) - (3) - (12) Operating income (loss) $ (351) $ 5 $ (940) $ (739) $ 364 $ (187) $ (927) $ (921) 40

42 Reconciliation to GAAP Net Income Fourth Quarter Quarter Ended February 1, 2014 Closed Store Reserve, millions, except per share data GAAP Domestic Pension Expense Store Impairments and Severance Gain on Sales of Assets Gain on Sale of Canadian Joint Venture Tax Matters As Adjusted Gross margin impact $ 2,482 $ $ 29 $ $ $ $ 2,511 Selling and administrative impact 2,613 (40) (74) 2,499 Depreciation and amortization impact 173 (6) 167 Impairment charges impact 219 (219) Gain on sales of assets impact (391) 369 (22) Operating loss impact (132) (369) (133) Interest and investment income impact 178 (163) 15 Income tax expense impact (125) (15) (123) Loss attributable to noncontrolling interests impact (208) (31) After tax and noncontrolling interests impact (358) (55) (22) 134 (102) Diluted loss per share impact $ (3.37) $ 0.24 $ 1.64 $ (0.52) $ (0.21) $ 1.26 $ (0.96) Quarter Ended February 2, 2013 Closed Store millions, except per share data GAAP Domestic Pension Expense Reserve, Store Impairments and Severance Gain on Sales of Assets Transaction Costs Goodw ill Impairment Pension Settlements Gain on Sale of Canadian Joint Venture Tax Matters As Adjusted Gross margin impact $ 3,163 $ $ 3 $ $ $ $ $ $ $ 3,166 Selling and administrative impact 3,282 (41) (47) (2) (455) 2,737 Depreciation and amortization impact 205 (6) 199 Impairment charges impact 330 (35) (295) Gain on sales of assets impact (32) 21 (11) Operating loss impact (622) (21) Interest and investment income impact 66 (25) 41 Income tax benefit impact 9 (15) (35) 8 (1) 9 (55) (80) Loss attributable to noncontrolling interests impact 128 (7) (145) (1) 12 (13) After tax and noncontrolling interests impact (489) (13) (4) (55) 119 Diluted loss per share impact $ (4.61) $ 0.25 $ 0.46 $ (0.12) $ 0.01 $ 1.41 $ 4.28 $ (0.04) $ (0.52) $

43 Reconciliation to GAAP Net Income - Full Year Year Ended February 1, 2014 Closed Store Reserve, millions, except per share data GAAP Domestic Pension Expense Store Impairments and Severance Gain on Sales of Assets Gain on Sale of Canadian Joint Venture Tax Matters As Adjusted Gross margin impact $ 8,755 $ $ 57 $ $ $ $ 8,812 Selling and administrative impact 9,384 (162) (73) 9,149 Depreciation and amortization impact 732 (11) 721 Impairment charges impact 233 (233) Gain on sales of assets impact (667) 604 (63) Operating loss impact (927) (604) (995) Interest and investment income impact 207 (163) 44 Income tax benefit impact (144) (60) (141) Loss attributable to noncontrolling interests impact (249) (42) After tax and noncontrolling interests impact (1,365) (113) (22) 507 (700) Diluted loss per share impact $ (12.87) $ 0.96 $ 1.80 $ (1.06) $ (0.21) $ 4.78 $ (6.60) Year Ended February 2, 2013 Closed Store millions, except per share data GAAP Domestic Pension Expense Reserve, Store Impairments and Severance Gain on Sales of Assets Transaction Costs Goodw ill Impairment Pension Settlements Gain on Sale of Canadian Joint Venture Tax Matters As Adjusted - Reported SHO Separation As Adjusted Gross margin impact $ 10,514 $ $ 35 $ $ $ $ $ $ $ 10,549 $ (432) $ 10,117 Selling and administrative impact 10,660 (165) (105) (12) (455) 9,923 (343) 9,580 Depreciation and amortization impact 830 (22) 808 (6) 802 Impairment charges impact 330 (35) (295) Gain on sales of assets impact (468) 419 (49) (49) Operating loss impact (838) (419) (133) (83) (216) Interest and investment income impact 94 (25) Income tax expense impact (44) (62) (74) 157 (5) Loss attributable to noncontrolling interests impact 124 (7) 8 (145) (1) 12 (9) (9) After tax and noncontrolling interests impact (930) (254) (4) 143 (215) (51) (266) Diluted loss per share impact $ (8.78) $ 0.97 $ 1.09 $ (2.40) $ 0.07 $ 1.42 $ 4.29 $ (0.04) $ 1.35 $ (2.03) $ (0.48) $ (2.51) 42

44 Fiscal 2013 Year-Over-Year Change: Revenue Amounts in millions $39,854 ($1,094) ($465) Summary of Year over Year Revenue Change $ % Closed Stores $ (1,094) 29.8% 53rd Week (465) 12.7% Comp Sales (1,040) 28.4% SHO Impact (491) 13.4% Other (62) 1.7% Sears Canada (514) 14.0% Total $ (3,666) 100.0% ($1,040) ($1,729) $1,238 ($62) $36,188 ($514) Total SHO Effect ($491) C lo sed St o res 53 rd W eek C o mp Sales SHO Sales Sales o f Pro d uct t o SHO Ot her Sears C anad a

45 Revenue: Domestic Business Performance Full Year 2013 Comp Store Sales Kmart -3.6% Drivers Declines in most categories, including grocery & household, consumer electronics, drugstore and toys Sears -4.1% Declines in most categories including home appliances, consumer electronics, tools and lawn & garden, as well as Sears Auto Centers, partially offset by increases in the home and footwear categories Total -3.8% 44

46 Fiscal 2013 Year-Over-Year Changes: Margin Amounts in millions $10,514 ($293) ($161) Domestic Operating Performance ($431) ($347) ($84) SYW Investment ($282) Summary of Year over Year Margin Change $ % Closed Stores $ (293) 16.7% 53rd Week (161) 9.2% Comp Sales (347) 19.7% Rate (84) 4.8% SYW Points (282) 16.0% SHO Impact (373) 21.2% Canada (219) 12.4% Total $ (1,759) 100.0% ($373) ($219) $8,755 Currently carrying costs of two promotional programs: Points and Promotional Markdowns ( PMDs ) As model evolves, expect points to be substitute for PMDs, resulting in improved margin rate Higher points cost is result of higher member engagement Points expense recognized when points are issued Majority of points are valid for 12 months Expect to see margin benefit from points issued in Q4 throughout 2014 as these points are redeemed 2012 C lo sed Sto res 53rd Week C o mp Sales R ate SYW P o ints SH O Impact Sears C anada

47 Lands End Q4 & Full Year Preliminary Summary Outlook 1 Amounts in millions Quarters Ended January 31, 2014 February 1, 2013 January 31, 2014 Years Ended February 1, 2013 Merchandise sales and services...$ 530 $ 546 $ 1,563 $ 1,586 Net income...$ 46 $ 26 $ 79 $ 50 Adjusted EBITDA... $ 80 $ 49 $ 150 $ 108 Quarters Ended Years Ended Amounts in millions January 31, 2014 February 1, 2013 January 31, 2014 February 1, 2013 Net income...$ 46 $ 26 $ 79 $ 50 Income tax expense Operating income Depreciation and amortization Before excluded items Restructuring costs Adjusted EBITDA...$ 80 $ 49 $ 150 $ 108 % to revenues % 9.0% 9.6 % 6.8 % 1 The fourth quarter and full year 2013 results are preliminary, unaudited and subject to change. 46

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