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ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2013
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¨
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T
RANSITION
R
EPORT
P
URSUANT
T
O
S
ECTION
13
O
R
15(d)
O
F
T
HE SECURITIES EXCHANGE ACT OF 1934
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D
ELAWARE
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80-0808358
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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5500 TRILLIUM BOULEVARD, SUITE 501 HOFFMAN ESTATES, ILLINOIS
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60192
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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ý
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Smaller reporting company
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¨
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Page
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PART I—FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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||
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Item 4.
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PART II—OTHER INFORMATION
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Item 1.
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||
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Item 1A.
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||
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 5.
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Other Information
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Item 6.
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Thousands
|
|
November 2,
2013 |
|
October 27,
2012 |
|
February 2,
2013 |
||||||
ASSETS
|
|
|
|
|
|
|
||||||
CURRENT ASSETS
|
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
|
$
|
21,487
|
|
|
$
|
21,841
|
|
|
$
|
20,068
|
|
Accounts receivable
|
|
17,207
|
|
|
13,905
|
|
|
10,986
|
|
|||
Merchandise inventories
|
|
488,626
|
|
|
429,407
|
|
|
428,437
|
|
|||
Prepaid expenses and other current assets
|
|
8,113
|
|
|
12,301
|
|
|
14,321
|
|
|||
Total current assets
|
|
535,433
|
|
|
477,454
|
|
|
473,812
|
|
|||
PROPERTY AND EQUIPMENT, net
|
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49,544
|
|
|
54,088
|
|
|
53,383
|
|
|||
GOODWILL
|
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167,000
|
|
|
167,000
|
|
|
167,000
|
|
|||
LONG-TERM DEFERRED TAXES
|
|
63,916
|
|
|
70,648
|
|
|
69,001
|
|
|||
OTHER ASSETS
|
|
32,115
|
|
|
22,509
|
|
|
22,607
|
|
|||
TOTAL ASSETS
|
|
$
|
848,008
|
|
|
$
|
791,699
|
|
|
$
|
785,803
|
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LIABILITIES
|
|
|
|
|
|
|
||||||
CURRENT LIABILITIES
|
|
|
|
|
|
|
||||||
Short-term borrowings
|
|
$
|
87,900
|
|
|
$
|
47,100
|
|
|
$
|
20,000
|
|
Payable to Sears Holdings Corporation
|
|
57,414
|
|
|
77,687
|
|
|
79,491
|
|
|||
Accounts payable
|
|
31,727
|
|
|
29,228
|
|
|
31,830
|
|
|||
Other current liabilities
|
|
74,306
|
|
|
76,265
|
|
|
83,211
|
|
|||
Current portion of capital lease obligations
|
|
1,082
|
|
|
1,499
|
|
|
1,463
|
|
|||
Total current liabilities
|
|
252,429
|
|
|
231,779
|
|
|
215,995
|
|
|||
CAPITAL LEASE OBLIGATIONS
|
|
98
|
|
|
870
|
|
|
769
|
|
|||
OTHER LONG-TERM LIABILITIES
|
|
5,139
|
|
|
2,423
|
|
|
2,752
|
|
|||
TOTAL LIABILITIES
|
|
257,666
|
|
|
235,072
|
|
|
219,516
|
|
|||
COMMITMENTS AND CONTINGENCIES (Note 8)
|
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||||||
STOCKHOLDERS' EQUITY
|
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|
|
||||||
TOTAL STOCKHOLDERS' EQUITY
|
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590,342
|
|
|
556,627
|
|
|
566,287
|
|
|||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
848,008
|
|
|
$
|
791,699
|
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$
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785,803
|
|
|
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39 Weeks Ended
|
||||||
Thousands
|
|
November 2,
2013 |
|
October 27,
2012 |
||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
||||
Net income
|
|
$
|
31,826
|
|
|
$
|
50,420
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
||||
Depreciation
|
|
6,569
|
|
|
6,815
|
|
||
Share-based compensation
|
|
598
|
|
|
—
|
|
||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
||
Change in operating assets and liabilities:
|
|
|
|
|
||||
Accounts receivable
|
|
(16,216
|
)
|
|
(12,913
|
)
|
||
Merchandise inventories
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(60,189
|
)
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|
(35,749
|
)
|
||
Payable to Sears Holdings Corporation
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|
(22,077
|
)
|
|
77,687
|
|
||
Accounts payable
|
|
(103
|
)
|
|
12,072
|
|
||
Store closing accruals
|
|
—
|
|
|
(2,179
|
)
|
||
Customer deposits
|
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5,998
|
|
|
7,106
|
|
||
Deferred income taxes
|
|
15,520
|
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(4,754
|
)
|
||
Other operating assets
|
|
1,246
|
|
|
43
|
|
||
Other operating liabilities
|
|
(15,767
|
)
|
|
(5,287
|
)
|
||
Net cash provided by (used in) operating activities
|
|
(54,162
|
)
|
|
93,261
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
||||
Proceeds from sales of property and investments
|
|
2,641
|
|
|
—
|
|
||
Purchases of property and equipment
|
|
(5,995
|
)
|
|
(5,524
|
)
|
||
Net cash used in investing activities
|
|
(3,354
|
)
|
|
(5,524
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
||||
Transfers to Sears Holdings Corporation
|
|
—
|
|
|
(12,264
|
)
|
||
Dividend paid to Sears Holdings Corporation
|
|
—
|
|
|
(100,000
|
)
|
||
Common stock repurchased and retired
|
|
(8,369
|
)
|
|
—
|
|
||
Payments of capital lease obligations
|
|
(596
|
)
|
|
(1,426
|
)
|
||
Short-term borrowings
|
|
988,800
|
|
|
100,100
|
|
||
Payments of short-term borrowings
|
|
(920,900
|
)
|
|
(53,000
|
)
|
||
Net cash provided by (used in) financing activities
|
|
58,935
|
|
|
(66,590
|
)
|
||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
1,419
|
|
|
21,147
|
|
||
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
20,068
|
|
|
694
|
|
||
CASH AND CASH EQUIVALENTS—End of period
|
|
$
|
21,487
|
|
|
$
|
21,841
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
||||
Cash paid for interest
|
|
$
|
2,012
|
|
|
$
|
111
|
|
Thousands
|
Number of Shares of Common Stock
|
Common Stock
|
Capital in Excess of Par Value
|
Retained Earnings
|
Divisional Equity prior to the Separation
|
Total Stockholders' Equity
|
|||||||||||
Balance at January 28, 2012
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
538,106
|
|
$
|
538,106
|
|
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
—
|
|
—
|
|
(179
|
)
|
50,599
|
|
50,420
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Net transfer to Sears Holdings Corporation
|
—
|
|
—
|
|
—
|
|
—
|
|
(12,264
|
)
|
(12,264
|
)
|
|||||
|
|
|
|
|
|
|
|||||||||||
Dividend paid to Sears Holdings Corporation
|
—
|
|
—
|
|
—
|
|
—
|
|
(100,000
|
)
|
(100,000
|
)
|
|||||
|
|
|
|
|
|
|
|||||||||||
Reclassification of divisional equity to common stock and additional paid in capital in conjunction with the Separation
|
23,100
|
|
231
|
|
476,210
|
|
—
|
|
(476,441
|
)
|
—
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Tax adjustment related to the Separation
|
|
|
80,365
|
|
—
|
|
—
|
|
80,365
|
|
|||||||
|
|
|
|
|
|
|
|
||||||||||
Balance at October 27, 2012
|
23,100
|
|
$
|
231
|
|
$
|
556,575
|
|
$
|
(179
|
)
|
$
|
—
|
|
$
|
556,627
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at February 2, 2013
|
23,100
|
|
231
|
|
556,575
|
|
9,481
|
|
—
|
|
566,287
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Net income
|
|
—
|
|
—
|
|
31,826
|
|
—
|
|
31,826
|
|
||||||
|
|
|
|
|
|
|
|||||||||||
Share-based compensation
|
88
|
|
1
|
|
597
|
|
—
|
|
—
|
|
598
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Common stock repurchased and retired
|
(279
|
)
|
(3
|
)
|
(6,728
|
)
|
(1,638
|
)
|
|
(8,369
|
)
|
||||||
|
|
|
|
|
|
|
|||||||||||
Balance at November 2, 2013
|
22,909
|
|
$
|
229
|
|
$
|
550,444
|
|
$
|
39,669
|
|
$
|
—
|
|
$
|
590,342
|
|
Thousands
|
|
November 2,
2013 |
|
October 27,
2012 |
|
February 2,
2013 |
||||||
Customer deposits
|
|
40,913
|
|
|
38,974
|
|
|
34,914
|
|
|||
Sales and other taxes
|
|
14,072
|
|
|
7,617
|
|
|
13,607
|
|
|||
Accrued expenses
|
|
13,267
|
|
|
12,733
|
|
|
24,703
|
|
|||
Warranty accrual
|
|
—
|
|
|
10,919
|
|
|
3,734
|
|
|||
Payroll and related items
|
|
11,193
|
|
|
8,423
|
|
|
9,005
|
|
|||
Store closing accrual
|
|
—
|
|
|
22
|
|
|
—
|
|
|||
Total other current and long-term liabilities
|
|
$
|
79,445
|
|
|
$
|
78,688
|
|
|
$
|
85,963
|
|
•
|
SHO receives commissions from Sears Holdings for specified sales of merchandise made through www.sears.com and www.searsoutlet.com, the sale of extended service contracts, delivery and handling services, and relating to the use in our stores of credit cards branded with the Sears name. For certain transactions SHO pays a commission to Sears Holdings.
|
•
|
We obtain a significant amount of our merchandise inventories from Sears Holdings, leveraging the benefit of the Sears Holdings purchasing activities. We have a retailer's customary rights to return to Sears Holdings merchandise that is defective (except with respect to agreed-upon amounts of defective apparel that we purchase and then liquidate) or otherwise does not meet contract requirements. In addition, we may determine that an item of Outlet merchandise (usually merchandise that is not new in-box) we have received from Sears Holdings cannot be refurbished or reconditioned or is otherwise not in a physical condition to offer for sale to our customers. We and Sears Holdings (and our Outlet vendors generally) refer to an item of merchandise in this condition as “not saleable” or "non-saleable," and in the normal course we can return the item to Sears Holdings. We generally have comparable return rights with our other Outlet vendors.
|
•
|
We pay royalties related to our sale of products branded with the KENMORE®, CRAFTSMAN®, and DIEHARD® marks (which marks are owned by subsidiaries of Sears Holdings).
|
•
|
We pay fees for participation in Sears Holdings' SHOP YOUR WAY REWARDS® program.
|
•
|
We have also entered into agreements with Sears Holdings for logistics, handling, warehouse, and transportation services, the charges for which are based on merchandise inventory units.
|
•
|
Sears Holdings provides the Company with specified corporate services. These services include accounting and finance, human resources, information technology, and real estate. Sears Holdings charges the Company for these corporate services based on actual usage or a pro rata charge based upon sales, head count, or square footage.
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
||||||||||||
|
|
November 2,
2013 |
|
October 27,
2012 |
|
November 2,
2013 |
|
October 27,
2012 |
||||||||
Thousands
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net Commissions from Sears Holdings Corporation (1)
|
|
$
|
21,424
|
|
|
$
|
20,497
|
|
|
$
|
68,327
|
|
|
$
|
63,967
|
|
Purchases related to cost of sales and occupancy
|
|
419,022
|
|
|
366,855
|
|
|
1,293,931
|
|
|
1,235,105
|
|
||||
Services
|
|
5,566
|
|
|
6,697
|
|
|
15,978
|
|
|
14,594
|
|
Thousands
|
|
Markdowns (1)
|
|
Severance
Costs (2) |
|
Lease
Termination Costs (2) |
|
Other
Costs (2) |
|
Total
|
||||||||||
Balance at January 28, 2012
|
|
$
|
8,147
|
|
|
$
|
150
|
|
|
$
|
56
|
|
|
$
|
1,995
|
|
|
$
|
10,348
|
|
Store closing costs
|
|
—
|
|
|
—
|
|
|
797
|
|
|
—
|
|
|
797
|
|
|||||
Payments/utilizations
|
|
(8,147
|
)
|
|
(150
|
)
|
|
(831
|
)
|
|
(1,995
|
)
|
|
(11,123
|
)
|
|||||
Balance at October 27, 2012
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
22
|
|
(1)
|
This store closing activity is recorded within Cost of sales and occupancy on the Condensed Consolidated Statements of Income and remaining store closing cost accruals are reported within Merchandise inventories on the Condensed Consolidated Balance Sheets.
|
(2)
|
This store closing activity is recorded within Selling and administrative on the Condensed Consolidated Statements of Income and remaining store closing cost accruals are reported within Other current liabilities on the Condensed Consolidated Balance Sheets.
|
|
|
13 Weeks Ended November 2, 2013
|
||||||||||
Thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
289,834
|
|
|
$
|
115,386
|
|
|
$
|
405,220
|
|
Lawn and garden
|
|
59,049
|
|
|
5,843
|
|
|
64,892
|
|
|||
Tools and paint
|
|
44,516
|
|
|
3,458
|
|
|
47,974
|
|
|||
Other
|
|
19,772
|
|
|
23,210
|
|
|
42,982
|
|
|||
Total
|
|
413,171
|
|
|
147,897
|
|
|
561,068
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
318,362
|
|
|
107,234
|
|
|
425,596
|
|
|||
Selling and administrative
|
|
94,818
|
|
|
26,880
|
|
|
121,698
|
|
|||
Depreciation
|
|
760
|
|
|
1,417
|
|
|
2,177
|
|
|||
Gain on the sale of assets
|
|
|
|
(1,567
|
)
|
|
(1,567
|
)
|
||||
Total
|
|
413,940
|
|
|
133,964
|
|
|
547,904
|
|
|||
Operating income
|
|
$
|
(769
|
)
|
|
$
|
13,933
|
|
|
$
|
13,164
|
|
Total assets
|
|
$
|
657,019
|
|
|
$
|
190,989
|
|
|
$
|
848,008
|
|
Capital expenditures
|
|
$
|
1,341
|
|
|
$
|
2,259
|
|
|
$
|
3,600
|
|
|
|
13 Weeks Ended October 27, 2012
|
||||||||||
Thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
275,827
|
|
|
$
|
112,076
|
|
|
$
|
387,903
|
|
Lawn and garden
|
|
64,703
|
|
|
5,512
|
|
|
70,215
|
|
|||
Tools and paint
|
|
45,501
|
|
|
3,770
|
|
|
49,271
|
|
|||
Other
|
|
28,954
|
|
|
20,560
|
|
|
49,514
|
|
|||
Total
|
|
414,985
|
|
|
141,918
|
|
|
556,903
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
316,820
|
|
|
101,670
|
|
|
418,490
|
|
|||
Selling and administrative
|
|
94,149
|
|
|
27,905
|
|
|
122,054
|
|
|||
Depreciation
|
|
797
|
|
|
1,485
|
|
|
2,282
|
|
|||
Total
|
|
411,766
|
|
|
131,060
|
|
|
542,826
|
|
|||
Operating income
|
|
$
|
3,219
|
|
|
$
|
10,858
|
|
|
$
|
14,077
|
|
Total assets
|
|
$
|
648,341
|
|
|
$
|
143,358
|
|
|
$
|
791,699
|
|
Capital expenditures
|
|
$
|
1,172
|
|
|
$
|
980
|
|
|
$
|
2,152
|
|
|
|
39 Weeks Ended November 2, 2013
|
||||||||||
Thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
868,489
|
|
|
$
|
362,600
|
|
|
$
|
1,231,089
|
|
Lawn and garden
|
|
280,029
|
|
|
20,938
|
|
|
300,967
|
|
|||
Tools and paint
|
|
138,996
|
|
|
10,063
|
|
|
149,059
|
|
|||
Other
|
|
74,394
|
|
|
63,575
|
|
|
137,969
|
|
|||
Total
|
|
1,361,908
|
|
|
457,176
|
|
|
1,819,084
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,040,750
|
|
|
340,216
|
|
|
1,380,966
|
|
|||
Selling and administrative
|
|
299,175
|
|
|
80,640
|
|
|
379,815
|
|
|||
Depreciation
|
|
2,372
|
|
|
4,197
|
|
|
6,569
|
|
|||
Gain on the sale of assets
|
|
|
|
(1,567
|
)
|
|
(1,567
|
)
|
||||
Total
|
|
1,342,297
|
|
|
423,486
|
|
|
1,765,783
|
|
|||
Operating income
|
|
$
|
19,611
|
|
|
$
|
33,690
|
|
|
$
|
53,301
|
|
Total assets
|
|
$
|
657,019
|
|
|
$
|
190,989
|
|
|
$
|
848,008
|
|
Capital expenditures
|
|
$
|
2,711
|
|
|
$
|
3,284
|
|
|
$
|
5,995
|
|
|
|
39 Weeks Ended October 27, 2012
|
||||||||||
Thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
845,502
|
|
|
$
|
337,447
|
|
|
$
|
1,182,949
|
|
Lawn and garden
|
|
306,420
|
|
|
15,669
|
|
|
322,089
|
|
|||
Tools and paint
|
|
148,988
|
|
|
10,087
|
|
|
159,075
|
|
|||
Other
|
|
102,308
|
|
|
56,024
|
|
|
158,332
|
|
|||
Total
|
|
1,403,218
|
|
|
419,227
|
|
|
1,822,445
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,066,728
|
|
|
298,619
|
|
|
1,365,347
|
|
|||
Selling and administrative
|
|
287,400
|
|
|
80,631
|
|
|
368,031
|
|
|||
Depreciation
|
|
2,423
|
|
|
4,392
|
|
|
6,815
|
|
|||
Total
|
|
1,356,551
|
|
|
383,642
|
|
|
1,740,193
|
|
|||
Operating income
|
|
$
|
46,667
|
|
|
$
|
35,585
|
|
|
$
|
82,252
|
|
Total assets
|
|
$
|
648,341
|
|
|
$
|
143,358
|
|
|
$
|
791,699
|
|
Capital expenditures
|
|
$
|
1,785
|
|
|
$
|
3,739
|
|
|
$
|
5,524
|
|
|
13 Weeks Ended
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
|
39 Weeks Ended
|
||||||||
|
November 2, 2013
|
|
October 27, 2012
|
|
November 2, 2013
|
|
October 27, 2012
|
||||||||
Thousands except income per common share
|
|
|
|
|
|
|
|
||||||||
Basic weighted average shares
|
22,999
|
|
|
23,100
|
|
|
23,066
|
|
|
23,100
|
|
||||
Dilutive effect of restricted stock
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
||||
Diluted weighted average shares
|
22,999
|
|
|
23,100
|
|
|
23,070
|
|
|
23,100
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
7,695
|
|
|
$
|
8,760
|
|
|
$
|
31,826
|
|
|
$
|
50,420
|
|
|
|
|
|
|
|
|
|
||||||||
Income per common share:
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
1.38
|
|
|
$
|
2.18
|
|
Diluted
|
$
|
0.33
|
|
|
$
|
0.38
|
|
|
$
|
1.38
|
|
|
$
|
2.18
|
|
|
|
39 Weeks Ended November 2, 2013
|
|||||
(Shares in Thousands)
|
|
Shares
|
|
Weighted-Average Fair Value on Date of Grant
|
|||
Beginning of year balance
|
|
—
|
|
|
—
|
|
|
Granted
|
|
89
|
|
|
$
|
44.45
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
(1
|
)
|
|
44.45
|
|
|
Balance at 11/2/2013
|
|
88
|
|
|
$
|
44.45
|
|
|
|
|
|
|
•
|
925 Sears Hometown Stores—Primarily independently owned stores, predominantly located in smaller communities and offering appliances, lawn and garden equipment, and hardware. Most of our Sears Hometown Stores carry proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands.
|
•
|
88 Sears Hardware Stores—Hardware stores that carry Craftsman brand tools and lawn and garden equipment, DieHard brand batteries and a wide assortment of other national brands and other home improvement products along with a selection of Kenmore and other national brands of home appliances.
|
•
|
95 Sears Home Appliance Showrooms—Stores that have a simple, primarily appliance showroom design that are positioned in metropolitan areas.
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
||||||||||||
Thousands
|
|
November 2, 2013
|
|
October 27, 2012
|
|
November 2, 2013
|
|
October 27, 2012
|
||||||||
NET SALES
|
|
$
|
561,068
|
|
|
$
|
556,903
|
|
|
$
|
1,819,084
|
|
|
$
|
1,822,445
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
||||||||
Cost of sales and occupancy
|
|
425,596
|
|
|
418,490
|
|
|
1,380,966
|
|
|
1,365,347
|
|
||||
Gross margin dollars
|
|
135,472
|
|
|
138,413
|
|
|
438,118
|
|
|
457,098
|
|
||||
Margin rate
|
|
24.1
|
%
|
|
24.9
|
%
|
|
24.1
|
%
|
|
25.1
|
%
|
||||
Selling and administrative
|
|
121,698
|
|
|
122,054
|
|
|
379,815
|
|
|
368,031
|
|
||||
Selling and administrative expense as a percentage of net sales
|
|
21.7
|
%
|
|
21.9
|
%
|
|
20.9
|
%
|
|
20.2
|
%
|
||||
Depreciation
|
|
2,177
|
|
|
2,282
|
|
|
6,569
|
|
|
6,815
|
|
||||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
(1,567
|
)
|
|
—
|
|
||||
Total costs and expenses
|
|
547,904
|
|
|
542,826
|
|
|
1,765,783
|
|
|
1,740,193
|
|
||||
Operating income
|
|
13,164
|
|
|
14,077
|
|
|
53,301
|
|
|
82,252
|
|
||||
Interest income (expense)
|
|
(738
|
)
|
|
(70
|
)
|
|
(1,969
|
)
|
|
(111
|
)
|
||||
Other income
|
|
460
|
|
|
382
|
|
|
1,306
|
|
|
968
|
|
||||
Income before income taxes
|
|
12,886
|
|
|
14,389
|
|
|
52,638
|
|
|
83,109
|
|
||||
Income tax expense
|
|
(5,191
|
)
|
|
(5,629
|
)
|
|
(20,812
|
)
|
|
(32,689
|
)
|
||||
NET INCOME
|
|
$
|
7,695
|
|
|
$
|
8,760
|
|
|
$
|
31,826
|
|
|
$
|
50,420
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
||||||||||||
Thousands
|
|
November 2, 2013
|
|
October 27, 2012
|
|
November 2, 2013
|
|
October 27, 2012
|
||||||||
Net income
|
|
$
|
7,695
|
|
|
$
|
8,760
|
|
|
$
|
31,826
|
|
|
$
|
50,420
|
|
Income tax expense
|
|
5,191
|
|
|
5,629
|
|
|
20,812
|
|
|
32,689
|
|
||||
Other income
|
|
(460
|
)
|
|
(382
|
)
|
|
(1,306
|
)
|
|
(968
|
)
|
||||
Interest expense
|
|
738
|
|
|
70
|
|
|
1,969
|
|
|
111
|
|
||||
Operating income
|
|
13,164
|
|
|
14,077
|
|
|
53,301
|
|
|
82,252
|
|
||||
Depreciation
|
|
2,177
|
|
|
2,282
|
|
|
6,569
|
|
|
6,815
|
|
||||
Store closing charges and severance costs (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
797
|
|
||||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
(1,567
|
)
|
|
—
|
|
||||
Adjusted EBITDA
|
|
$
|
13,774
|
|
|
$
|
16,359
|
|
|
$
|
58,303
|
|
|
$
|
89,864
|
|
(1)
|
See Note 5 to our Condensed Consolidated Financial Statements included herein.
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
||||||||||||
Thousands, except for number of stores
|
|
November 2, 2013
|
|
October 27, 2012
|
|
November 2, 2013
|
|
October 27, 2012
|
||||||||
Net sales
|
|
$
|
413,171
|
|
|
$
|
414,985
|
|
|
$
|
1,361,908
|
|
|
$
|
1,403,218
|
|
Comparable store sales %
|
|
(1.5
|
)%
|
|
4.4
|
%
|
|
(2.9
|
)%
|
|
1.0
|
%
|
||||
Cost of sales and occupancy
|
|
318,362
|
|
|
316,820
|
|
|
1,040,750
|
|
|
1,066,728
|
|
||||
Gross margin dollars
|
|
94,809
|
|
|
98,165
|
|
|
321,158
|
|
|
336,490
|
|
||||
Margin rate
|
|
22.9
|
%
|
|
23.7
|
%
|
|
23.6
|
%
|
|
24.0
|
%
|
||||
Selling and administrative
|
|
94,818
|
|
|
94,149
|
|
|
299,175
|
|
|
287,400
|
|
||||
Selling and administrative expense as a percentage of net sales
|
|
22.9
|
%
|
|
22.7
|
%
|
|
22.0
|
%
|
|
20.5
|
%
|
||||
Depreciation
|
|
760
|
|
|
797
|
|
|
2,372
|
|
|
2,423
|
|
||||
Total costs and expenses
|
|
413,940
|
|
|
411,766
|
|
|
1,342,297
|
|
|
1,356,551
|
|
||||
Operating income
|
|
$
|
(769
|
)
|
|
$
|
3,219
|
|
|
$
|
19,611
|
|
|
$
|
46,667
|
|
Total Hometown stores
|
|
|
|
|
|
1,108
|
|
|
1,111
|
|
|
|
13 Weeks Ended
|
|
39 Weeks Ended
|
||||||||||||
Thousands, except for number of stores
|
|
November 2, 2013
|
|
October 27, 2012
|
|
November 2, 2013
|
|
October 27, 2012
|
||||||||
Net sales
|
|
$
|
147,897
|
|
|
$
|
141,918
|
|
|
$
|
457,176
|
|
|
$
|
419,227
|
|
Comparable store sales %
|
|
(3.4
|
)%
|
|
(0.8
|
)%
|
|
1.9
|
%
|
|
0.6
|
%
|
||||
Cost of sales and occupancy
|
|
107,234
|
|
|
101,670
|
|
|
340,216
|
|
|
298,619
|
|
||||
Gross margin dollars
|
|
40,663
|
|
|
40,248
|
|
|
116,960
|
|
|
120,608
|
|
||||
Margin rate
|
|
27.5
|
%
|
|
28.4
|
%
|
|
25.6
|
%
|
|
28.8
|
%
|
||||
Selling and administrative
|
|
26,880
|
|
|
27,905
|
|
|
80,640
|
|
|
80,631
|
|
||||
Selling and administrative expense as a percentage of net sales
|
|
18.2
|
%
|
|
19.7
|
%
|
|
17.6
|
%
|
|
19.2
|
%
|
||||
Depreciation
|
|
1,417
|
|
|
1,485
|
|
|
4,197
|
|
|
4,392
|
|
||||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
(1,567
|
)
|
|
—
|
|
||||
Total costs and expenses
|
|
133,964
|
|
|
131,060
|
|
|
423,486
|
|
|
383,642
|
|
||||
Operating income
|
|
$
|
13,933
|
|
|
$
|
10,858
|
|
|
$
|
33,690
|
|
|
$
|
35,585
|
|
Total Outlet stores
|
|
|
|
|
|
|
|
131
|
|
|
126
|
|
•
|
our continued reliance on Sears Holdings for most products and services that are important to the successful operation of our business;
|
•
|
our continuing dependence on Sears Holdings subsequent to the Separation, and our potential need to depend on Sears Holdings beyond the expiration of certain of our agreements with Sears Holdings;
|
•
|
our ability to offer merchandise and services that our customers want, including those under the Kenmore, Craftsman, and DieHard brands.
|
•
|
the sale by Sears Holdings and its subsidiaries to other retailers that compete with us of major home appliances and other products branded with the Kenmore, Craftsman and DieHard brands;
|
•
|
our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;
|
•
|
competitive conditions in the retail industry;
|
•
|
worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, changes in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;
|
•
|
the fact that our past performance generally, as reflected in on our historical financial statements, may not be indicative of our future performance as a result of, among other things, the consolidation of Hometown and Outlet into a single business entity, the Separation, and operating as a standalone business entity;
|
•
|
the impact of increased costs due to a decrease in our purchasing power following the Separation and other losses of benefits that were associated with having been wholly owned by Sears Holdings and its subsidiaries;
|
•
|
our agreements related to the rights offering and Separation Transactions and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received different terms from unaffiliated third parties;
|
•
|
the ability and willingness of Sears Holdings to perform its contractual obligations to us;
|
•
|
our ability to successfully resolve existing and, if any arise, future contractual disputes with Sears Holdings;
|
•
|
limitations and restrictions in the Senior ABL Facility and our ability to service our indebtedness;
|
•
|
our ability to obtain additional financing on acceptable terms;
|
•
|
our dependence on independent dealers and franchisees to operate our stores profitably and in a manner consistent with our concepts and standards;
|
•
|
our dependence on sources outside the U.S. for significant amounts of our merchandise;
|
•
|
impairment charges for goodwill or fixed-asset impairment for long-lived assets;
|
•
|
our ability to attract, motivate, and retain key executives and other employees;
|
•
|
the impact of increased costs associated with being an independent company;
|
•
|
our ability to maintain effective internal controls as a public company;
|
•
|
our ability to realize the benefits that we expect to achieve from the Separation;
|
•
|
low trading volume of our common stock due to limited liquidity or a lack of analyst coverage; and
|
•
|
the impact on our common stock and our overall performance as a result of our principal stockholders’ ability to exert control over us.
|
|
39 Weeks Ended November 2, 2013
|
||||||||||||||||
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
|
|
Average Price Paid Per Share
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
|
||||||||
August 4, 2013 to August 31, 2013
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
September 1, 2013 to October 5, 2013
|
157,229
|
|
|
31.11
|
|
|
157,229
|
|
|
31.11
|
|
|
20,107,973
|
|
|||
October 6, 2013 to November 2, 2013
|
122,018
|
|
|
28.50
|
|
|
122,018
|
|
|
28.50
|
|
|
16,629,936
|
|
|||
For the quarter ended November 2, 2013
|
279,247
|
|
|
$
|
29.97
|
|
|
279,247
|
|
|
$
|
29.97
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Sears Hometown and Outlet Stores, Inc.
|
||
|
|
|
By:
|
|
/
S
/ S
TEVEN
D. B
ARNHART
|
Name:
|
|
Steven D. Barnhart
|
Title:
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
|
|
||
Date:
|
|
December 10, 2013
|
|
|
Exhibit Number
|
Document Description
|
3.1
|
Amended and Restated Bylaws of Sears Hometown and Outlet Stores, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on December 9, 2013 (File No. 001-35641)).
|
*#10.1
|
Amendment No. 2 to Merchandising Agreement dated December 9, 2013 between (i) Sears, Roebuck and Co. and Kmart Corporation and (ii) Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C.
|
*10.2
|
Amendment No. 1 to Separation Agreement dated December 9, 2013 between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Corporation.
|
*10.3
|
Amendment No. 1 to Services Agreement dated December 9, 2013 between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Management Corporation.
|
*10.4
|
Supplemental Agreement dated December 9, 2013 between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Corporation.
|
*10.5
|
Statement of Work #1 to Employee Transition and Administrative Services Agreement dated December 9, 2013 between (i) Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC, and Sears Outlet Stores, L.L.C. and (ii) Sears Holdings Management Corporation.
|
*31.1
|
Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
|
*31.2
|
Certification of Chief Financial Officer Required Under Rule 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
|
*32.1
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only).
|
**101
|
The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended November 2, 2013, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Statements of Income (Unaudited) for the 13 and 39 Weeks Ended November 2, 2013 and October 27, 2012; (ii) the Condensed Consolidated Balance Sheets (Unaudited) at November 2, 2013, October 27, 2012 and February 2, 2013; (iii) the Condensed Consolidated Statements of Cash Flows (Unaudited) for the 39 Weeks Ended November 2, 2013 and October 27, 2012; (iv) the Condensed Combined Statements of Stockholders' Equity (Unaudited) for the 13 and 39 Weeks Ended November 2, 2013 and October 27, 2012; and (v) the Notes to the Condensed Consolidated Financial Statements (Unaudited).
|
1.
|
Amendments
. The Agreement shall be modified as set forth below:
|
i.
|
Seller agrees to drop its objections to the following 4 stores (collectively the “
No-EBITDA Stores
”): Austin, TX, Plano, TX, Los Angeles (Hawthorn)), CA, and Murray, UT stores (and Buyer will not be obligated to pay any of its EBITDA on these locations under
Section 9(b)(i)(C))
. Buyer agrees that the stores extinguish Buyer’s right to open two new stores (Los Angles (Item #8) and West Plano (Item #84)) provided for on
Appendix 9(b)(i)(A)
to the Agreement.
Seller also agrees to drop its objections to the following 5 stores:
Westlake, OH, Overland Park, KS, Southfield, MI, Grand Prairie, TX and Louisville, KY locations, and
for each of the five stores Buyer
agrees that Buyer is obligated to pay Seller annually 30% of the store’s annual EBITDA, if any, for the first five of Buyer’s fiscal years that the store is open for business.
|
1.
|
Select Definitions
|
Cooking & Cleanup—Division 22
|
Laundry—Division 26
|
Air & Water Appliances—Division 42
|
Food Storage—Division 46
|
Floorcare/Sewing—Division 20
|
Home Environment—Division 32
|
|
2.
|
Calculation of Kenmore Royalty Credit
|
Buyer’s Balance of Sales in the Home Appliance Category
|
63.2% and below
|
63.2% to 64.99%
|
65.0% to 69.99%
|
70.0& to 74.99%
|
75.0% and over
|
Royalty Rates
|
|
|
|
|
|
Royalty on Step Incremental Sales
|
***%
|
***%
|
***%
|
***%
|
***%
|
|
$ millions
|
|
|
|
|
|
|
|||||||||||||||||
|
Total applicable Sales
|
$
|
250.00
|
|
|
|
|
|
|
|||||||||||||||
|
Kenmore BOS
|
63.2% and below
|
|
63.2% to 65.00%
|
|
65.0% to 70.00%
|
|
70.0& to 75.00%
|
|
Over 75.0%
|
|
Total
|
|
|||||||||||
|
Kenmore Sales
|
$
|
158.00
|
|
$
|
4.50
|
|
$
|
12.50
|
|
$
|
12.50
|
|
|
$12.50
|
|
|
$200.00
|
|
|||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Kenmore Base Royalty
(% Kenmore Sales)
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
||||||||||||
|
Kenmore Base Royalty $
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Kenmore Royalty Credit %
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
||||||||||||
|
Kenmore Royalty Credit $
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Kenmore Net Royalty %
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
||||||||||||
|
Kenmore Net Royalty $
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
$ millions
|
|
|
|
|
|
|
||||||||||||
Total HST Sales
|
|
$300.00
|
|
|
|
|
|
|
||||||||||
Kenmore BOS
|
63.2% and below
|
|
63.2% to 64.99%
|
|
65.0% to 69.99%
|
|
70.0& to 74.99%
|
|
75.0% and over
|
|
Total
|
|
||||||
Kenmore Sales
|
|
$189.60
|
|
|
$5.40
|
|
|
$5.10
|
|
|
$0.00
|
|
|
$0.00
|
|
|
$200.00
|
|
|
|
|
|
|
|
|
||||||||||||
Kenmore Base Royalty
(% Kenmore Sales)
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
|||||||
Kenmore Base Royalty $
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
||||||
|
|
|
|
|
|
|
||||||||||||
Kenmore Royalty Credit %
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
|||||||
Kenmore Royalty Credit $
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
$***
|
|
||||||
|
|
|
|
|
|
|
||||||||||||
Kenmore Net Royalty %
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
***%
|
|
|
|||||||
Kenmore Net Royalty $
|
|
$7.39
|
|
|
$0.14
|
|
|
$0.10
|
|
|
$0.00
|
|
|
$0.00
|
|
|
$7.63
|
|
2.
|
SHC’S SOLE OBLIGATION
. Sears Holding Corporation (“
SHC
”) is signing this Amendment’s pursuant to
Section 21
(SHC’S Sole Obligation) of the Agreement. SHC signature does not expanded SHC obligations under the Agreement.
|
3.
|
Condition Precedent
. It is a condition precedent to the effectiveness of this Amendment that the parties (or their Affiliates, as applicable) also execute: (a) that certain Amendment No. 1 to Separation Agreement, (b) that certain Amendment No. 1 to Services Agreement,
|
4.
|
No Other Amendments
. Except as expressly amended herein, the Agreement shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the parties’ choice of Illinois law (pursuant to
Section 22.(s)
of the Agreement) which also applies to this Amendment.
|
SEARS, ROEBUCK AND CO.
KMART CORPORATION
By: Sears Holdings Management Corporation, their agent
By:
/s/ RONALD BOIRE
Name: Ronald Boire
Title: Executive Vice President
Date: December 9, 2013
|
SEARS HOMETOWN AND OUTLET STORES, INC.
By:
/s/ W.BRUCE JOHNSON
W. Bruce Johnson
Chief Executive Officer and President
Date: December 9, 2013
|
SEARS HOLDINGS CORPORATION
By:
/s/ RONALD BOIRE
Name: Ronald Boire
Title: Executive Vice President
Date: December 9, 2013
|
SEARS AUTHORIZED HOMETOWN STORES, LLC
By:
/s/ W.BRUCE JOHNSON
W. Bruce Johnson
President
December 9, 2013
|
|
SEARS OUTLET STORES, L.L.C.
By:
/s/ W.BRUCE JOHNSON
W. Bruce Johnson
President
December 9, 2013
|
Description and Seller Division
|
Percentage Off Seller’s DOS Cost
|
|
|
Furniture-In Store (Div 001)
|
***%
|
Sporting Goods (Div 006)
|
***%
|
Housewares (Div 008)
|
***%
|
Tools (Div 009)
|
***%
|
Floorcare, Sewing (Div 020)
|
***%
|
Cooking And Cleanup (Div 022)
|
***%
|
Laundry (Div 026)
|
***%
|
Plumbing & Heating (Div 042)
|
***%
|
Food Storage (Div 046)
|
***%
|
Baby Furniture – Children’s Hardlines
|
***%
|
Audio/Visual (Div 057)
|
***%
|
Lawn, Garden, Patio (Div 071)
|
***%
|
Mattresses (Div 082)
|
***%
|
Source and Merchandise Description
|
Base Price
|
Kmart
—all items in all categories of MOS, including all product sold by Kmart.com that is returned to Kmart stores.
|
Per pallet $
***
|
Lands’ End
—all items in all categories of MOS (Apparel) and all items in all categories of MOS shoes, including all product sold by LandsEnd.com that is returned to Sears stores.
|
Per item $
***
Per item $
***
|
Sears, Roebuck and Co. (including Sears.com)
—all items in all categories of MOS (Apparel), including all product sold by Sears.com that is returned to Sears stores. *
|
Per item $
***
|
Store #
|
Location
|
Address
|
City
|
State
|
Country
|
1992
|
TAMUNING - D
|
404 N MARINE CORPS DR
|
TAMUNING
|
GU
|
Guam
|
2151
|
ST CROIX - D
|
93A ESTATE DIAMOND
|
ST CROIX
|
VI
|
US Virgin Islands
|
2270
|
HOMEWOOD - D
|
17550 HALSTEAD
|
HOMEWOOD
|
IL
|
USA
|
9016
|
ST THOMAS - D
|
CHARLOTTE AMALIE
|
ST THOMAS
|
VI
|
US Virgin Islands
|
2725
|
LIHUE – D
|
4303 NAWILIWILI RD
|
LIHUE
|
HI
|
USA
|
1420
|
BIG BEAR LAKE - D
|
42126 BIG BEAR LAKE
|
BIG BEAR LAKE
|
CA
|
USA
|
5205
|
BRIDGEHAMPTON - D
|
2044 MONTAUK HWY
|
BRIDGEHAMPTON
|
NY
|
USA
|
5078
|
KEARNY - D
|
200 PASSAIC AVE
|
KEARNY
|
NJ
|
USA
|
5170
|
LAS VEGAS - D
|
5051 E BONANZA RD
|
LAS VEGAS
|
NV
|
USA
|
2573
|
PASSAIC - D
|
24 34 BARBOUR AVENUE
|
PASSAIC
|
NJ
|
USA
|
1.
|
Amendments
. As of the Amendment Date, the Agreement shall be modified as set forth below:
|
a.
|
Ancillary Agreements
. The definition of “Ancillary Agreements” in
Section 1.1
of the Agreement is amended by adding a new subsection (viii) as follows:
|
b.
|
Additional Cooperation
. A new
Section 12.2
is added to the Agreement as follows:
|
c.
|
Schedule 12.2(g)
.
A new
Schedule 12.2(g)
is added to the Agreement as set forth on
Appendix #1
hereto:
|
2.
|
Condition Precedent
. It is a condition precedent to the effectiveness of this Amendment that the parties (or their Affiliates, as applicable) also execute (collectively the “
Related Amendments
”): (a) that certain Amendment #2 to Merchandising Agreement, (b) that certain Amendment No. 1 to Services Agreement, (c) that certain Amendment No. 1 to Store License Agreement (Outlet), and (d) that certain Supplemental Agreement.
|
3.
|
No Other Amendments
. Except as expressly amended herein, the Agreement and the Ancillary Agreements shall continue in full force and effect, in accordance with its terms, without any waiver, amendment or other modification of any provision thereof, including the parties’ choice of Illinois law (pursuant to
Section 14.10(a)
of the Agreement) which also applies to this Amendment.
|
Property Name
|
Format
|
Lease Type
|
West Babylon NY
|
OUT
|
Sublease
|
West Covina CA
|
OUT
|
Sublease
|
Tampa FL
|
OUT
|
Sublease
|
Tucson AZ
|
OUT
|
Sublease
|
Holyoke MA
|
OUT
|
Lease
|
North Miami Beach FL
|
OUT
|
Sublease
|
Cudahy WI
|
OUT
|
Sublease
|
Bridgeview IL
|
OUT
|
Sublease
|
Chesapeake VA
|
OUT
|
Sublease
|
Englewood CO
|
OUT
|
Sublease
|
Henderson NV
|
OUT
|
Lease
|
Bloomfield MI
|
OUT
|
Sublease
|
Raleigh NC
|
OUT
|
Lease
|
Greensboro NC
|
OUT
|
Lease
|
El Monte CA
|
OUT
|
Sublease
|
Concord NC
|
OUT
|
Lease
|
Norfolk VA
|
OUT
|
Lease
|
Pittsburgh PA ORDC
|
OUT
|
Lease
|
Pearl City HI ORDC
|
OUT
|
Sublease
|
Cupey Bajo PR ORC
|
OUT
|
Lease
|
San Diego CA ORDC
|
OUT
|
Lease
|
Nashville TN ORDC
|
OUT
|
Lease
|
Santa Ana CA ORDC
|
OUT
|
Lease
|
Jacksonville FL
|
OUT
|
Lease
|
Shoreline WA
|
OUT
|
Lease
|
Hendersonville TN
|
OUT
|
Sublease
|
Minneapolis MN
|
OUT
|
Lease
|
St.Petersburg FL ORDC
|
OUT
|
Lease
|
Melrose Park IL ORDC
|
OUT
|
Lease
|
Tucker GA ORDC
|
OUT
|
Lease
|
Winter Park FL ORDC
|
OUT
|
Lease
|
Richmond VA ORDC
|
OUT
|
Lease
|
Sacramento CA ORDC
|
OUT
|
Sublease
|
Sparks NV
|
OUT
|
Lease
|
Hayward CA
|
OUT
|
Sublease
|
Houston TX ORDC
|
OUT
|
Lease
|
Wauwatosa WI
|
OUT
|
Sublease
|
Issue
|
Claims Made By SHO
|
1.
Relationship
|
Claims that SHO should not expect SHLD to perform as a normal service provider—SHLD has said, and acted in ways that indicate, that it doesn’t want SHO’s services business.
|
2.
Authority to negotiate and enter into agreements
|
Claims that SHO has in good faith negotiated agreements with SHLD and then is told that unspecified “others” at SHLD have rejected the negotiated terms for reasons unrelated to the negotiated agreements. SHO does not understand who is empowered to negotiate the terms of, and enter into, binding agreements on SHLD’s behalf.
|
3.
Pricing and promotional information
|
Claims that SHLD has refused to deliver the information, has delivered the information late, or has delivered inaccurate information.
|
4.
MOS apparel
|
•
Claims that SHLD has delayed delivery dates with inadequate notice, resulting in SHO’s inability to efficiently schedule labor, allocate selling-floor space, and plan sales volumes.
•
Claims that SHLD has diverted merchandise to liquidators.
|
5.
IBM Charges
|
Claims that SHLD has overcharged SHO approximately $2.2M from separation through April 2013, and the overcharges continue.
|
6.
Outlet HA Product
|
Claims that SHLD has prior to the Effective Date refused to sell to SHO at the prices specified in the Merchandising Agreement the following categories of DRM merchandise: (1) transitions (displays); (2) web order cancellations that are not part of SHLD’s Take-It-Home-Today program; and (3) customer returns that are not otherwise subject to the Merchandising Agreement.
|
7.
Clearance centers
|
Claims that SHLD prior to the Effective Date aggregated DRM merchandise in SHLD Outlet clearance centers, which violate the Merchandising Agreement.
|
8.
Kenmore Save-A-Sale
|
Claims that SHO and KCD agreed post-separation to this promotional initiative to increase Kenmore sales, including royalty rebates and fixture reimbursement. SHO incurred expense in reliance on the agreement. SHLD has failed to honor the agreement.
|
9.
Subsidy sharing
|
Claims that SHLD on numerous occasions has attempted to avoid sharing with SHO subsidies that SHLD is obligated to share in accordance with the Merchandising Agreement.
|
10.
Outlet’s costs for Outlet merchandise
|
•
Claims that SHLD has overcharged SHO $1.1M through week 10 by calculating pricing to SHO using landed cost rather than core cost and continues to do so.
•
Claims that SHLD has overcharged SHO $1.6M through week 10 by calculating pricing to SHO for KCD products using higher non-KCD-product pricing and continues to do so.
|
11.
Trade Area Restriction
|
Claims that SHLD recently announced that it is closing its Christianburg, VA, Chicago-79
th
Street, and Chicago-Western stores. Claims that SHLD then notified SHO that SHLD intends to continue its retail presence in the trade areas for these stores. Claims that SHLD’s notification blocks SHO’s opportunity to expand into, and maintain a physical “Sears” presence in, these markets.
|
12.
Real estate
|
•
Claims that Subleases and related documents were withheld until immediately prior to separation; documentation does not include commercially reasonable terms and are not consistent with status quo pre-separation.
•
Claims that SHO had limited time review the leases and subleases between the parties and that such limited review time is a basis for changing what the parties agreed to.
•
Claims that SHLD has demanded charges post-separation that were either not charged pre-separation or the post-separation charges are significantly greater than pre-separation charges. Most of these charges were not addressed at the Steering Committee, and they were not contemplated when determining the Duff & Phelps valuation.
•
Claims that SHLD’s subleases do not permit subleasing to SHO’s franchisees. These restrictions, which were not addressed pre-separation at the Steering Committee, restrict SHO’s franchising initiative for more than 60 Outlet Store locations.
•
Claims that SHLD’s claims that SHO is responsible for SHLD’s failures to maintain, prior to the separation, premises that SHLD has subleased to SHO (roof, HVAC, and other major tenant repairs).
•
Claims that SHLD refuses to acknowledge SHO’s request to extend leases.
•
Claims that SHLD refused to agree to SHO’s requested 60-day extension for the Newark, DE ORDC.
•
Claims that SHLD refuses to negotiate leases extensions for former TGI premises; SHO’s offered renewal terms are the same as the terms approved pre-separation by SHLD’s CAPCON.
•
Claims that SHLD refuses to allow Outlet to temporarily use adjoining unused and unleased space in premises that SHO has leased from SHLD.
|
13.
MetaScale agreement
|
Claims that SHLD (1) demanded, unreasonably, that SHO provide adequate assurance of SHO’s due performance and (2) suspended contract work.
•
SHLD’s demand is based apparently on SHO’s assertion (made in good faith) that it did not have to pay IBM charges in excess of the $9.6M for IT services specified in the Services Agreement.
•
Charges have been the subject of a good faith dispute, and were paid promptly in full, prior to the delivery of the request for adequate assurance.
Claims that SHLD’s work stoppage has delayed implementation of the contract work. Claims that SHLD’s unjustified demand raises legitimate SHO concerns about SHLD’s reliability as a service provider.
|
14.
HR training materials
|
Claims that SHLD has refused to consistently give to SHO training materials in accordance with the applicable agreements.
|
15.
IT services
|
Claims that SHLD’s service levels have been substandard.
|
16.
Craftsman Lifetime Warranty Exchange
|
Claims that SHO was not obligated to perform Craftsman Lifetime Warranty Exchanges and Claims that SHO was entitled to reimbursement for such exchanges prior to October 6, 2013.
|
17.
Written Agreement
|
Claims by SHO that SHO is able to proceed without Seller’s written agreement when the applicable agreement between the parties state that “and Buyer and Seller agree in writing.”
|
18.
Blue Label MOS Apparel
|
Claims that SHLD was improperly sending SHO damaged or defective (Blue Label) goods as part of MOS
|
19.
Outlet Warranty Charges
|
Claims that SHLD’s charges for Outlet Products improperly included charges for warranty.
|
Issue
|
Claims Made By Sears Holdings
|
1.
Hybrid Delivery Issue
|
Claims that SHLD has overpaid SHO for Hybrid Deliveries for orders originating from SHLD’s Affiliates stores.
|
2.
Outlet Increased sale of New Products
|
Claims that SHO’s increase in the amount of new products sold at Outlets (new products, increased SCIM, etc.) prior to the Effective Date are in violation of the Outlet License Agreement.
|
3.
Franchising
|
Claims that SHO has been pursuing franchises of Sears Outlet without SHLD’s permission in violation of the Outlet License Agreement.
|
4.
2012 IT Service Charges
|
Claims that SHO has refused to pay the same rate for project IT Services that SHLD pays.
|
5.
Certain Real Estate Leases
|
For the properties listed on
Schedule 12.2(h)
to the Separation Agreement, claims that SHO failed to pay amounts under the leases for those properties which are allocated to SHLD as its responsibility under the Separation Amendment.
|
6.
New HTS Stores within 5-8 miles
|
Claims that SHO opened the specific stores listed in Section 1.(d)(i) to the Merchandise Amendment in violation of Section 9(b)(i)(C) of the Merchandise Agreement.
|
Issue
|
Open Issues
|
1.
Excess Inventory and Storage Fees
|
Claims that SHO is not properly incented to control its demand forecast to SHC because SHC bears the carrying costs on DC inventory for SHO.
|
2.
Clearance centers
|
Claims that SHLD is not permitted to open “Clearance Centers.”
|
3.
Outlet Products
|
All Claims related to SHLD’s on-going investigation into how SHO was charged for Outlet Products; except those claims expressly included in the Released Claims. For example, SHLD has notified SHO that SHLD has determined: (1) that in some instances, the DRM discount was applied more than once to an Outlet Product (2) SHO received a credit for DRM products not sold to SHO), and (3) SHO received excess credits when products were returned.
|
4.
CRC
Pick-Up Timeframes
|
Claims that SHO has not been picking up freight from the CRC in a timely manner.
|
5.
Selective Acceptance by SHO of DRM From CRC
|
Claims that
SHO has been selectively rejecting certain goods from the CRC (e.g., Tempur-Pedic)
|
6.
Damaged Goods
|
Claims that SHO
been unilaterally taking markdowns for damaged DRM.
|
7.
W2S Expansion (All Formats)
|
Claims that SHC has refused to provide W2S services for SHO’s Outlet Store and Home Appliance Showroom locations, including SHLD’s proposals for altering the economics between the parties related for all Web 2 Store transactions, including hybrid deliveries which originate online.
|
8.
Outlet HA Product
|
Claims after the Effective Date that SHLD is obligated to sell SHO
the following categories of DRM merchandise: (1) transitions (displays); (2) web order cancellations that are not part of SHLD’s Take-It-Home-Today program; and (3) customer returns that are not otherwise subject to the Merchandising Agreement.
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
December 10, 2013
|
|
|
|
|
/s/ W. Bruce Johnson
|
|
|
W. Bruce Johnson
|
|
|
|
|
|
Chief Executive Officer and President
|
|
|
Sears Hometown and Outlet Stores, Inc.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Sears Hometown and Outlet Stores, Inc.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
December 10, 2013
|
|
|
|
|
/s/ Steven D. Barnhart
|
|
|
Steven D. Barnhart
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
Sears Hometown and Outlet Stores, Inc.
|
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
December 10, 2013
|
|
|
|
|
|
/s/ W. Bruce Johnson
|
|
|
W. Bruce Johnson
|
|
|
Chief Executive Officer and President
|
|
/s/ Steven D. Barnhart
|
|
|
Steven D. Barnhart
|
|
|
Senior Vice President and
|
|
|
Chief Financial Officer
|
|