Fitch Ratings Comments on Sears' Announcement

Business Wire, March 26, 2003

Business Editors

CHICAGO--(BUSINESS WIRE)--March 26, 2003

Fitch Ratings does not currently expect the potential sale by Sears, Roebuck and Co. (Sears) of its Credit and Financial Products business to result in a change to its ratings on Sears. Fitch continues to rate the senior unsecured notes of Sears, Sears Roebuck Acceptance Corp. (SRAC), and Sears DC Corp 'BBB ', and SRAC's commercial paper 'F2'. The Rating Outlook remains Negative. Sears had $11.9 billion of domestic senior debt and $3 billion of domestic commercial paper outstanding as of Dec. 28, 2002.

The nature and terms of any potential transaction are unknown at this time, though the financial implications of a sale would be mixed. Nonetheless, it is Fitch's current view that the expected pro-forma financial profile of Sears following the sale of its credit business, coupled with the performance characteristics of its retail operation, is consistent with the current ratings. The sale of the credit business would remove what has historically been Sears' largest and most consistent source of earnings and cash flow. However, it is assumed that the proceeds from the sale would be used to pay down debt levels, which would leave Sears with a stronger balance sheet and a more focused business operation.

The key remaining business, Retail and Related Services, is currently experiencing weak sales trends, though profitability has improved as the company has made progress in improving margins and reducing costs. This business faces heightened competitive pressures, and Sears will continue to encounter challenges as it works to improve the performance of its core full-line stores.

The Negative Outlook continues to reflect the difficult operating environment and uncertainty as to the timing of the completion of the turnaround of its retail business. Going forward, Fitch will evaluate Sears' business mix and the use of any asset sale proceeds, and will make further comment as additional details are made available.

Sears sells apparel, home and automotive products through approximately 870 full-line stores and 1,300 specialty stores and customer direct businesses nationwide. The specialty stores include Sears' dealer stores, National Tire and Battery, Sears Hardware, Orchard Hardware (in California) and The Great Indoors. Sears also has a sizable credit business, with receivables of more than $30 billion, and a services business that is engaged in product installation and repair, service contracts and home improvements. In addition, Sears is the majority owner of Sears Canada.