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MD & A One

Management's Analysis of Consolidated Operations

Sears, Roebuck and Co. and its consolidated subsidiaries ("the Company") is a multiline retailer providing a wide array of merchandise and services in the United States, Puerto Rico and Canada. Operating results for the Company are reported for four domestic segments and one international segment. The domestic segments include the Company's operations in the United States and Puerto Rico.

The Company's segments are defined as follows:

Retail - consisting of:

> Full-line Stores - 858 Full-line stores, averaging 88,000 selling square feet, located primarily in the best malls in the nation and offering:

-- Softlines - A complete selection of fashionable, quality apparel and accessories for the whole family, plus cosmetics, fine jewelry and home fashions, at value prices; includes leading national brands as well as exclusive Sears brands such as Canyon River Blues, Fieldmaster, Crossroads, TKS Basics and Circle of Beauty.

-- Hardlines - A full assortment of appliances, electronics and home improvement products and services; includes major national brands as well as exclusive Sears brands such as Kenmore, Craftsman, WeatherBeater and DieHard.

> Specialty Stores - More than 2,100 specialty stores, located primarily in freestanding, off-the-mall locations or high-traffic neighborhood shopping centers.

-- Hardware Stores - 267 neighborhood hardware stores under the Sears Hardware and Orchard Supply Hardware names, averaging 20,000 to 40,000 selling square feet, that carry Craftsman tools, a wide assortment of national brands and other home repair products.

-- Dealer Stores - 738 independently-owned stores, averaging 5,000 selling square feet, that offer appliances, electronics, lawn and garden merchandise, hardware and automobile batteries in smaller communities and carry exclusive Sears brands such as Craftsman, Kenmore and DieHard.

-- Contract Sales - Showrooms dedicated to appliance and home improvement products for commercial customers.

-- The Great Indoors - Two prototype stores for home decorating and remodeling, averaging 100,000 selling square feet, dedicated to the four main rooms of the house: kitchen, bedroom, bathroom and great room.

-- Automotive Stores - 798 Sears Auto Centers and 310 NTB National Tire & Battery stores that offer tires, DieHard and other brands of batteries, and related services. Auto Stores also included the Parts Group, which sold automotive parts through Parts America and Western Auto Stores until November 2, 1998, when the Company sold the Parts Group.

-- Homelife Furniture Stores - included in 1997, 1998 and 1999 until January 30, 1999, when the Company sold Homelife.

Services - consisting of:
> Home Services, which provides service contracts, product installation and repair services, major home improvements and other home services such as pest control and carpet cleaning.

> Direct Response, consisting of direct-response marketing, which markets insurance (credit protection, life and health), clubs and services memberships, merchandise through specialty catalogs, and impulse and continuity merchandise.

Credit - which manages the Company's portfolio of credit card receivables arising from purchases of merchandise and services from domestic operations. The domestic credit card receivables portfolio consists primarily of Sears Card and Sears Premier Card account balances.

Corporate - includes activities that are of an overall holding company nature, primarily consisting of administrative activities and the Sears Online investment initiatives related to selling merchandise via the Company Web sites, the costs of which are not allocated to the Company's businesses.

International - consisting of retail, services, credit and corporate operations similar to the Company's domestic operations. International operations are conducted in Canada through Sears, Canada Inc. ("Sears Canada"), a majority owned subsidiary. International operations were also conducted through Sears, Roebuck de Mexico, S.A. de C.V. ("Sears Mexico"), a 75.5% owned subsidiary until March 1997, when the Company sold 60% of the outstanding shares of Sears Mexico.

Throughout management's analysis of consolidated operations and financial condition, certain prior year information has been reclassified to conform with the current year presentation. All references to earnings per share relate to diluted earnings per common share.


  Annual Report 1999 

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1999 Sears, Roebuck and Co. -