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Sears Reports Lower Q2 Net Income

Hoffman Estates, Ill. — Sears Holdings reported lower net income for its second quarter that ended August 4.

Net income was $176 million compared with net income of $294 million for the second quarter ended July 29, 2006. The second-quarter 2006 results included a $36 million pretax gain, $22 million after tax of proceeds received during the second quarter last year related to the settlement of Visa/MasterCard antitrust litigation.

“The decline in our second-quarter results from the same quarter last year primarily reflects lower operating results at both Sears Domestic and Kmart, partially offset by improved operating results at Sears Canada,” the retailer said.

“We are disappointed with our second quarter results. Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations,” said Aylwin Lewis, Sears Holdings’ CEO/president. “In response, we are enhancing our marketing message to more clearly articulate the advantages of our products and service offerings, including our recently announced Ultimate Appliance Promise.”

As previously announced, Sears Domestic’s comp-store sales declined 4.3 percent for the quarter. Kmart’s comp-store sales declined 3.8 percent. Total domestic comp-store sales declined 4.1 percent. Sears said lower sales across most merchandise categories at both Kmart and Sears Domestic, were partially offset by increased sales of women’s apparel at both Kmart and Sears Domestic, as well as within consumer electronics and footwear at Sears Domestic.

For the quarter, total revenues declined $600 million to $12.2 billion in fiscal 2007, as compared with $12.8 billion for the second quarter of fiscal 2006.