Lou D'Ambrosio, Sears Holdings: 100 to120 Kmart and Sears Full-Line Stores to Close

December 27, 2011

Sears Holdings has provided an update on its quarter-to-date performance and planned actions to improve and accelerate the transformation of its business.

Kmart's quarter-to-date comparable store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales. Sears Domestic's quarter-to-date sales decline was primarily driven by the consumer electronics and home appliance categories, with more than half of the decline in Sears Domestic occurring in consumer electronics. Sears apparel sales were flat and Lands' End in Sears stores was up mid-single digits.

The combination of lower sales and continued margin pressure coupled with expense increases has led to a decline in Adjusted EBITDA. Accordingly, they expect that our fourth quarter consolidated Adjusted EBITDA will be less than half of last year's amount. For reference, last year Sears Holdings generated $933 million of Adjusted EBITDA in the fourth quarter ($795 million domestically and $138 million in Canada).

Due to the performance in 2011 they expect that to record a fourth quarter non-cash charge related to a valuation allowance on certain deferred tax assets of $1.6 to $1.8 billion. Although a valuation adjustment is recognized on these deferred tax assets, no economic loss has occurred as the underlying net operating loss carryforwards and other tax benefits remain available to reduce future taxes to the extent income is generated. Further, Sears Holdings may recognize in the fourth quarter an impairment charge on some goodwill balances for as much as $0.6 billion. These charges would be non-cash and combined are estimated to be between $1.6 and $2.4 billion.

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail - at the store, online and in the home," said Chief Executive Officer Lou D'Ambrosio. Specific actions which we plan to take include:

• Close 100 to 120 Kmart and Sears Full-line stores. We expect these store closures to generate $140 to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate. Further, we intend to optimize the space allocation based on category performance in certain stores. Final determination of the stores to be closed has not yet been made. The list of stores closing will be posted at www.searsmedia.com when final determination is made.
• Excluding the effect of store closures, we currently expect to reduce 2012 peak domestic inventory by $300 million from the 2011 level of $10.2 billion at the end of the third quarter as a result of cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year.
• Focus on improving gross profit dollars through better inventory management and more targeted pricing and promotion.
• Reduce our fixed costs by $100 to $200 million.

In addition to the specific store closures listed above, Sears Holdings will evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow.

Sears Holdings expects the store closure and inventory reduction actions to reduce peak inventory in 2012 by $500 to $580 million and reduce peak borrowing need by $300 to $350 million in 2012 from levels that may have resulted in 2012 without such actions.

At December 23rd, Sears Holdings had $483 million of borrowings outstanding on their domestic revolving credit facility leaving them with over $2.9 billion of availability on revolving credit facilities ($2.1 billion on our domestic facility and $0.8 billion on our Canadian facility). There were no borrowings outstanding last year at this time.

During the fourth quarter through December 23, 2011, Sears Holdings has not repurchased any of our common shares under our share repurchase program. As of December 23, 2011, Sears Holdings had remaining authorization to repurchase $524 million of common shares under the previously approved programs.