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ý
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE 52 WEEKS ENDED FEBRUARY 1, 2014
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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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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market
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Large accelerated filer
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¨
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Accelerated filer
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ý
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Non-accelerated filer
(Do not check if a smaller reporting company)
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¨
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Smaller reporting company
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¨
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Page
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Financial Statements and Supplementary Data
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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•
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Hometown Stores
. Our Hometown Stores offer products and services across a wide selection of merchandise categories, including home appliances, lawn and garden equipment, tools, sporting goods, and household goods, with the majority of business driven by big-ticket home appliance and lawn and garden sales. Most of our Hometown Stores carry Sears brand products, including products branded with the KENMORE
®
, CRAFTSMAN
®
, and DIEHARD
®
marks (which marks are owned by subsidiaries of Sears Holdings and are collectively referred to as the "KCD Marks"), and an assortment of other national brands. Primarily independently operated, predominantly located in smaller communities and averaging approximately 8,500 square feet, Hometown Stores are designed to serve trade areas that may not support a full-service big-box retailer. As of February 1, 2014, there were 931 Hometown Stores in all 50 states, Puerto Rico and Bermuda. 926 of these stores are operated by independent dealers and five stores are operated by us.
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•
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Hardware Stores
. Our Hardware Stores offer products and services across a wide selection of merchandise categories with sales primarily driven by home appliances, lawn and garden equipment, tools, and other home improvement products. In addition, these stores offer certain proprietary in-store services, such as blade sharpening, key cutting and screen repair, as well as products typically found in local hardware stores, such as fasteners, electrical supplies and plumbing supplies. Our Hardware Stores have operated as two formats: “traditional” and “neighborhood”, with size being the differentiating factor between the two formats. Our “traditional” Hardware Stores average nearly 28,000 square feet in size. Our “neighborhood” Hardware Stores are much smaller in size, averaging 16,000 to 18,000 square feet, and yet, through our multichannel
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•
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Home Appliance Showrooms
. Our Home Appliance Showrooms offer home appliances and related services in stores primarily located in strip malls and lifestyle centers of metropolitan areas. Averaging 5,000 square feet with a simple, primarily appliance showroom design, our Home Appliance Showrooms offer quality-focused customers a unique store shopping experience. Home Appliance Showroom sales are primarily driven by big-ticket cooking, laundry and refrigeration home appliances as well as, in certain stores, mattresses. These stores carry Kenmore and other national brands of home appliances. As of February 1, 2014, there were 101 Home Appliance Showrooms in 23 states. 83 of these stores are operated by franchisees, 16 stores are operated by us and two are operated by independent dealers.
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Inventory procurement from third-party vendors, including KCD Products and other products which collectively account for a majority of our revenue;
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Logistical, supply chain and inventory support services;
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Accounting and financial reporting services;
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Environmental and safety program, risk management, tax, and insurance services;
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Online, computer and information technology infrastructure (including the point-of-sale system used by the Company and its dealers and franchisees) and support;
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Payroll and certain employee-related services;
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Our websites are hosted and maintained by a subsidiary of Sears Holdings and purchases made on our websites are processed by a subsidiary of Sears Holdings;
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Certain of our store leases and the leases for stores that we have subleased, or in the future may sublease, to franchisees or others are leased or subleased to us by subsidiaries of Sears Holdings until their expiration at which time we will be required to renegotiate with the landlords directly;
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Our stores continue to use the Sears brand name, and other intellectual property owned by Sears Holdings through our license agreements with Sears Holdings;
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Our stores continue to participate in the SYW program and rely on the customer data and other information provided by the SYW program; and
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Our stores continue to accept Sears-branded credit cards.
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Our pre-Separation historical financial information reflects the results of operations, financial positions, and cash flows of Sears Hometown and Hardware and Sears Outlet prior to their consolidation into SHO, which may not reflect the results of operations, financial positions, and cash flows of SHO as a single combined business entity;
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Our pre-Separation historical financial information does not reflect changes resulting from the integration of Sears Hometown and Hardware and Sears Outlet into a single combined entity, including changes in the cost structure, personnel needs, financing, and operation of our business;
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Our pre-Separation historical financial information reflects assumptions made by Sears Holdings and allocations for certain services and expenses historically provided to us by Sears Holdings. Those assumptions and allocations may not reflect the costs and expenses we would have incurred or will incur as a separate company; and
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Our pre-Separation historical financial information does not reflect changes resulting from the Separation, including changes in the cost structure, personnel needs, financing, and operations of our business.
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availability and allocation of merchandise and subsidies from Sears Holdings and from third-party suppliers;
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business opportunities that may be attractive to both Sears Holdings and us;
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the nature, quality and pricing of services Sears Holdings has agreed to provide to us;
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labor, tax, employee benefit, real estate (including sublease obligations) and other matters arising from the Separation;
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defense and indemnification arising from losses caused by Sears Holdings;
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major business combinations involving us;
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employee retention and recruiting;
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SHO's intellectual property rights;
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the extent of SHO's rights to conduct multi-channel retailing; and
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competition between our stores and websites and Sears Holdings’ stores and websites.
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Expansion into the suburban and rural trade areas in which many of our stores operate;
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Lower pricing;
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Offering free delivery and installation of merchandise;
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Expanding online sales;
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Extension of credit to customers on terms more favorable than we offer; and
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Larger store size, which may result in greater operational efficiencies, or innovative store formats, and use of disruptive technology.
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Actions by our competitors, including opening of new stores in our existing trade areas or changes to the way these competitors conduct business online;
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The availability on commercially reasonable terms of the various types of inventory that we need to sell for the profitable operation of our stores;
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Changes in our merchandise strategy and mix;
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Real estate and maintenance costs for our existing stores (including disagreements between SHO and Sears Holdings regarding their respective responsibilities for these costs);
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Changes in population and other demographics;
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Timing and effectiveness of our promotional events;
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Weather conditions, including level of rainfall, particularly drought, level of snowfall, average temperature, major storms, and delays in, or advances to, the start of seasonal changes; and
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The availability of locations for new stores that can be operated profitability by the Company and by our dealers and franchisees.
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our ability to satisfy obligations to lenders may be impaired, resulting in possible defaults on and acceleration of our indebtedness;
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our ability to obtain additional financing for refinancing of existing indebtedness, working capital, capital expenditures, product and service development, acquisitions, general corporate purposes and other purposes may be impaired;
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a substantial portion of our cash flow from operations could be dedicated to the payment of the principal and interest on our debt;
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we may be increasingly vulnerable to economic downturns and increases in interest rates;
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our flexibility in planning for and reacting to changes in our business and the retail industry may be limited; and
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we may be placed at a competitive disadvantage relative to other companies in our industry.
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Our business profile and market capitalization may not continue to fit the investment objectives of some stockholders and, as a result, these stockholders may sell our shares;
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Actual or anticipated fluctuations in our operating results due to factors related to our business;
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Our ability to decrease our reliance on products and services provided by Sears Holdings and ability to diversify our supply chain;
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Success or failure of our business strategy;
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Our relationship with Sears Holdings;
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Actual or anticipated changes in the U.S. economy or the retailing environment;
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Our quarterly or annual earnings, or those of other companies in our industry;
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Our ability to obtain third-party financing as needed;
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Announcements by us or our competitors of significant acquisitions or dispositions;
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The failure of securities analysts to cover our common stock;
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Changes in earnings estimates by securities analysts or our ability to meet those estimates;
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The operating and stock price performance of other comparable companies;
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Overall market fluctuations;
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Changes in laws and regulations affecting our business;
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Actual or anticipated sales or distributions of our capital stock by our officers, directors or significant stockholders;
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Terrorist acts or wars; and
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General economic conditions and other external factors.
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Store Openings & Closures
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Fiscal Year
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2011
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2012
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2013
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Beginning Store Count (1)
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1,205
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1,275
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1,245
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Store Openings
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96
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53
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68
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Store Closures (2)
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(27
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)
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(83
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)
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(53
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)
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Ending Store Count
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1,274
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1,245
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1,260
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Hometown
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Outlet
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Company Operated
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Dealer/Franchise
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Company Operated
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Franchise
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BR
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Bermuda
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—
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1
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—
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—
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AK
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Alaska
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—
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1
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—
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—
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AL
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Alabama
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—
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32
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1
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—
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AR
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Arkansas
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—
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33
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—
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—
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AZ
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Arizona
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—
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16
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3
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2
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CA
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California
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—
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46
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13
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4
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CO
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Colorado
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1
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20
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4
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—
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CT
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Connecticut
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1
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6
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2
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—
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DC
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Washington, DC
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—
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1
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—
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—
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DE
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Delaware
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—
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5
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1
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—
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FL
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Florida
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1
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31
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8
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5
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GA
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Georgia
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1
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37
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4
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—
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HI
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Hawaii
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—
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1
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1
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—
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IA
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Iowa
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—
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20
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—
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—
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ID
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Idaho
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—
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7
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—
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—
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IL
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Illinois
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3
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38
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10
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—
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IN
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Indiana
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1
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37
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|
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1
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|
1
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KS
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Kansas
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—
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23
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|
|
1
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|
1
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KY
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Kentucky
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1
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25
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|
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2
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—
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LA
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Louisiana
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—
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23
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|
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1
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—
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MA
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Massachusetts
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—
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|
10
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3
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—
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MD
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Maryland
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2
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7
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3
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—
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ME
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Maine
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—
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11
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—
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—
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MI
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Michigan
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—
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|
39
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6
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|
—
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MN
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Minnesota
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—
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|
35
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|
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2
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|
—
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MO
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Missouri
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2
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|
43
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|
|
—
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|
3
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|
MS
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Mississippi
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—
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|
26
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|
|
—
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|
—
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MT
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Montana
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—
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|
9
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|
|
—
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|
—
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NC
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North Carolina
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—
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|
40
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|
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4
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|
—
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ND
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North Dakota
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—
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|
5
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|
|
—
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|
—
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NE
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Nebraska
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—
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|
11
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|
|
—
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|
—
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NH
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New Hampshire
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—
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|
8
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|
|
—
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|
—
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NJ
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New Jersey
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3
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|
14
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|
|
4
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|
—
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NM
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New Mexico
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—
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|
10
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|
|
—
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|
—
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NV
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Nevada
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—
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|
6
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|
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3
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|
—
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NY
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New York
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4
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23
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|
|
4
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|
—
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OH
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Ohio
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4
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40
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|
|
8
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|
—
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OK
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Oklahoma
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—
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21
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|
|
—
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|
—
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OR
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Oregon
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—
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|
23
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|
|
2
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|
—
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PA
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Pennsylvania
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2
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|
30
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|
|
5
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|
—
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|
PR
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Puerto Rico
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—
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|
10
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|
|
1
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|
—
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|
RI
|
Rhode Island
|
—
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|
3
|
|
|
—
|
|
—
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|
SC
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South Carolina
|
—
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|
15
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|
|
1
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|
—
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|
SD
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South Dakota
|
—
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|
5
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|
|
—
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|
—
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|
TN
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Tennessee
|
—
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|
22
|
|
|
3
|
|
—
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|
TX
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Texas
|
1
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|
108
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|
|
4
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|
12
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|
UT
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Utah
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2
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|
9
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|
|
—
|
|
—
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|
VA
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Vermont
|
—
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|
24
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|
|
4
|
|
—
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|
VT
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Virginia
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—
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|
9
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|
|
—
|
|
—
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|
WA
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Washington
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1
|
|
20
|
|
|
3
|
|
—
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|
WI
|
West Virginia
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—
|
|
32
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|
|
3
|
|
—
|
|
WV
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Wisconsin
|
—
|
|
9
|
|
|
—
|
|
—
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|
WY
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Wyoming
|
—
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|
7
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|
|
—
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|
—
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Total
|
30
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|
1,087
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|
|
115
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|
28
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|
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Hometown
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Outlet
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Company operated stores owned
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—
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3
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Leased
|
30
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|
112
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Total company operated
|
30
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|
115
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|
|
|
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Independently owned and operated
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1,087
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|
28
|
|
|
|
|
Total store count as of February 1, 2014
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1,117
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|
143
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Name
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Age
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Position
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W. Bruce Johnson
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62
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Chief Executive Officer, President and Director
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Steven D. Barnhart
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52
|
|
|
|
Senior Vice President and Chief Financial Officer
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William A. Powell
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43
|
|
|
|
Senior Vice President and Chief Operating Officer
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John E. Ethridge II
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|
|
41
|
|
|
|
Vice President, Supply Chain and Technology
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Charles J. Hansen
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|
|
66
|
|
|
|
Vice President, General Counsel, and Secretary
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Becky Iliff
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|
|
45
|
|
|
|
Vice President, Human Resources
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2013
|
|
High
|
|
Low
|
||||
First Quarter
|
|
$
|
46.50
|
|
|
$
|
35.89
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|
Second Quarter
|
|
57.44
|
|
|
38.72
|
|
||
Third Quarter
|
|
44.91
|
|
|
26.90
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|
||
Fourth Quarter
|
|
32.86
|
|
|
20.51
|
|
||
|
|
|
|
|
||||
2012
|
|
High
|
|
Low
|
||||
First Quarter
|
|
$
|
—
|
|
|
$
|
—
|
|
Second Quarter
|
|
—
|
|
|
—
|
|
||
Third Quarter
|
|
34.85
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|
|
30.25
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|
||
Fourth Quarter
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|
40.39
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|
|
29.77
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|
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
|
||||||
November 3, 2013 to November 30, 2013
|
12,651
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|
|
$
|
27.60
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|
|
12,651
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|
|
$
|
16,280,734
|
|
December 1, 2013 to January 4, 2014
|
142,500
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|
|
26.70
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|
|
142,500
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|
|
12,475,480
|
|
||
January 5, 2014 to February 1, 2014
|
—
|
|
|
—
|
|
|
—
|
|
|
12,475,480
|
|
||
For the quarter ended February 1, 2014
|
155,151
|
|
|
$
|
26.78
|
|
|
155,151
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
10/12/2012
|
|
10/27/2012
|
|
2/2/2013
|
|
5/4/2013
|
|
8/3/2013
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|
11/2/2013
|
|
2/1/2014
|
|
|||||||
SHOS
|
$
|
100.000
|
|
$
|
113.592
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|
$
|
131.649
|
|
$
|
148.501
|
|
$
|
144.003
|
|
$
|
88.266
|
|
$
|
68.416
|
|
|
S&P 500 INDEX
|
$
|
100.000
|
|
$
|
98.835
|
|
$
|
105.921
|
|
$
|
113.008
|
|
$
|
119.675
|
|
$
|
123.313
|
|
$
|
124.780
|
|
|
S&P 500 RETAILING INDEX
|
$
|
100.000
|
|
$
|
99.333
|
|
$
|
108.670
|
|
$
|
117.899
|
|
$
|
131.966
|
|
$
|
138.247
|
|
$
|
134.639
|
|
|
|
Fiscal Year
|
||||||||||||||||||
thousands, except for per share amounts and number of stores
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
||||||||||
Consolidated Statement of Income Data (1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net sales
|
|
$
|
2,421,562
|
|
|
$
|
2,453,606
|
|
|
$
|
2,344,199
|
|
|
$
|
2,347,387
|
|
|
$
|
2,329,925
|
|
Net income
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
|
$
|
49,756
|
|
|
$
|
60,115
|
|
Per Common Share (2)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
1.55
|
|
|
$
|
2.60
|
|
|
$
|
1.43
|
|
|
$
|
2.15
|
|
|
$
|
2.60
|
|
Diluted
|
|
$
|
1.55
|
|
|
$
|
2.60
|
|
|
$
|
1.43
|
|
|
$
|
2.15
|
|
|
$
|
2.60
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
|
$
|
847,185
|
|
|
$
|
785,803
|
|
|
$
|
651,838
|
|
|
$
|
641,441
|
|
|
$
|
629,415
|
|
Long-term debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Long-term capital lease obligations
|
|
$
|
95
|
|
|
$
|
769
|
|
|
$
|
1,937
|
|
|
$
|
3,998
|
|
|
$
|
6,209
|
|
Other Financial and Operational Data
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted EBITDA (3)
|
|
$
|
71,514
|
|
|
$
|
109,796
|
|
|
$
|
80,919
|
|
|
$
|
93,864
|
|
|
$
|
108,723
|
|
Number of stores
|
|
1,260
|
|
|
1,245
|
|
|
1,275
|
|
|
1,205
|
|
|
1,166
|
|
|||||
Sears Outlet - Comparable Store Sales %
|
|
1.2
|
%
|
|
(0.8
|
)%
|
|
8.7
|
%
|
|
(0.4
|
)%
|
|
1.3
|
%
|
|||||
Sears Hometown and Hardware - Comparable Store Sales %
|
|
(3.2
|
)%
|
|
1.0
|
%
|
|
(6.1
|
)%
|
|
(3.7
|
)%
|
|
(5.9
|
)%
|
(1)
|
Our fiscal year end is the Saturday closest to January 31 each year. Fiscal year 2012 was a 53-week year and fiscal years 2013, 2011, 2010, and 2009 were 52-week years.
|
(2)
|
23,100,000 shares outstanding effective upon completion of the Separation are used for all periods prior to the Separation.
|
(3)
|
Adjusted EBITDA
—In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance, we use Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or “Adjusted EBITDA,” which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA, among other metrics, to evaluate the operating performance of our business for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items, and may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA should not be considered as a substitute for GAAP measurements.
|
•
|
EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
|
•
|
Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results.
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2013
|
|
2012
|
|
2011
|
||||||
Net income
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
Income tax expense
|
|
24,333
|
|
|
39,900
|
|
|
21,727
|
|
|||
Other income
|
|
(1,854
|
)
|
|
(1,354
|
)
|
|
(422
|
)
|
|||
Interest expense (income)
|
|
3,046
|
|
|
899
|
|
|
913
|
|
|||
Operating income
|
|
61,075
|
|
|
99,525
|
|
|
55,274
|
|
|||
Depreciation
|
|
12,006
|
|
|
9,474
|
|
|
9,774
|
|
|||
Store closing charges and severance costs (1)
|
|
—
|
|
|
797
|
|
|
15,871
|
|
|||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
—
|
|
|||
Adjusted EBITDA
|
|
$
|
71,514
|
|
|
$
|
109,796
|
|
|
$
|
80,919
|
|
(1)
|
See Note 6 to our Consolidated Financial Statements included herein.
|
•
|
931 Hometown Stores—Primarily independently operated stores, predominantly located in smaller communities and offering home appliances, lawn and garden equipment, tools, sporting goods, and household goods. Most of our Hometown Stores carry proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands.
|
•
|
85 Hardware Stores—Hardware stores that offer primarily home appliances, lawn and garden equipment, tools, and other home improvement products, and featuring Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands. 83 of these locations offer a selection of Kenmore and other national brands of home appliances.
|
•
|
101 Home Appliance Showrooms—Stores that have a simple, primarily appliance showroom design that are positioned in metropolitan areas.
|
thousands
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Fiscal Year Total
|
||||||||||
|
2013
|
||||||||||||||||||
Hometown
|
$
|
2,247
|
|
|
$
|
774
|
|
|
$
|
1,607
|
|
|
$
|
908
|
|
|
$
|
5,536
|
|
Outlet
|
2,965
|
|
|
989
|
|
|
6,175
|
|
|
9,942
|
|
|
20,071
|
|
|||||
Total
|
$
|
5,212
|
|
|
$
|
1,763
|
|
|
$
|
7,782
|
|
|
$
|
10,850
|
|
|
$
|
25,607
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
2012
|
||||||||||||||||||
Hometown
|
$
|
5,008
|
|
|
$
|
4,639
|
|
|
$
|
1,511
|
|
|
$
|
—
|
|
|
$
|
11,158
|
|
Outlet
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
5,008
|
|
|
$
|
4,639
|
|
|
$
|
1,511
|
|
|
$
|
—
|
|
|
$
|
11,158
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
2011
|
||||||||||||||||||
Hometown
|
$
|
1,800
|
|
|
$
|
814
|
|
|
$
|
6,467
|
|
|
$
|
2,550
|
|
|
$
|
11,631
|
|
Outlet
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
1,800
|
|
|
$
|
814
|
|
|
$
|
6,467
|
|
|
$
|
2,550
|
|
|
$
|
11,631
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
|
|
Ended
|
|
Weeks
|
2013
|
|
February 1, 2014
|
|
52
|
2012
|
|
February 2, 2013
|
|
53
|
2011
|
|
January 28, 2012
|
|
52
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2013
|
|
2012
|
|
2011
|
||||||
NET SALES
|
|
$
|
2,421,562
|
|
|
$
|
2,453,606
|
|
|
$
|
2,344,199
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,843,418
|
|
|
1,840,207
|
|
|
1,820,516
|
|
|||
Gross margin
|
|
578,144
|
|
|
613,399
|
|
|
523,683
|
|
|||
Margin rate
|
|
23.9
|
%
|
|
25.0
|
%
|
|
22.3
|
%
|
|||
Selling and administrative
|
|
506,630
|
|
|
504,400
|
|
|
458,635
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
20.9
|
%
|
|
20.6
|
%
|
|
19.6
|
%
|
|||
Depreciation
|
|
12,006
|
|
|
9,474
|
|
|
9,774
|
|
|||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
—
|
|
|||
Total costs and expenses
|
|
2,360,487
|
|
|
2,354,081
|
|
|
2,288,925
|
|
|||
Operating income
|
|
61,075
|
|
|
99,525
|
|
|
55,274
|
|
|||
Interest income (expense)
|
|
(3,046
|
)
|
|
(899
|
)
|
|
(913
|
)
|
|||
Other income
|
|
1,854
|
|
|
1,354
|
|
|
422
|
|
|||
Income before income taxes
|
|
59,883
|
|
|
99,980
|
|
|
54,783
|
|
|||
Income tax expense
|
|
(24,333
|
)
|
|
(39,900
|
)
|
|
(21,727
|
)
|
|||
NET INCOME
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
•
|
EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and
|
•
|
Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results.
|
|
|
Fiscal
|
||||||||||
thousands
|
|
2013
|
|
2012
|
|
2011
|
||||||
Net income
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
Income tax expense
|
|
24,333
|
|
|
39,900
|
|
|
21,727
|
|
|||
Other income
|
|
(1,854
|
)
|
|
(1,354
|
)
|
|
(422
|
)
|
|||
Interest expense (income)
|
|
3,046
|
|
|
899
|
|
|
913
|
|
|||
Operating income
|
|
61,075
|
|
|
99,525
|
|
|
55,274
|
|
|||
Depreciation
|
|
12,006
|
|
|
9,474
|
|
|
9,774
|
|
|||
Store closing charges and severance costs (1)
|
|
—
|
|
|
797
|
|
|
15,871
|
|
|||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
—
|
|
|||
Adjusted EBITDA
|
|
$
|
71,514
|
|
|
$
|
109,796
|
|
|
$
|
80,919
|
|
(1)
|
See Note 6 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
|
|
|
Fiscal Year
|
||||||||||
thousands, except for number of stores
|
|
2013
|
|
2012
|
|
2011
|
||||||
Net sales
|
|
$
|
1,811,519
|
|
|
$
|
1,889,263
|
|
|
$
|
1,838,797
|
|
Comparable store sales %
|
|
(3.2
|
)%
|
|
1.0
|
%
|
|
(6.1
|
)%
|
|||
Cost of sales and occupancy
|
|
1,389,627
|
|
|
1,433,880
|
|
|
1,463,636
|
|
|||
Gross margin
|
|
421,892
|
|
|
455,383
|
|
|
375,161
|
|
|||
Margin rate
|
|
23.3
|
%
|
|
24.1
|
%
|
|
20.4
|
%
|
|||
Selling and administrative
|
|
396,073
|
|
|
394,335
|
|
|
356,351
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
21.9
|
%
|
|
20.9
|
%
|
|
19.4
|
%
|
|||
Depreciation
|
|
6,321
|
|
|
3,658
|
|
|
4,083
|
|
|||
Total costs and expenses
|
|
1,792,021
|
|
|
1,831,873
|
|
|
1,824,070
|
|
|||
Operating income
|
|
$
|
19,498
|
|
|
$
|
57,390
|
|
|
$
|
14,727
|
|
Total Sears Hometown and Hardware stores
|
|
1,117
|
|
|
1,118
|
|
|
1,158
|
|
|
|
Fiscal
|
||||||||||
thousands, except for number of stores
|
|
2013
|
|
2012
|
|
2011
|
||||||
Net sales
|
|
$
|
610,043
|
|
|
$
|
564,343
|
|
|
$
|
505,402
|
|
Comparable store sales %
|
|
1.2
|
%
|
|
(0.8
|
)%
|
|
8.7
|
%
|
|||
Cost of sales and occupancy
|
|
453,791
|
|
|
406,327
|
|
|
356,880
|
|
|||
Gross margin
|
|
156,252
|
|
|
158,016
|
|
|
148,522
|
|
|||
Margin rate
|
|
25.6
|
%
|
|
28.0
|
%
|
|
29.4
|
%
|
|||
Selling and administrative
|
|
110,557
|
|
|
110,065
|
|
|
102,284
|
|
|||
Selling and administrative expense as a percentage of net sales
|
|
18.1
|
%
|
|
19.5
|
%
|
|
20.2
|
%
|
|||
Depreciation
|
|
5,685
|
|
|
5,816
|
|
|
5,691
|
|
|||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
—
|
|
|||
Total costs and expenses
|
|
568,466
|
|
|
522,208
|
|
|
464,855
|
|
|||
Operating income
|
|
$
|
41,577
|
|
|
$
|
42,135
|
|
|
$
|
40,547
|
|
Total Sears Outlet stores
|
|
143
|
|
|
127
|
|
|
116
|
|
thousands
|
|
Total
|
|
Within
1 Year |
|
1-3
Years |
|
4-5
Years |
|
After 5
Years |
||||||||||
Short-term borrowings
|
|
$
|
99,100
|
|
|
$
|
99,100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
|
757
|
|
|
662
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|||||
Operating leases
|
|
239,523
|
|
|
60,321
|
|
|
98,752
|
|
|
54,504
|
|
|
25,946
|
|
|||||
Total Contractual Obligations
|
|
$
|
339,380
|
|
|
$
|
160,083
|
|
|
$
|
98,847
|
|
|
$
|
54,504
|
|
|
$
|
25,946
|
|
•
|
it requires assumptions to be made about matters that were highly uncertain at the time the estimate was made, and
|
•
|
changes in the estimate that are reasonably likely to occur from period to period or different estimates that could have been selected would have a material effect on our financial condition, cash flows or results of operations.
|
thousands
|
|
February 1,
2014 |
|
February 2,
2013 |
||||
ASSETS
|
|
|
|
|
||||
CURRENT ASSETS
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
23,475
|
|
|
$
|
20,068
|
|
Accounts receivable
|
|
19,252
|
|
|
10,986
|
|
||
Merchandise inventories
|
|
482,107
|
|
|
428,437
|
|
||
Prepaid expenses and other current assets
|
|
13,216
|
|
|
14,321
|
|
||
Total current assets
|
|
538,050
|
|
|
473,812
|
|
||
PROPERTY AND EQUIPMENT, net
|
|
48,973
|
|
|
53,383
|
|
||
GOODWILL
|
|
167,000
|
|
|
167,000
|
|
||
LONG-TERM DEFERRED TAXES
|
|
52,672
|
|
|
69,001
|
|
||
OTHER ASSETS
|
|
40,490
|
|
|
22,607
|
|
||
TOTAL ASSETS
|
|
$
|
847,185
|
|
|
$
|
785,803
|
|
LIABILITIES
|
|
|
|
|
||||
CURRENT LIABILITIES
|
|
|
|
|
||||
Short-term borrowings
|
|
$
|
99,100
|
|
|
$
|
20,000
|
|
Payable to Sears Holdings Corporation
|
|
68,396
|
|
|
79,491
|
|
||
Accounts payable
|
|
24,129
|
|
|
31,830
|
|
||
Other current liabilities
|
|
60,319
|
|
|
83,211
|
|
||
Current portion of capital lease obligations
|
|
662
|
|
|
1,463
|
|
||
Total current liabilities
|
|
252,606
|
|
|
215,995
|
|
||
CAPITAL LEASE OBLIGATIONS
|
|
95
|
|
|
769
|
|
||
OTHER LONG-TERM LIABILITIES
|
|
4,259
|
|
|
2,752
|
|
||
TOTAL LIABILITIES
|
|
256,960
|
|
|
219,516
|
|
||
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY
|
|
|
|
|
||||
Common stock: $.01 par value;
|
|
228
|
|
|
231
|
|
||
Authorized shares: 400,000
|
|
|
|
|
||||
Issued shares: 22,753 and 23,100, respectively
|
|
|
|
|
||||
Outstanding shares: 22,753 and 23,100, respectively
|
|
|
|
|
||||
Capital in excess of par value
|
|
547,021
|
|
|
556,575
|
|
||
Retained earnings
|
|
42,976
|
|
|
9,481
|
|
||
TOTAL STOCKHOLDERS' EQUITY
|
|
590,225
|
|
|
566,287
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
847,185
|
|
|
$
|
785,803
|
|
|
|
Fiscal Year Ended
|
||||||||||
thousands
|
|
February 1, 2014
|
|
February 2, 2013
|
|
January 28, 2012
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation
|
|
12,006
|
|
|
9,474
|
|
|
9,774
|
|
|||
Share based compensation
|
|
911
|
|
|
—
|
|
|
—
|
|
|||
Gain on the sale of assets
|
|
(1,567
|
)
|
|
—
|
|
|
—
|
|
|||
Change in operating assets and liabilities:
|
|
|
|
|
|
|
||||||
Accounts receivable
|
|
(26,823
|
)
|
|
(10,301
|
)
|
|
(11,042
|
)
|
|||
Merchandise inventories
|
|
(53,670
|
)
|
|
(34,779
|
)
|
|
947
|
|
|||
Payable to Sears Holdings Corporation
|
|
(11,095
|
)
|
|
79,491
|
|
|
—
|
|
|||
Accounts payable
|
|
(7,701
|
)
|
|
14,674
|
|
|
623
|
|
|||
Store closing accruals
|
|
—
|
|
|
(2,201
|
)
|
|
2,201
|
|
|||
Customer deposits
|
|
633
|
|
|
3,046
|
|
|
4,903
|
|
|||
Deferred income taxes
|
|
18,614
|
|
|
(1,641
|
)
|
|
904
|
|
|||
Other operating assets
|
|
1,525
|
|
|
(2,602
|
)
|
|
(1,654
|
)
|
|||
Other operating liabilities
|
|
(22,751
|
)
|
|
6,343
|
|
|
(1,247
|
)
|
|||
Net cash (used in) provided by operating activities
|
|
(54,368
|
)
|
|
121,584
|
|
|
38,465
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
||||||
Proceeds from sales of property and investments
|
|
2,641
|
|
|
—
|
|
|
—
|
|
|||
Purchases of property and equipment
|
|
(10,704
|
)
|
|
(8,110
|
)
|
|
(9,991
|
)
|
|||
Net cash used in investing activities
|
|
(8,063
|
)
|
|
(8,110
|
)
|
|
(9,991
|
)
|
|||
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
||||||
Transfers to Sears Holdings Corporation
|
|
—
|
|
|
(12,264
|
)
|
|
(26,533
|
)
|
|||
Dividend paid to Sears Holdings Corporation
|
|
—
|
|
|
(100,000
|
)
|
|
—
|
|
|||
Common stock repurchased and retired
|
|
(12,523
|
)
|
|
—
|
|
|
—
|
|
|||
Payments of capital lease obligations
|
|
(739
|
)
|
|
(1,836
|
)
|
|
(2,061
|
)
|
|||
Net short-term borrowings
|
|
79,100
|
|
|
20,000
|
|
|
—
|
|
|||
Net cash provided by (used in) financing activities
|
|
65,838
|
|
|
(94,100
|
)
|
|
(28,594
|
)
|
|||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
3,407
|
|
|
19,374
|
|
|
(120
|
)
|
|||
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
20,068
|
|
|
694
|
|
|
814
|
|
|||
CASH AND CASH EQUIVALENTS—End of period
|
|
$
|
23,475
|
|
|
$
|
20,068
|
|
|
$
|
694
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
||||||
Cash paid for interest
|
|
$
|
3,226
|
|
|
$
|
899
|
|
|
$
|
913
|
|
Cash paid for income taxes
|
|
$
|
21,022
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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 29, 2011
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
531,583
|
|
$
|
531,583
|
|
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
33,056
|
|
33,056
|
|
|||||
Net transfer to Sears Holdings Corporation
|
—
|
|
—
|
|
—
|
|
—
|
|
(26,533
|
)
|
(26,533
|
)
|
|||||
|
|
|
|
|
|
|
|||||||||||
Balance at January 28, 2012
|
—
|
|
—
|
|
—
|
|
—
|
|
538,106
|
|
538,106
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
—
|
|
—
|
|
9,481
|
|
50,599
|
|
60,080
|
|
|||||
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 February 2, 2013
|
23,100
|
|
231
|
|
556,575
|
|
9,481
|
|
—
|
|
566,287
|
|
|||||
|
|
|
|
|
|
|
|||||||||||
Net income
|
—
|
|
—
|
|
—
|
|
35,550
|
|
—
|
|
35,550
|
|
|||||
Share-based compensation
|
87
|
|
1
|
|
910
|
|
—
|
|
—
|
|
911
|
|
|||||
Common stock repurchased and retired
|
(434
|
)
|
(4
|
)
|
(10,464
|
)
|
(2,055
|
)
|
—
|
|
(12,523
|
)
|
|||||
|
|
|
|
|
|
|
|||||||||||
Balance at February 1, 2014
|
22,753
|
|
$
|
228
|
|
$
|
547,021
|
|
$
|
42,976
|
|
$
|
—
|
|
$
|
590,225
|
|
Fiscal Year
|
Ended
|
Weeks
|
2013
|
February 1, 2014
|
52
|
2012
|
February 2, 2013
|
53
|
2011
|
January 28, 2012
|
52
|
thousands
|
|
February 1, 2014
|
|
February 2, 2013
|
||||
Land
|
|
$
|
1,978
|
|
|
$
|
2,903
|
|
Buildings and improvements
|
|
54,291
|
|
|
57,281
|
|
||
Furniture, fixtures and equipment
|
|
32,388
|
|
|
29,378
|
|
||
Capitalized leases
|
|
8,458
|
|
|
11,760
|
|
||
Total property and equipment
|
|
97,115
|
|
|
101,322
|
|
||
Less: accumulated depreciation
|
|
(48,142
|
)
|
|
(47,939
|
)
|
||
Total property and equipment, net
|
|
$
|
48,973
|
|
|
$
|
53,383
|
|
|
|
Fiscal Year
|
||||||||||
thousands
|
|
2013
|
|
2012
|
|
2011
|
||||||
Minimum rentals
|
|
$
|
57,679
|
|
|
$
|
52,294
|
|
|
$
|
47,938
|
|
Less-Sublease rentals
|
|
(19,678
|
)
|
|
(14,626
|
)
|
|
(3,307
|
)
|
|||
Total
|
|
$
|
38,001
|
|
|
$
|
37,668
|
|
|
$
|
44,631
|
|
Fiscal Year
|
|
|
Capital Leases
|
|
Operating Leases
|
||||
thousands
|
|
|
|
|
|
||||
2014
|
|
|
$
|
662
|
|
|
$
|
60,321
|
|
2015
|
|
|
65
|
|
|
53,645
|
|
||
2016
|
|
|
30
|
|
|
45,107
|
|
||
2017
|
|
|
—
|
|
|
34,541
|
|
||
2018
|
|
|
—
|
|
|
19,963
|
|
||
Thereafter
|
|
|
—
|
|
|
25,946
|
|
||
Total Minimum Lease Payments
|
|
757
|
|
|
239,523
|
|
|||
Less - Sublease Income on Leased Properties
|
—
|
|
|
(79,388
|
)
|
||||
Net Minimum Lease Payments
|
|
757
|
|
|
$
|
160,135
|
|
||
|
|
|
|
|
|
||||
Less:
|
|
|
|
|
|
||||
Implicit Interest
|
|
|
—
|
|
|
|
|||
Capital Lease Obligations
|
|
|
757
|
|
|
|
|||
Less Current Portion of Capital Lease Obligations
|
(662
|
)
|
|
|
|||||
Long-term Capital Lease Obligations
|
|
$
|
95
|
|
|
|
thousands
|
|
February 1, 2014
|
|
February 2, 2013
|
||||
Warranty reserve, beginning of period
|
|
$
|
3,734
|
|
|
$
|
11,765
|
|
Expense accruals during the period
|
|
—
|
|
|
2,090
|
|
||
Payments made under warranties
|
|
(3,734
|
)
|
|
(10,121
|
)
|
||
Warranty reserve, end of period
|
|
$
|
—
|
|
|
$
|
3,734
|
|
|
|
52 Weeks Ended February 1, 2014
|
|||||
(Shares in Thousands)
|
|
Shares
|
|
Weighted-Average Fair Value on Date of Grant
|
|||
Beginning of year balance
|
|
—
|
|
|
—
|
|
|
Granted
|
|
89
|
|
|
$
|
44.45
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
(2
|
)
|
|
44.45
|
|
|
Balance at 2/1/2014
|
|
87
|
|
|
$
|
44.45
|
|
|
|
|
|
|
thousands
|
|
February 1, 2014
|
|
February 2, 2013
|
||||
Customer deposits
|
|
$
|
35,547
|
|
|
$
|
34,914
|
|
Sales and other taxes
|
|
11,403
|
|
|
13,607
|
|
||
Accrued expenses
|
|
9,523
|
|
|
24,703
|
|
||
Warranty accrual
|
|
—
|
|
|
3,734
|
|
||
Payroll and related items
|
|
8,105
|
|
|
9,005
|
|
||
Total Other current and long-term liabilities
|
|
$
|
64,578
|
|
|
$
|
85,963
|
|
|
|
|
|
Fiscal Year Ended
|
||||||||||
thousands
|
|
|
|
2013
|
|
2012
|
|
2011
|
||||||
Income before income taxes:
|
|
|
|
|
|
|
||||||||
|
U.S.
|
|
|
$
|
58,713
|
|
|
$
|
95,966
|
|
|
$
|
52,423
|
|
|
Foreign
|
|
1,170
|
|
|
4,014
|
|
|
2,360
|
|
||||
|
|
Total
|
|
$
|
59,883
|
|
|
$
|
99,980
|
|
|
$
|
54,783
|
|
Income tax expense (benefit):
|
|
|
|
|
|
|
||||||||
Current:
|
|
|
|
|
|
|
|
|||||||
|
Federal
|
|
$
|
3,808
|
|
|
$
|
33,469
|
|
|
$
|
16,329
|
|
|
|
State
|
|
1,341
|
|
|
6,848
|
|
|
3,808
|
|
||||
|
Foreign
|
|
570
|
|
|
1,224
|
|
|
686
|
|
||||
|
|
Total
|
|
5,719
|
|
|
41,541
|
|
|
20,823
|
|
|||
Deferred:
|
|
|
|
|
|
|
|
|||||||
|
Federal
|
|
15,859
|
|
|
(2,226
|
)
|
|
787
|
|
||||
|
State
|
|
2,847
|
|
|
585
|
|
|
117
|
|
||||
|
Foreign
|
|
(92
|
)
|
|
—
|
|
|
—
|
|
||||
|
|
Total
|
|
18,614
|
|
|
(1,641
|
)
|
|
904
|
|
|||
Income tax provision
|
|
$
|
24,333
|
|
|
$
|
39,900
|
|
|
$
|
21,727
|
|
|
|
Fiscal Year Ended
|
|||||||
|
|
2013
|
|
2012
|
|
2011
|
|||
Federal tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income tax (net of federal benefit)
|
|
4.5
|
%
|
|
4.9
|
%
|
|
4.7
|
%
|
Other
|
|
1.1
|
%
|
|
—
|
%
|
|
—
|
%
|
Effective tax rate
|
|
40.6
|
%
|
|
39.9
|
%
|
|
39.7
|
%
|
|
|
|
Fiscal Year Ended
|
||||||
thousands
|
|
February 1, 2014
|
|
|
February 2, 2013
|
|
|||
Deferred tax assets
|
|
||||||||
|
Capital Leases
|
$
|
183
|
|
|
$
|
426
|
|
|
|
Deferred Compensation
|
2,030
|
|
|
3,249
|
|
|||
|
Deferred Rent
|
1,856
|
|
|
1,820
|
|
|||
|
Favorable Leases
|
1,155
|
|
|
2,393
|
|
|||
|
Inventory
|
—
|
|
|
1,627
|
|
|||
|
Property
|
—
|
|
|
2,943
|
|
|||
|
Property Taxes
|
608
|
|
|
—
|
|
|||
|
Royalty-free License
|
57,131
|
|
|
61,418
|
|
|||
|
Store Closing Reserve
|
149
|
|
|
47
|
|
|||
|
Warranty
|
—
|
|
|
1,447
|
|
|||
|
Other
|
2,539
|
|
|
1,813
|
|
|||
|
|
|
|
|
|
||||
|
|
Total deferred tax assets
|
65,651
|
|
|
77,183
|
|
||
Deferred tax liabilities
|
|
|
|
||||||
|
Inventory
|
(5,098
|
)
|
|
—
|
|
|||
|
Other
|
(2,526
|
)
|
|
(542
|
)
|
|||
|
|
|
|
|
|
||||
|
|
Total deferred tax liabilities
|
(7,624
|
)
|
|
(542
|
)
|
||
Net deferred tax assets
|
$
|
58,027
|
|
|
$
|
76,641
|
|
•
|
We are party to a Separation Agreement with Sears Holdings pursuant to which Sears Holdings consummated the Separation. The Separation Agreement, among other things, provided for the allocation and transfer, through a series of intercompany transactions, of the assets and the liabilities comprising the Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings. In the Separation Agreement SHO and Sears Holdings agree to release each other from all pre-separation claims (other than with respect to the agreements executed in connection with the Separation) and each agrees to defend and indemnify the other with respect to its post-separation business.
|
•
|
We obtain a significant amount of our merchandise inventories from Sears Holdings. This enables us to take advantage of the amount and scope of Sears Holdings purchasing activities. We are party to a Merchandising Agreement with Sears Holdings, Kmart and SRC (the "Merchandising Agreement") pursuant to which Kmart and SRC (1) sell to us, with respect to certain specified product categories, Sears brand products (including products branded with the KCD Marks, or, collectively, the “KCD Products”) and vendor-branded products obtained from Kmart’s and SRC’s vendors and suppliers and (2) grant us licenses to use the trademarks owned by Kmart, SRC or other subsidiaries of Sears Holdings, or the “Sears marks,” including the KCD Marks in connection with the marketing and sale of products sold under the Sears marks. The initial term of the Merchandising Agreement will expire in 2018, subject to two three-year renewal terms with respect to the KCD Products. We pay, on a weekly basis, a royalty determined by multiplying our net sales of the KCD Products by specified fixed royalties rates for each brand’s licensed products, subject to adjustments based on the extent to which we feature Kenmore brand products in certain of our advertising and the extent to which we pay specified minimum commissions to our franchisees and Hometown Store owners. We are also party to agreements with Sears Holdings for related logistics, handling, warehouse and transportation services, the charges for which are based generally on merchandise inventory units. We also pay fees for participation in Sears Holdings' SYW program.
|
•
|
We obtain our merchandise from Sears Holdings and other vendors. For the year ended February 1, 2014, products which we acquired from Sears Holdings, including KCD Products and other products, accounted for approximately
84%
of our total purchases of inventory from all vendors with a comparable level of purchases from Sears Holdings in 2012 and 2011. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings could have a material adverse effect on our business and results of operations.
|
•
|
Sears Holdings provides the Company with specified corporate services. These services include tax, accounting, procurement, risk management and insurance, advertising and marketing, human resources, loss prevention, environmental, product and human safety, facilities, logistics and distribution, information technology (including the point-of-sale system used by the Company and its dealers and franchisees), online, payment clearing, and other financial, real estate management, merchandise-related and other support services. Sears Holdings charges the Company for these corporate services generally based on actual usage, a pro rata charge based upon sales, head count, or square footage, or a fixed fee or commission as agreed between the parties.
|
•
|
Sears Holdings has licensed the Company until October 11, 2029, on a royalty-free basis, to use under specified conditions (1) the name “Sears” in our corporate name and to promote our businesses and (2) the www.searsoutlet.com, www.searshomeapplianceshowroom.com, www.searshometownstores.com, and www.searshardwarestores.com domain names to promote our businesses. Also, Sears Holdings has licensed the Company until October 11, 2029, on an exclusive, royalty-free basis, under specified conditions to use for the purpose of operating our stores the names “Sears Appliance
|
•
|
Sears Holdings has assigned to us leases for, or has subleased to us, many of the stores that we operate or that we have, in turn, subleased to franchisees. Generally, the terms of the subleases match the terms, including the payment of rent and expiration date, of the existing leases between Sears Holdings (or one of its subsidiaries) and the landlord. In addition, a small number of our stores are in locations where Sears Holdings currently operates one of its stores or a distribution facility. In such cases we have entered into a lease or sublease with Sears Holdings (or one of its subsidiaries) for the portion of the space in which our store will operate, and we pay rent directly to Sears Holdings on the terms negotiated in connection with the Separation. We also lease from Sears Holdings office space for our corporate headquarters.
|
•
|
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 plans, 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.
|
|
|
Fiscal Year Ended
|
||||||||||
|
|
February 1,
2014 |
|
February 2,
2013 |
|
January 28,
2012 |
||||||
thousands
|
|
|
|
|||||||||
|
|
|
|
|
|
|
||||||
Net Commissions from Sears Holdings Corporation (1)
|
|
$
|
90,085
|
|
|
$
|
83,756
|
|
|
$
|
76,018
|
|
Purchases related to cost of sales and occupancy
|
|
1,691,300
|
|
|
1,673,832
|
|
|
1,756,274
|
|
|||
Services included in selling and administrative
|
|
22,156
|
|
|
18,912
|
|
|
19,823
|
|
(1)
|
We reduced the amounts previously presented for fiscal years ended 2012 and 2011 by
$84.3 million
and
$69.2 million
, respectively to exclude all transactions in which SHO received the entire sales revenue for on-line sales made to unrelated third-parties that were generated through Sears Holding's websites.
|
thousands
|
|
Markdowns (1)
|
|
Severance
Costs (2) |
|
Lease
Termination Costs (2) |
|
Other
Costs (2) |
|
Accelerated
Depreciation (3) |
|
Total
|
||||||||||||
Balance at January 29, 2011
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Store closing costs
|
|
$
|
12,071
|
|
|
$
|
330
|
|
|
$
|
215
|
|
|
$
|
3,255
|
|
|
$
|
272
|
|
|
$
|
16,143
|
|
Payments/utilizations
|
|
$
|
(3,924
|
)
|
|
$
|
(180
|
)
|
|
$
|
(159
|
)
|
|
$
|
(1,260
|
)
|
|
$
|
(272
|
)
|
|
$
|
(5,795
|
)
|
Balance at January 28, 2012
|
|
$
|
8,147
|
|
|
$
|
150
|
|
|
$
|
56
|
|
|
$
|
1,995
|
|
|
$
|
—
|
|
|
$
|
10,348
|
|
Store closing costs
|
|
—
|
|
|
—
|
|
|
797
|
|
|
—
|
|
|
—
|
|
|
797
|
|
||||||
Payments/utilizations
|
|
(8,147
|
)
|
|
(150
|
)
|
|
(853
|
)
|
|
(1,995
|
)
|
|
—
|
|
|
(11,145
|
)
|
||||||
Balance at February 2, 2013
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Store closing activity recorded within Cost of sales and occupancy on the Consolidated Statements of Income and remaining store closing cost accruals reported within Merchandise inventories on the Consolidated Balance Sheets.
|
(2)
|
Store closing activity recorded within Selling and administrative on the Consolidated Statements of Income and remaining store closing cost accruals reported within Other current liabilities on the Consolidated Balance Sheets.
|
(3)
|
Store closing activity recorded within Depreciation on the Consolidated Statements of Income and remaining store closing cost accruals reported within Property and equipment, net on the Consolidated Balance Sheets.
|
|
|
2013
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
1,160,894
|
|
|
$
|
478,435
|
|
|
$
|
1,639,329
|
|
Lawn and garden
|
|
319,725
|
|
|
23,743
|
|
|
343,468
|
|
|||
Tools and paint
|
|
213,575
|
|
|
14,674
|
|
|
228,249
|
|
|||
Other
|
|
117,325
|
|
|
93,191
|
|
|
210,516
|
|
|||
Total
|
|
1,811,519
|
|
|
610,043
|
|
|
2,421,562
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,389,627
|
|
|
453,791
|
|
|
1,843,418
|
|
|||
Selling and administrative
|
|
396,073
|
|
|
110,557
|
|
|
506,630
|
|
|||
Depreciation
|
|
6,321
|
|
|
5,685
|
|
|
12,006
|
|
|||
Gain on the sale of assets
|
|
—
|
|
|
(1,567
|
)
|
|
(1,567
|
)
|
|||
Total
|
|
1,792,021
|
|
|
568,466
|
|
|
2,360,487
|
|
|||
Operating income
|
|
$
|
19,498
|
|
|
$
|
41,577
|
|
|
$
|
61,075
|
|
Total assets
|
|
$
|
632,437
|
|
|
$
|
214,748
|
|
|
$
|
847,185
|
|
Capital expenditures
|
|
$
|
3,731
|
|
|
$
|
6,973
|
|
|
$
|
10,704
|
|
|
|
2012
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
1,151,356
|
|
|
$
|
452,201
|
|
|
$
|
1,603,557
|
|
Lawn and garden
|
|
343,575
|
|
|
19,034
|
|
|
362,609
|
|
|||
Tools and paint
|
|
234,457
|
|
|
15,859
|
|
|
250,316
|
|
|||
Other
|
|
159,875
|
|
|
77,249
|
|
|
237,124
|
|
|||
Total
|
|
1,889,263
|
|
|
564,343
|
|
|
2,453,606
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,433,880
|
|
|
406,327
|
|
|
1,840,207
|
|
|||
Selling and administrative
|
|
394,335
|
|
|
110,065
|
|
|
504,400
|
|
|||
Depreciation
|
|
3,658
|
|
|
5,816
|
|
|
9,474
|
|
|||
Total
|
|
1,831,873
|
|
|
522,208
|
|
|
2,354,081
|
|
|||
Operating income
|
|
$
|
57,390
|
|
|
$
|
42,135
|
|
|
$
|
99,525
|
|
Total assets
|
|
$
|
633,060
|
|
|
$
|
152,743
|
|
|
$
|
785,803
|
|
Capital expenditures
|
|
$
|
3,338
|
|
|
$
|
4,772
|
|
|
$
|
8,110
|
|
|
|
2011
|
||||||||||
thousands
|
|
Hometown
|
|
Outlet
|
|
Total
|
||||||
Net sales
|
|
|
|
|
|
|
||||||
Appliances
|
|
$
|
1,041,447
|
|
|
$
|
418,245
|
|
|
$
|
1,459,692
|
|
Lawn and garden
|
|
357,661
|
|
|
21,805
|
|
|
379,466
|
|
|||
Tools and paint
|
|
244,192
|
|
|
7,984
|
|
|
252,176
|
|
|||
Other
|
|
195,497
|
|
|
57,368
|
|
|
252,865
|
|
|||
Total
|
|
1,838,797
|
|
|
505,402
|
|
|
2,344,199
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
||||||
Cost of sales and occupancy
|
|
1,463,636
|
|
|
356,880
|
|
|
1,820,516
|
|
|||
Selling and administrative
|
|
356,351
|
|
|
102,284
|
|
|
458,635
|
|
|||
Depreciation
|
|
4,083
|
|
|
5,691
|
|
|
9,774
|
|
|||
Total
|
|
1,824,070
|
|
|
464,855
|
|
|
2,288,925
|
|
|||
Operating income
|
|
$
|
14,727
|
|
|
$
|
40,547
|
|
|
$
|
55,274
|
|
Total assets
|
|
$
|
525,826
|
|
|
$
|
126,012
|
|
|
$
|
651,838
|
|
Capital expenditures
|
|
$
|
3,604
|
|
|
$
|
6,387
|
|
|
$
|
9,991
|
|
NET INCOME PER COMMON SHARE
|
|
|
|
|
|
|
|
|
||||||||
ATTRIBUTABLE TO STOCKHOLDERS
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
$
|
0.89
|
|
|
$
|
0.91
|
|
|
$
|
0.38
|
|
|
0.42
|
|
|
Diluted:
|
|
$
|
0.89
|
|
|
$
|
0.91
|
|
|
$
|
0.38
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Basic weighted average common shares outstanding
|
|
23,100
|
|
|
23,100
|
|
|
23,100
|
|
|
23,100
|
|
||||
Diluted weighted average common shares outstanding
|
|
23,100
|
|
|
23,100
|
|
|
23,100
|
|
|
23,100
|
|
|
Fiscal Year Ended
|
||||||||||
|
February 1, 2014
|
|
February 2, 2013
|
|
January 28, 2012
|
||||||
Thousands except income per common share
|
|
|
|
|
|
||||||
Basic weighted average shares
|
22,984
|
|
|
23,100
|
|
|
23,100
|
|
|||
Dilutive effect of restricted stock
|
5
|
|
|
—
|
|
|
—
|
|
|||
Diluted weighted average shares
|
22,989
|
|
|
23,100
|
|
|
23,100
|
|
|||
|
|
|
|
|
|
||||||
Net income
|
$
|
35,550
|
|
|
$
|
60,080
|
|
|
$
|
33,056
|
|
|
|
|
|
|
|
||||||
Income per common share:
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Basic
|
$
|
1.55
|
|
|
$
|
2.60
|
|
|
$
|
1.43
|
|
Diluted
|
$
|
1.55
|
|
|
$
|
2.60
|
|
|
$
|
1.43
|
|
thousands
|
|
2013
|
|
2012
|
|
2011
|
||||||
Retirement/401(k) Savings Plan
|
|
$
|
289
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Item 11.
|
Executive Compensation
|
Plan Category
|
|
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)
|
|
(b)
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1)
|
|
(c)
Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
|
Equity Compensation Plans Approved by Security Holders
|
|
--
|
|
--
|
|
3,913,194 (2)
|
Equity Compensation Plans Not Approved by Security Holders
|
|
--
|
|
--
|
|
--
|
Total
|
|
--
|
|
--
|
|
3,913,194 (2)
|
(1)
|
Financial Statements
|
|
|
|
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:
|
|
April 3, 2014
|
|
|
|
|
|
|
|
*
W. Bruce Johnson
W. Bruce Johnson
|
|
Director, Chief Executive Officer and
President (principal executive officer)
|
|
April 3, 2014
|
||
|
|
|
||||
|
|
|
||||
*
William R. Harker
William R. Harker
|
|
Chairman of the Board of Directors
|
|
April 3, 2014
|
||
|
|
|
||||
|
|
|
||||
*
E.J. Bird
E.J. Bird
|
|
Director
|
|
April 3, 2014
|
||
|
|
|
|
|||
|
|
|
||||
* J
effrey Flug
Jeffrey Flug
|
|
Director
|
|
April 3, 2014
|
||
|
|
|
|
|||
|
|
|
||||
*
James F. Gooch
James F. Gooch
|
|
Director
|
|
April 3, 2014
|
||
|
|
|
|
|||
|
|
|
|
|
||
*
Elizabeth Darst Leykum
Elizabeth Darst Leykum
|
|
Director
|
|
April 3, 2014
|
||
|
|
|
|
|||
|
|
|
||||
*
Josephine Linden
Josephine Linden
|
|
Director
|
|
April 3, 2014
|
||
|
|
|
|
|||
|
|
|
||||
|
|
|
|
|||
By:
|
|
/
S
/Steven D. Barnhart
|
|
|
|
April 3, 2014
|
|
|
* Steven D. Barnhart
|
|
|
|
|
|
|
as Attorney-in-fact
|
|
|
|
|
Exhibit
Number
|
|
Document Description
|
3.1
|
|
Certificate of Incorporation of Sears Hometown and Outlet Stores, Inc. (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
3.2
|
|
Certificate of Amendment of Certificate of Incorporation of Sears Hometown and Outlet Stores, Inc. (incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
3.3
|
|
Amended and Restated Bylaws of Sears Hometown and Outlet Stores, Inc. (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K filed December 9, 2013 (File No. 001-35641)).
|
4.1
|
|
Form of common stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.1
|
|
Separation Agreement between Sears Holdings Corporation and Sears Hometown and Outlet Stores, Inc. dated as of August 8, 2012 (incorporated by reference to Exhibit 10.1 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.2
|
|
Amendment No. 1 to Separation Agreement between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.3
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC dated August 8, 2012 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.4
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Home Appliance Showrooms, LLC dated August 8, 2012 (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.5
|
|
Store License Agreement between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C. dated August 8, 2012 (incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.6(2)
|
|
Amendment No. 1 to Store License Agreement (Outlet) between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C. dated December 9, 2013.
|
10.7
|
|
Trademark License Agreement between Sears, Roebuck and Co. and Sears Hometown and Outlet Stores, Inc. dated August 8, 2012 (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.8(1)
|
|
Merchandising Agreement between Sears, Roebuck and Co., Kmart Corporation and Sears Holdings Corporation and Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. dated August 8, 2012 (incorporated by reference to Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.9(1)
|
|
Amendment No. 1 to Merchandising Agreement 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. dated July 5, 2013 (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended August 3, 2013 (File No. 001-35641)).
|
10.10(1)
|
|
Amendment No. 2 to Merchandising Agreement 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. dated December 9, 2013 (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.11
|
|
Services Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc. dated August 8, 2012 (incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.12
|
|
Amendment No. 1 to Services Agreement between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Management Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.13(1)
|
|
Retail Establishment Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc. (incorporated by reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641))
|
10.14
|
|
Tax Sharing Agreement between Sears Holdings and Sears Hometown and Outlet Stores, Inc. dated as of August 8, 2012 (incorporated by reference to Exhibit 10.9 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.15
|
|
Employee Transition and Administrative Services Agreement between Sears, Roebuck and Co., Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. dated as of August 31, 2012 (incorporated by reference to Exhibit 10.10 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.16
|
|
Statement of Work #1 to Employee Transition and Administrative Services Agreement 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 dated December 9, 2013 (incorporated by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.17
|
|
Supplemental Agreement between Sears Hometown and Outlet Stores, Inc. and Sears Holdings Corporation dated December 9, 2013 (incorporated by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended November 2, 2013 (File No. 001-35641)).
|
10.18(3)
|
|
Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program (incorporated by reference to Exhibit 10.11 to the Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.19(3)
|
|
Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.12 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.20(3)
|
|
Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (incorporated by reference to Exhibit 10.13 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.21(3)
|
|
Sears Hometown and Outlet Stores, Inc. Amended and Restated 2012 Stock Plan (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the 53 weeks ended February 2, 2013 (File No. 001-35641)).
|
10.22(3)
|
|
Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.26 to Sears Holdings Corporation's Annual Report on Form 10-K for the fiscal year ended February 2, 2013 (File No. 000-51217)).
|
10.23(3)
|
|
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's Form S-8 filed on May 16, 2013 (File No. 333-188645)).
|
10.24(3)
|
|
Form of Executive Severance/Non-Compete Agreement (incorporated by reference to Exhibit 10.5 to Sears Holdings Corporation's Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2005 (File No. 000-51217)).
|
10.25(3)
|
|
Executive Severance Agreement dated and effective as of August 6, 2012 between Sears Holdings Corporation and its affiliates and subsidiaries and Steven D. Barnhart (incorporated by reference to Exhibit 10.17 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended July 28, 2012 (File No. 001-35641)).
|
10.26(3)
|
|
Offer letter between Sears Hometown and Outlet Stores, Inc. and W. Bruce Johnson dated August 28, 2012 (incorporated by reference to Exhibit 10.18 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.27(3)
|
|
Offer letter between Sears Hometown and Outlet Stores, Inc. and William A. Powell dated August 28, 2012 (incorporated by reference to Exhibit 10.19 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.28(3)
|
|
Offer letter between Sears Hometown and Outlet Stores, Inc. and John E. Ethridge II dated August 28, 2012 (incorporated by reference to Exhibit 10.20 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.29(3)
|
|
Offer letter between Sears Hometown and Outlet Stores, Inc. and Charles J. Hansen, dated August 28, 2012 (incorporated by reference to Exhibit 10.21 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.30(3)
|
|
Offer letter between Sears Hometown and Outlet Stores, Inc. and Steven D. Barnhart, dated August 28, 2012 (incorporated by reference to Exhibit 10.22 to Registrant's Form S-1/A filed on August 31, 2012 (File No. 333-181051)).
|
10.31(2)(3)
|
|
Amended and restated offer letter between Sears Hometown and Outlet Stores, Inc. and Becky Iliff dated April 2, 2014.
|
10.32(3)
|
|
Executive Severance/Non-Compete Agreement dated February 14, 2006 between Sears Holdings Corporation and its affiliates and subsidiaries and W. Bruce Johnson (incorporated by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the 53 weeks ended February 2, 2013 (File No. 001-35641)).
|
10.33
|
|
Credit Agreement, dated as of October 11, 2012, among Sears Authorized Hometown Stores, LLC and the other borrowers named therein, as borrowers; Sears Hometown and Outlet Stores, Inc., as parent; Bank of America, N.A., as Administrative Agent and Collateral Agent, and other lenders party thereto, as lenders; CIT Finance LLC, as Syndication Agent; and Barclays Bank PLC, as Documentation Agent (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed October 15, 2012 (File No. 001-35641)).
|
10.34
|
|
First Amendment to Credit Agreement, dated August 29, 2013, among Sears Authorized Hometown Stores, LLC and the other borrowers named therein, as borrowers, Sears Hometown and Outlet Stores, Inc., as parent and a guarantor, Troy Coolidge No. 6, LLC, as a guarantor, Bank of America, N.A., as Agent, Swing Line Lender, and L/C Issuer, and other lenders party thereto, as lenders (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed August 30, 2013 (File No. 001-35641)).
|
10.35
|
|
Guaranty and Security Agreement, dated as of October 11, 2012, by Sears Authorized Hometown Stores, LLC, and other borrowers and guarantors party thereto and Bank of America, N.A., as Agent (incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed October 15, 2012 (File No. 001-35641)).
|
21(2)
|
|
Subsidiaries of Sears Hometown and Outlet Stores, Inc.
|
23(2)
|
|
Consent of BDO USA, LLP.
|
24(2)
|
|
Powers of Attorney.
|
31.1(2)
|
|
Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
31.2(2)
|
|
Certification of Chief Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
32.1(2)
|
|
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.
|
101(4)
|
|
The following financial information from the Annual Report on Form 10-K for the fiscal year ended February 1, 2014, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Income for the fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012; (ii) the Consolidated Balance Sheets at February 1, 2014 and February 2, 2013; (iii) the Consolidated Statements of Cash Flows for the fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012; (iv) the Consolidated Statements of Stockholders' Equity for the fiscal years ended February 1, 2014, February 2, 2013, and January 28, 2012; and (v) the Notes to the Consolidated Financial Statements.
|
(1)
|
The Securities and Exchange Commission granted confidential treatment for the omitted portions of this Exhibit. The omitted portions have been separately filed with the Securities and Exchange Commission.
|
(2)
|
Filed herewith.
|
(3)
|
A management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) of Form 10-K.
|
(4)
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
1.
|
Amendments
. The Agreement shall be modified as of the Amendment Dates set forth below:
|
“1.5
|
Further Sublicense
. Outlet Stores has the right to sublicense the SEARS Service Mark, the Store Names and the Additional Sears Marks to Dealers and Franchisees for the operation of Stores. For each Sears Outlet Store (as defined Section 20 of the Merchandising Agreement) receiving a sublicense, Outlet Stores and the Dealer or Franchisee for
|
2.
|
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 #2 to Merchandising Agreement, (c) that certain Amendment No. 1 to Services Agreement, and (d) that certain Supplemental Agreement.
|
3.
|
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 12.14
of the Agreement) which also applies to this Amendment.
|
•
|
Your base salary is $240,000 per year.
|
•
|
You are eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (“
SHO AIP
”) with an annual incentive opportunity of 50% of your base salary. With respect to each SHO AIP approved by the SHO Board of Directors, any incentive payable with respect to that SHO AIP will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Further details regarding your target award under any SHO AIP will be provided to you following the approval that SHO AIP by SHO Board of Directors.
|
•
|
You are eligible to participate in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (“
SHO LTIP
”). If SHO’s Board of Directors approves a SHO LTIP for a fiscal year, you will become eligible to participate in that LTIP when the LTIP is finalized and approved by SHO’s Board of Directors. Further details regarding your target award under each SHO LTIP will be provided to you following the approval of that SHO LTIP.
|
•
|
You acknowledge that you received a one-time sign-on bonus of $25,000 (gross) in connection with the start of your employment with SHO. If you voluntarily terminate your employment with SHO, or are terminated by SHO for misconduct or integrity issues, in either case on or prior to August 19, 2014, you will be required to repay to SHO, within thirty (30) days of your last day worked, the full amount of your sign-on bonus, including any taxes withheld in connection therewith, unless prohibited by law.
|
•
|
You are eligible to receive from SHO a special cash retention bonus of $100,000 (gross). This special bonus will be scheduled to vest on an installment basis, with one-half of the bonus vesting and becoming payable as soon as administratively possible following each of the first and third anniversaries of August 20, 2012, provided you are actively employed by SHO on the applicable payment date. You acknowledge that you received from SHO in August 2013 the first-half (i.e., $50,000) of the $100,000 special cash retention bonus referred to in this paragraph.
|
•
|
You represent and warrant to SHO that (a) you are not subject to any obligation, written or oral, containing any non-competition provision or any other restriction (including, without limitation, any confidentiality provision) that would result in any restriction on your ability to perform as SHO’s Vice President, Human Resources or any other position with SHO or any of its affiliates, and (b) you are not (i) a member of any board of directors, board of trustees or similar governing body of any for-profit, non-profit or not-for-profit entity, or (ii) a party to any agreement, written or oral, with any entity under which you would receive remuneration for your services, except as already disclosed to and approved by SHO. You agree that you will not (A) become a member of any board or body described in clause (b)(i) of the preceding sentence or (B) become a party to any agreement described in clause (b)(ii) of the preceding sentence, in each case without the prior written consent of SHO, such consent not to be unreasonably withheld. Further, you continue to agree to refrain from disclosing or using, in violation of an obligation of confidentiality, any information that you acquired as a result of any previous employment or otherwise.
|
•
|
You acknowledge that you are party to an Executive Severance Agreement (the “Severance Agreement”), which was assigned by Sears Holdings Corporation to SHO in connection with SHO’s October 2012 spin-off from Sears Holdings Corporation. If your employment with SHO is terminated by SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Severance Agreement), you will receive six (6) months of salary continuation, based on to your base salary at the time of termination, subject to mitigation. Under the Severance Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any “Sears Competitor” or “Sears Vendor” (as such terms are defined in the Severance Agreement) for six (6) months following termination of employment. The non-disclosure, non-solicitation, non-compete, and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under the Severance Agreement
.
|
•
|
You are eligible to receive four (4) weeks paid vacation. You are also eligible for six (6) paid National Holidays each year and up to four (4) personal days per year.
|
•
|
You are eligible to participate in all retirement, health, and welfare programs made available or sponsored by SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs.
|
•
|
This amended and restated offer letter is subject to the approval of the Compensation Committee of SHO’s Board of Directors.
|
•
|
The laws of the State of Illinois (without regard to its conflicts-of-law principles) govern this amended and restated offer letter.
|
Name of Subsidiary
|
Jurisdiction of Formation
|
Sears Authorized Hometown Stores, LLC
|
Delaware
|
Sears Home Appliance Showrooms, LLC
|
Delaware
|
Sears Outlet Stores, L.L.C.
|
Delaware
|
Troy Coolidge No. 6, LLC
|
Michigan
|
Signature:
/S/ W. BRUCE JOHNSON
W. Bruce Johnson
|
Title: Director and Chief Executive Officer and President
|
Signature:
/S/ WILLIAM R. HARKER
William R. Harker
|
Title: Chairman of the Board of Directors
|
Signature:
/S/ E.J. BIRD
E.J. Bird
|
Title: Director
|
Signature:
/S/ JEFFREY FLUG
Jeffrey Flug
|
Title: Director
|
Signature:
/S/ JAMES F. GOOCH
James F. Gooch
|
Title: Director
|
Signature:
/S/ ELIZABETH DARST LEYKUM
Elizabeth Darst Leykum
|
Title: Director
|
|
|
|
|
|
Signature:
/S/ JOSEPHINE LINDEN
Josephine Linden
|
Title: Director
|
1.
|
I have reviewed this Annual Report on Form 10-K 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:
|
April 3, 2014
|
|
|
|
|
/s/ W. Bruce Johnson
|
|
|
W. Bruce Johnson
|
|
|
|
|
|
Chief Executive Officer and President
|
|
|
Sears Hometown and Outlet Stores, Inc.
|
|
1.
|
I have reviewed this Annual Report on Form 10-K 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:
|
April 3, 2014
|
|
|
|
|
/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.
|
April 3, 2014
|
|
|
|
|
|
/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
|
|