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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

|  |  |                                                         
|- |  | --------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
|  |  | SECURITIES EXCHANGE ACT OF 1934 FOR THE                 
|  |  | QUARTERLY PERIOD ENDED MARCH 29, 2003                   
|  |  |                                                         
|  |  | OR                                                      
|  |  |                                                         
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|  |  | SECURITIES EXCHANGE ACT OF 1934                         
|  |  |                                                         
|  |  | Commission file number 1-416                            

SEARS, ROEBUCK AND CO.

(Exact name of registrant as specified in its charter)


|                                                                                     |  |                                               
|------------------------------------------------------------------------------------ |  | ----------------------------------------------
|New York(State of Incorporation)                                                     |  | 36-1750680(I.R.S. Employer Identification No.)
|                                                                                     |  |                                               
|3333 Beverly Road, Hoffman Estates, Illinois(Address of principal executive offices) |  | 60179(Zip Code)                               

Registrants telephone number, including area code: (847) 286-2500

Indicate by check mark whether the Registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and [2] has been subject to such filing requirements for the past 90 days.

|      |  |     
|----- |  | ----
|Yes x |  | No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

|      |  |     
|----- |  | ----
|Yes x |  | No o

As of April 26, 2003, the Registrant had 307,142,925 common shares, $.75 par value, outstanding.



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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | Condensed Consolidated Statements of Income         
|                                                   |                                                                                               | Condensed Consolidated Balance Sheets               
|                                                   |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                                                   |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                                                   |                                                                                               | INDEPENDENT ACCOUNTANTS REPORT                     
|                                                   | Item 2. Managements Discussion and Analysis of Operations, Financial Condition and Liquidity
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                   | Item 4. Disclosure Controls and Procedures                                                   
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURE                                         
|CERTIFICATIONS                                    
|EXHIBIT INDEX                                     
|Computation of Ratio of Income to Fixed Charges   
|Acknowledgement of Awareness-Deloitte & Touche LLP
|Certification of Chief Executive Officer          
|Certification of Chief Financial Officer          



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SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 Weeks Ended March 29, 2003

|                               |         |  |                                                                                                                    |  |      |    | 
|------------------------------ | ------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                               |         |  |                                                                                                                    |  | Page |   
|                               |         |  |                                                                                                                    |  |      |   
|PART I  FINANCIAL INFORMATION |         |  |                                                                                                                    | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 1. |  | Financial Statements                                                                                               |  |      |    | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               |         |  | Condensed Consolidated Statements of Income (Unaudited)
13 Weeks Ended March 29, 2003 and March 30, 2002           |  |      | 1  | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               |         |  | Condensed Consolidated Balance Sheets
March 29, 2003 (Unaudited), March 30, 2002 (Unaudited)
and December 28, 2002 |  |      | 2  | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               |         |  | Condensed Consolidated Statements of Cash Flows (Unaudited)
13 Weeks Ended March 29, 2003 and March 30, 2002       |  |      | 3  | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               |         |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                   |  |      | 4  | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               |         |  | Independent Accountants Report                                                                                    |  |      | 12 | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 2. |  | Managements Discussion and Analysis of Operations, Financial Condition
and Liquidity                              |  |      | 13 | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                         |  |      | 27 | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 4. |  | Disclosure Controls and Procedures                                                                                 |  |      | 27 | 
|                               |         |  |                                                                                                                    |  |      |    | 
|PART II  OTHER INFORMATION    |         |  |                                                                                                                    | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 1. |  | Legal Proceedings                                                                                                  |  |      | 28 | 
|                               |         |  |                                                                                                                    |  |      |    | 
|                               | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                   |  |      | 29 | 





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SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Income
(Unaudited)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements



|                                                                                                           |                          |                                                                               |                    |       |                |      |       |       |       |      | 
|---------------------------------------------------------------------------------------------------------- | ------------------------ | ----------------------------------------------------------------------------- | ------------------ | ----- | -------------- | ---- | ----- | ----- | ----- | ---- | 
|                                                                                                           |                          |                                                                               |                    |       | 13 Weeks Ended |     
|                                                                                                           |                          |                                                                               |                    |       |                |     
|millions, except per common share data                                                                     |                          | March 29,                                                                     |                    |       | March 30,      |     
|                                                                                                           |                          | 2003                                                                          |                    |       | 2002           |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |       |      
|REVENUES                                                                                                   |                          |                                                                               |                    |       |                |      |       |      
|Merchandise sales and services                                                                             |                          | $                                                                             | 7,474              |       |                | $    | 7,647 |      
|Credit and financial products revenues                                                                     |                          |                                                                               | 1,406              |       |                |      | 1,390 |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           | Total revenues           |                                                                               |                    | 8,880 |                |      |       | 9,037 |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|COSTS AND EXPENSES                                                                                         |                          |                                                                               |                    |       |                |      |       |      
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|Cost of sales, buying and occupancy                                                                        |                          |                                                                               | 5,474              |       |                |      | 5,626 |      
|Selling and administrative                                                                                 |                          |                                                                               | 2,110              |       |                |      | 2,061 |      
|Provision for uncollectible accounts                                                                       |                          |                                                                               | 483                |       |                |      | 381   |      
|Depreciation and amortization                                                                              |                          |                                                                               | 225                |       |                |      | 210   |      
|Interest                                                                                                   |                          |                                                                               | 279                |       |                |      | 292   |      
|Special charges and impairments                                                                            |                          |                                                                               |                   |       |                |      | 111   |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           | Total costs and expenses |                                                                               |                    | 8,571 |                |      |       | 8,681 |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|Operating income                                                                                           |                          |                                                                               | 309                |       |                |      | 356   |      
|Other income, net                                                                                          |                          |                                                                               | 1                  |       |                |      | 78    |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|Income before income taxes and minority interest and cumulative effect
of a change in accounting principle |                          |                                                                               | 310                |       |                |      | 434   |      
|Income taxes                                                                                               |                          |                                                                               | (115               | )     |                |      | (148  | )    
|Minority interest                                                                                          |                          |                                                                               | (3                 | )     |                |      | 32    |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|Income before cumulative effect of change in accounting principle                                          |                          |                                                                               | 192                |       |                |      | 318   |      
|Cumulative effect of a change in accounting for goodwill                                                   |                          |                                                                               |                   |       |                |      | (208  | )    
|                                                                                                           |                          |                                                                               |                    |       |                |     
|NET INCOME                                                                                                 |                          | $                                                                             | 192                |       |                | $    | 110   |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|EARNINGS PER COMMON SHARE                                                                                  |                          |                                                                               |                    |       |                |      |       |      
|                                                                                                           | BASIC                    |                                                                               |                    |       |                |      |       |       |      
|                                                                                                           |                          | Earnings per share before cumulative
effect of change in accounting principle |                    | $     | 0.60           |      |       | $     | 0.99  |     
|                                                                                                           |                          | Cumulative effect of change in accounting principle                           |                    |       |               |      |       |       | (0.65 | )   
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               | Earnings per share |       | $              | 0.60 |       |       | $     | 0.34 | 
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|                                                                                                           | DILUTED                  |                                                                               |                    |       |                |      |       |       |      
|                                                                                                           |                          | Earnings per share before cumulative effect of change in accounting
principle |                    | $     | 0.60           |      |       | $     | 0.98  |     
|                                                                                                           |                          | Cumulative effect of change in accounting principle                           |                    |       |               |      |       |       | (0.64 | )   
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               | Earnings per share |       | $              | 0.60 |       |       | $     | 0.34 | 
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|Cash dividends declared per common share                                                                   |                          | $                                                                             | 0.23               |       |                | $    | 0.23  |      
|                                                                                                           |                          |                                                                               |                    |       |                |     
|                                                                                                           |                          |                                                                               |                    |       |                |      |       |      
|Average common and common equivalent shares outstanding                                                    |                          |                                                                               | 318.1              |       |                |      | 324.0 |      

See accompanying notes.

1



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SEARS, ROEBUCK AND CO.
Condensed Consolidated Balance Sheets

|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |        |        | 
|------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------------- | ------ | ----------- | --------- |  | ------ | ------------ | ------ |  | ------ | ------ | ------ | 
|                                                 |                                                                     |                                           |        | (Unaudited) |           |  |        |              |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |       
|millions                                         |                                                                     | March 29,                                 |        |             | March 30, |  |        | December 28, |       
|                                                 |                                                                     | 2003                                      |        |             | 2002      |  |        | 2002         |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |       
|ASSETS                                           |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|Current assets                                   |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|                                                 | Cash and cash equivalents                                           |                                           | $      | 3,846       |           |  | $      | 949          |        |  | $      | 1,962  |       
|                                                 | Credit card receivables                                             |                                           |        | 31,287      |           |  |        | 28,509       |        |  |        | 32,595 |       
|                                                 |                                                                     | Less allowance for uncollectible accounts |        |             | 1,847     |  |        |              | 1,162  |  |        |        | 1,836  | 
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 |                                                                     | Net credit card receivables               |        |             | 29,440    |  |        |              | 27,347 |  |        |        | 30,759 | 
|                                                 | Other receivables                                                   |                                           |        | 710         |           |  |        | 619          |        |  |        | 863    |       
|                                                 | Merchandise inventories                                             |                                           |        | 5,730       |           |  |        | 5,249        |        |  |        | 5,115  |       
|                                                 | Prepaid expenses and deferred charges                               |                                           |        | 708         |           |  |        | 629          |        |  |        | 535    |       
|                                                 | Deferred income taxes                                               |                                           |        | 790         |           |  |        | 994          |        |  |        | 749    |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 | Total current assets                                                |                                           |        | 41,224      |           |  |        | 35,787       |        |  |        | 39,983 |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|Property and equipment, net                      |                                                                     |                                           | 6,794  |             |           |  | 6,629  |              |        |  | 6,910  |       
|Deferred income taxes                            |                                                                     |                                           | 621    |             |           |  | 433    |              |        |  | 734    |       
|Goodwill                                         |                                                                     |                                           | 942    |             |           |  | 110    |              |        |  | 944    |       
|Tradenames and other intangible assets           |                                                                     |                                           | 703    |             |           |  |       |              |        |  | 704    |       
|Other assets                                     |                                                                     |                                           | 1,124  |             |           |  | 644    |              |        |  | 1,134  |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 | TOTAL ASSETS                                                        |                                           | $      | 51,408      |           |  | $      | 43,603       |        |  | $      | 50,409 |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|LIABILITIES                                      |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|Current liabilities                              |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|                                                 | Short-term borrowings                                               |                                           | $      | 6,775       |           |  | $      | 3,485        |        |  | $      | 4,525  |       
|                                                 | Current portion of long-term debt and capitalized lease
obligations |                                           |        | 3,909       |           |  |        | 4,414        |        |  |        | 4,808  |       
|                                                 | Accounts payable and other liabilities                              |                                           |        | 6,455       |           |  |        | 6,492        |        |  |        | 7,485  |       
|                                                 | Unearned revenues                                                   |                                           |        | 1,209       |           |  |        | 1,165        |        |  |        | 1,199  |       
|                                                 | Other taxes                                                         |                                           |        | 445         |           |  |        | 427          |        |  |        | 580    |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 | Total current liabilities                                           |                                           |        | 18,793      |           |  |        | 15,983       |        |  |        | 18,597 |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|Long-term debt and capitalized lease obligations |                                                                     |                                           | 22,021 |             |           |  | 18,084 |              |        |  | 21,304 |       
|Pension and postretirement benefits              |                                                                     |                                           | 2,414  |             |           |  | 2,351  |              |        |  | 2,491  |       
|Minority interest and other liabilities          |                                                                     |                                           | 1,246  |             |           |  | 1,375  |              |        |  | 1,264  |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 | Total Liabilities                                                   |                                           |        | 44,474      |           |  |        | 37,793       |        |  |        | 43,656 |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|COMMITMENTS AND CONTINGENT LIABILITIES           |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|SHAREHOLDERS EQUITY                             |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|Common shares                                    |                                                                     |                                           | 323    |             |           |  | 323    |              |        |  | 323    |       
|Capital in excess of par value                   |                                                                     |                                           | 3,503  |             |           |  | 3,505  |              |        |  | 3,505  |       
|Retained earnings                                |                                                                     |                                           | 8,617  |             |           |  | 7,449  |              |        |  | 8,497  |       
|Treasury stock  at cost                         |                                                                     |                                           | (4,458 | )           |           |  | (4,587 | )            |        |  | (4,474 | )     
|Deferred ESOP expense                            |                                                                     |                                           | (41    | )           |           |  | (54    | )            |        |  | (42    | )     
|Accumulated other comprehensive loss             |                                                                     |                                           | (1,010 | )           |           |  | (826   | )            |        |  | (1,056 | )     
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 | Total Shareholders Equity                                          |                                           |        | 6,934       |           |  |        | 5,810        |        |  |        | 6,753  |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|                                                 | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                          |                                           | $      | 51,408      |           |  | $      | 43,603       |        |  | $      | 50,409 |       
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        | 
|                                                 |                                                                     |                                           |        |             |           |  |        |              |        |  |        |       
|                                                 | Total common shares outstanding                                     |                                           |        | 317.1       |           |  |        | 313.9        |        |  |        | 316.7  |       

See accompanying notes.

2



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##### Table of Contents






SEARS, ROEBUCK AND CO.
Condensed Consolidated Statements of Cash Flows
(Unaudited)



|                                                                                           |                                                     |                             |                                                        |     |                |       |       |           |      |     |  
|------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------- | ------------------------------------------------------ | --- | -------------- | ----- | ----- | --------- | ---- | --- | -
|                                                                                           |                                                     |                             |                                                        |     | 13 Weeks Ended |      
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     | March 29,      |       |       | March 30, |     
|millions                                                                                   |                                                     | 2003                        |                                                        |     | 2002           |      
|                                                                                           |                                                     |                             |                                                        |     |                |      
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |                                                     |                             |                                                        |     |                |       |       |          
|Net income                                                                                 |                                                     | $                           | 192                                                    |     |                | $     | 110   |          
|Adjustments to reconcile net income to net cash provided by (used in)
operating activities |                                                     |                             |                                                        |     |                |       |       |          
|                                                                                           | Depreciation and amortization                       |                             |                                                        | 225 |                |       |       | 210       |     
|                                                                                           | Cumulative effect of change in accounting principle |                             |                                                        |    |                |       |       | 208       |     
|                                                                                           | Provision for uncollectible accounts                |                             |                                                        | 483 |                |       |       | 381       |     
|                                                                                           | Special charges and impairments                     |                             |                                                        |    |                |       |       | 111       |     
|                                                                                           | Gain on sales of property and investments           |                             |                                                        |    |                |       |       | (76       | )   
|                                                                                           | Income tax benefit on nonqualified stock options    |                             |                                                        | 1   |                |       |       | 9         |     
|                                                                                           | Change in:                                          |                             |                                                        |     |                |       |       |           |     
|                                                                                           |                                                     | Deferred income taxes       |                                                        |     | 83             |       |       |           | (154 | )  
|                                                                                           |                                                     | Credit card receivables     |                                                        |     | 960            |       |       |           | 430  |    
|                                                                                           |                                                     | Merchandise inventories     |                                                        |     | (580           | )     |       |           | (335 | )  
|                                                                                           |                                                     | Other operating assets      |                                                        |     | 7              |       |       |           | (135 | )  
|                                                                                           |                                                     | Other operating liabilities |                                                        |     | (1,338         | )     |       |           | (804 | )  
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             | Net cash provided by (used in) by operating activities |     |                | 33    |       |           |      | (45 | )
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |                                                     |                             |                                                        |     |                |       |       |          
|Proceeds from sales of property and investments                                            |                                                     |                             | 5                                                      |     |                |       | 123   |          
|Purchases of property and equipment                                                        |                                                     |                             | (93                                                    | )   |                |       | (171  | )        
|Purchases of long-term investments                                                         |                                                     |                             | (15                                                    | )   |                |       | (2    | )        
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             | Net cash used in investing activities                  |     |                | (103  | )     |           |      | (50 | )
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |                                                     |                             |                                                        |     |                |       |       |          
|Proceeds from long-term debt                                                               |                                                     |                             | 1,780                                                  |     |                |       | 1,372 |          
|Repayments of long-term debt                                                               |                                                     |                             | (2,014                                                 | )   |                |       | (882  | )        
|Increase (decrease) in short term borrowings                                               |                                                     |                             | 2,241                                                  |     |                |       | (72   | )        
|Repayments of ESOP note receivable                                                         |                                                     |                             |                                                       |     |                |       | 2     |          
|Common shares repurchased                                                                  |                                                     |                             |                                                       |     |                |       | (427  | )        
|Common shares issued for employee stock plans                                              |                                                     |                             | 14                                                     |     |                |       | 59    |          
|Dividends paid to shareholders                                                             |                                                     |                             | (73                                                    | )   |                |       | (74   | )        
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             | Net cash provided by (used in) financing activities    |     |                | 1,948 |       |           |      | (22 | )
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|Effect of exchange rate changes on cash and cash equivalents                               |                                                     |                             | 6                                                      |     |                |       | 2     |          
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                       |                                                     |                             | 1,884                                                  |     |                |       | (115  | )        
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|BALANCE AT BEGINNING OF YEAR                                                               |                                                     |                             | 1,962                                                  |     |                |       | 1,064 |          
|                                                                                           |                                                     |                             |                                                        |     |                |      
|                                                                                           |                                                     |                             |                                                        |     |                |       |       |          
|BALANCE AT END OF PERIOD                                                                   |                                                     | $                           | 3,846                                                  |     |                | $     | 949   |          
|                                                                                           |                                                     |                             |                                                        |     |                |      

See accompanying notes.

3



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Condensed Consolidated Balance Sheets as of March 29, 2003 and March 30,
2002, the related Condensed Consolidated Statements of Income for the 13 weeks
ended March 29, 2003 and March 30, 2002, and the Condensed Consolidated
Statements of Cash Flows for the 13 weeks ended March 29, 2003 and March 30,
2002, are unaudited. The interim financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Sears, Roebuck and Co. (the Company or Sears) 2002
Annual Report on Form 10-K. The results of operations for the interim periods
should not be considered indicative of results to be expected for the full
year.

Certain reclassifications have been made to the 2002 financial statements to
conform with the current year presentation.

In March 2003, the Company announced plans to evaluate strategic alternatives
for the Credit and Financial Products segment, including the possible sale of
all or a portion of the segment. The evaluation is progressing as scheduled
and the Company expects to conclude its evaluation and any related actions that
arise from the evaluation in the second half of 2003. As the evaluation is
still ongoing, the March 29, 2003 Condensed Consolidated Financial Statements
do not reflect any effects that may arise from the potential sale of all or a
portion of the segment.

NOTE 2  ACQUISITION

On June 17, 2002, the Company acquired 100 percent of the outstanding common
shares of Lands End, Inc. (Lands End). The results of Lands Ends
operations have been included in the consolidated financial statements since
that date. Headquartered in Dodgeville, Wisconsin, Lands End is a leading
direct merchant of traditionally styled, casual clothing for men, women and
children, accessories, footwear, home products and soft luggage.

The following unaudited pro forma information presents the results of
operations of the Company as if the Lands End acquisition had taken place at
the beginning of each respective period. Pro forma adjustments have been made
to reflect additional interest expense from the $1.8 billion in debt associated
with the acquisition.



|                                                     |         |                    |       |                |             |   |           |   |      | 
|---------------------------------------------------- | ------- | ------------------ | ----- | -------------- | ----------- | - | --------- | - | ---- | 
|                                                     |         |                    |       | 13 Weeks Ended |            
|                                                     |         |                    |       |                |            
|                                                     |         |                    |       | March 29,      |             |   | March 30, |  
|millions, except per share data                      |         | 2003               |       |                | 2002        |  
|                                                     |         |                    |       |                | (Pro Forma) |  
|                                                     |         |                    |       |                |             |  
|Revenues                                             |         | $                  | 8,880 |                |             | $ | 9,375     |  
|Income before cumulative effect of accounting change |         |                    | 192   |                |             |   | 314       |  
|Net income                                           |         |                    | 192   |                |             |   | 106       |  
|Earnings per share:                                  |         |                    |       |                |             |   |           |  
|                                                     | Basic   |                    |       |                |             |   |           |   |     
|                                                     |         | Earnings per share |       | $              | 0.60        |   |           | $ | 0.33 | 
|                                                     | Diluted |                    |       |                |             |   |           |   |     
|                                                     |         | Earnings per share |       | $              | 0.60        |   |           | $ | 0.33 | 

The unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations that
would have occurred had the Lands End acquisition occurred at the beginning of
the respective periods.

4



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##### Table of Contents



SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 3  CREDIT CARD RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

A summary of the Companys credit card receivables at March 29, 2003 and March
30, 2002 is as follows:

|                                  |              |      |           |        |      |           |        |        |          |   |        |        | 
|--------------------------------- | ------------ | ---- | --------- | ------ | ---- | --------- | ------ | ------ | -------- | - | ------ | ------ | 
|                                  |              |      | March 29, |        |      | March 30, |        |        | Dec. 28, |  
|millions                          |              | 2003 |           |        | 2002 |           |        | 2002   |         
|                                  |              |      |           |        |      |           |        |        |         
|Gross credit card receivables (1) |              |      |           |        |      |           |        |        |          |   |        |       
|                                  | Domestic     |      | $         | 29,540 |      |           | $      | 27,007 |          |   | $      | 30,766 | 
|                                  | Sears Canada |      |           | 1,719  |      |           |        | 1,471  |          |   |        | 1,797  | 
|                                  |              |      |           |        |      |           |        |        |          |  
|                                  |              |      | 31,259    |        |      |           | 28,478 |        |          |   | 32,563 |       
|Other customer receivables        |              |      | 28        |        |      |           | 31     |        |          |   | 32     |       
|                                  |              |      |           |        |      |           |        |        |          |  
|Total credit card receivables     |              | $    | 31,287    |        |      | $         | 28,509 |        |          | $ | 32,595 |       
|                                  |              |      |           |        |      |           |        |        |          |  



---

|(1) |  | At March 29, 2003, March 30, 2002 and December 28, 2002, $25.0 billion, $15.5 billion and $23.8 billion, respectively, of
credit card receivables were segregated in securitization entities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

A summary of the activity in the allowance for uncollectible accounts is as
follows:

|                          |  |                |       |   |           |   |       |  
|------------------------- |  | -------------- | ----- | - | --------- | - | ----- | -
|                          |  | 13 Weeks Ended |      
|                          |  |                |      
|                          |  | March 29,      |       |   | March 30, |  
|millions                  |  | 2003           |       |   | 2002      |  
|                          |  |                |       |   |           |  
|Beginning of year balance |  | $              | 1,836 |   |           | $ | 1,166 |  
|Provision                 |  |                | 483   |   |           |   | 381   |  
|Net charge-offs           |  |                | (472  | ) |           |   | (385  | )
|                          |  |                |       |   |           |  
|Ending balance            |  | $              | 1,847 |   |           | $ | 1,162 |  
|                          |  |                |       |   |           |  

NOTE 4  BORROWINGS

Total borrowings outstanding at March 29, 2003, March 30, 2002 and December 28,
2002 were $32.1 billion, $26.2 billion and $30.0 billion, respectively. Total
borrowings are presented on the balance sheet as follows:

|                        |                                          |      |           |        |      |           |        |        |              |   |        |        | 
|----------------------- | ---------------------------------------- | ---- | --------- | ------ | ---- | --------- | ------ | ------ | ------------ | - | ------ | ------ | 
|                        |                                          |      | March 29, |        |      | March 30, |        |        | December 28, |  
|millions                |                                          | 2003 |           |        | 2002 |           |        | 2002   |             
|                        |                                          |      |           |        |      |           |        |        |             
|Short-term borrowings:  |                                          |      |           |        |      |           |        |        |              |   |        |       
|                        | Unsecured commercial paper               |      | $         | 3,050  |      |           | $      | 3,410  |              |   | $      | 2,950  | 
|                        | Asset-backed commercial paper            |      |           | 2,250  |      |           |        |       |              |   |        | 1,500  | 
|                        | Asset-backed facility                    |      |           | 1,400  |      |           |        |       |              |   |        |       | 
|                        | Bank loans                               |      |           | 75     |      |           |        | 75     |              |   |        | 75     | 
|                        |                                          |      |           |        |      |           |        |        |              |  
|                        |                                          |      | 6,775     |        |      |           | 3,485  |        |              |   | 4,525  |       
|Long-term debt(1):      |                                          |      |           |        |      |           |        |        |              |   |        |       
|                        | Notes and debentures outstanding         |      |           | 13,484 |      |           |        | 12,770 |              |   |        | 13,094 | 
|                        | Securitizations                          |      |           | 11,411 |      |           |        | 9,459  |              |   |        | 11,951 | 
|                        | Capital lease obligations                |      |           | 461    |      |           |        | 463    |              |   |        | 458    | 
|                        |                                          |      |           |        |      |           |        |        |              |  
|Total borrowings        |                                          | $    | 32,131    |        |      | $         | 26,177 |        |              | $ | 30,028 |       
|                        | SFAS No. 133 Hedge Accounting Adjustment |      |           | 574    |      |           |        | (194   | )            |   |        | 609    | 
|                        |                                          |      |           |        |      |           |        |        |              |  
|Total debt              |                                          | $    | 32,705    |        |      | $         | 25,983 |        |              | $ | 30,637 |       
|                        |                                          |      |           |        |      |           |        |        |              |  
|Memo: Sears Canada debt |                                          | $    | 1,598     |        |      | $         | 1,563  |        |              | $ | 1,478  |       



---

|(1) |  | Includes capitalized lease obligations and current portion of long-term debt.
|--- |  | -----------------------------------------------------------------------------

---

5



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company maintains committed credit facilities to support its unsecured
commercial paper borrowings. In February 2003, the Companys domestic wholly
owned financing subsidiary, Sears Roebuck Acceptance Corp. (SRAC), through a
syndicate of banks, obtained an unsecured, 364-day revolving credit facility in
the amount of $3.5 billion. The facility includes the option to extend the
repayment of borrowings, if any, to February 2005.

The Company maintains asset-backed commercial paper programs. In February
2003, $2.8 billion was renewed with an expiration date of February 2004. In
March 2003, capacity was expanded by $0.8 billion with an expiration in March
2004. At March 29, 2003, $2.3 billion was outstanding under these programs.

In March 2003, the Company negotiated a $2.0 billion private asset-backed
facility. The facility is scheduled to enter its amortization period in
January 2004 and bears interest at a variable rate based on LIBOR. The Company
has borrowed $1.4 billion through this facility as of March 29, 2003.

NOTE 5  SPECIAL CHARGES AND IMPAIRMENTS

During the first quarter of 2002, Sears Canada converted its seven stores
operating under the Eatons banner to Sears Canada stores resulting in
severance, asset impairment and other exit costs amounting to $111 million.
All actions related to this charge were completed by the end of 2002.

Following is a summary of the 2003 activity in the reserve established for
employee termination costs in connection with previous Company productivity
initiatives:

|                           |  |          |    |  |          |   |     |          |         |   |    | 
|-------------------------- |  | -------- | -- |  | -------- | - | --- | -------- | ------- | - | -- | 
|                           |  | Ending   |    |  |          |   |     |          | Ending  |  
|                           |  | Reserve  |    |  |          |   |     |          | Reserve |  
|                           |  | Balance  |    |  | Cash     |   |     | Balance  |        
|millions                   |  | 12/28/02 |    |  | Payments |   |     | 03/29/03 |        
|                           |  |          |    |  |          |   |     |          |        
|Employee termination costs |  | $        | 23 |  |          | $ | (10 | )        |         | $ | 13 | 
|                           |  |          |    |  |          |   |     |          |         |   |    | 
|                           |  |          |    |  |          |   |     |          |        
|                           |  | $        | 23 |  |          | $ | (10 | )        |         | $ | 13 | 
|                           |  |          |    |  |          |   |     |          |        

As of year-end 2002, all
positions related to these productivity initiatives had been eliminated and the
remaining reserve for employee termination costs is expected to be
substantially paid out by the second quarter of 2003.

NOTE 6  SHAREHOLDERS EQUITY

Dividend Payments

Under terms of indentures entered into in 1991 and thereafter, the Company
cannot take specified actions, including the declaration of cash dividends,
that would cause its unencumbered assets, as defined, to fall below 150% of its
liabilities, as defined. At March 29, 2003, approximately $8.5 billion could
be paid in dividends to shareholders under the most restrictive indentures.

6



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##### Table of Contents



SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Share Repurchase Program

The Company did not repurchase any common shares during the first quarter of
2003. The Company repurchased 8.2 million common shares during the first
quarter of 2002 at a cost of $427 million under the common share repurchase
program approved by the Board of Directors.

As of March 29, 2003, the Company has remaining authorization to repurchase
$1.25 billion of shares by December 31, 2004 under the existing share
repurchase program.

Comprehensive Income and Accumulated Other Comprehensive Loss

The following table shows the computation of comprehensive income:

|                                                 |  |                |     |  |           |   |     | 
|------------------------------------------------ |  | -------------- | --- |  | --------- | - | --- | 
|                                                 |  | 13 Weeks Ended |    
|                                                 |  |                |    
|                                                 |  | March 29,      |     |  | March 30, |  
|millions                                         |  | 2003           |     |  | 2002      |  
|                                                 |  |                |     |  |           |  
|Net income                                       |  | $              | 192 |  |           | $ | 110 | 
|Other comprehensive income:                      |  |                |     |  |           |   |     | 
|Amounts amortized into interest expense from OCI |  |                | 4   |  |           |   | 4   | 
|Change in fair value of cash flow hedges         |  |                | 1   |  |           |   |    | 
|Foreign currency translation adjustments         |  |                | 41  |  |           |   | 1   | 
|                                                 |  |                |     |  |           |  
|Total accumulated other comprehensive income     |  |                | 46  |  |           |   | 5   | 
|                                                 |  |                |     |  |           |  
|Total comprehensive income                       |  | $              | 238 |  |           | $ | 115 | 
|                                                 |  |                |     |  |           |  

The following table displays the components of accumulated other comprehensive
loss:

|                                          |  |           |        |   |           |   |      |              |  |   |        |  
|----------------------------------------- |  | --------- | ------ | - | --------- | - | ---- | ------------ |  | - | ------ | -
|                                          |  | March 29, |        |   | March 30, |   |      | December 28, | 
|millions                                  |  | 2003      |        |   | 2002      |   |      | 2002         | 
|                                          |  |           |        |   |           |   |      |              | 
|Accumulated derivative loss               |  | $         | (196   | ) |           | $ | (207 | )            |  | $ | (201   | )
|Currency translation adjustments          |  |           | (103   | ) |           |   | (154 | )            |  |   | (144   | )
|Minimum pension liability, net of tax (1) |  |           | (711   | ) |           |   | (465 | )            |  |   | (711   | )
|                                          |  |           |        |   |           |   |      |              | 
|Accumulated other comprehensive loss      |  | $         | (1,010 | ) |           | $ | (826 | )            |  | $ | (1,056 | )
|                                          |  |           |        |   |           |   |      |              | 



---

|(1) |  | Minimum pension liability is calculated annually in the fourth quarter. Changes thereto are recorded at that time.
|--- |  | ------------------------------------------------------------------------------------------------------------------

---

NOTE 7  EARNINGS PER SHARE

The following table sets forth the computations of basic and diluted earnings
per share:

|                                                        |  |                |       |  |           |   |       | 
|------------------------------------------------------- |  | -------------- | ----- |  | --------- | - | ----- | 
|                                                        |  | 13 Weeks Ended |      
|                                                        |  |                |      
|                                                        |  | March 29,      |       |  | March 30, |  
|millions, except per share data                         |  | 2003           |       |  | 2002      |  
|                                                        |  |                |       |  |           |  
|Net income (1)                                          |  | $              | 192   |  |           | $ | 110   | 
|Average common shares outstanding                       |  |                | 317.9 |  |           |   | 319.0 | 
|                                                        |  |                |       |  |           |  
|Earnings per share  basic                              |  | $              | 0.60  |  |           | $ | 0.34  | 
|Dilutive effect of stock options                        |  |                | 0.2   |  |           |   | 5.0   | 
|                                                        |  |                |       |  |           |   |       | 
|Average common and common equivalent shares outstanding |  |                | 318.1 |  |           |   | 324.0 | 
|                                                        |  |                |       |  |           |  
|Earnings per share  diluted                            |  | $              | 0.60  |  |           | $ | 0.34  | 
|                                                        |  |                |       |  |           |  



---

|(1) |  | Net income is the same for purposes of calculating basic and diluted EPS.
|--- |  | -------------------------------------------------------------------------

---

7



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table sets forth the computations of basic and diluted earnings
per share before cumulative effect of changes in accounting:

|                                                                           |  |                |       |  |           |   |       | 
|-------------------------------------------------------------------------- |  | -------------- | ----- |  | --------- | - | ----- | 
|                                                                           |  | 13 Weeks Ended |      
|                                                                           |  |                |      
|                                                                           |  | March 29,      |       |  | March 30, |  
|millions, except per share data                                            |  | 2003           |       |  | 2002      |  
|                                                                           |  |                |       |  |           |  
|Income before cumulative effect of accounting change (1)                   |  | $              | 192   |  |           | $ | 318   | 
|Average common shares outstanding                                          |  |                | 317.9 |  |           |   | 319.0 | 
|                                                                           |  |                |       |  |           |  
|Earnings per share before cumulative effect of accounting change  basic   |  | $              | 0.60  |  |           | $ | 0.99  | 
|Dilutive effect of stock options                                           |  |                | 0.2   |  |           |   | 5.0   | 
|                                                                           |  |                |       |  |           |   |       | 
|Average common and common equivalent shares outstanding                    |  |                | 318.1 |  |           |   | 324.0 | 
|                                                                           |  |                |       |  |           |  
|Earnings per share before cumulative effect of accounting change  diluted |  | $              | 0.60  |  |           | $ | 0.98  | 
|                                                                           |  |                |       |  |           |  



---

|(1) |  | Income before cumulative effect of accounting change for goodwill is the same for purposes of
calculating basic and diluted EPS.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

---

In each period, certain options were excluded from the computation of diluted
earnings per share because they would have been anti-dilutive. At March 29,
2003, options to purchase 26.3 million common shares at prices ranging from $23
to $64 per share were excluded from the 13-week 2003 calculation. At March 30,
2002, options to purchase 3.8 million common shares at prices ranging from $52
to $64 per share were excluded from the 13-week 2002 calculation.

NOTE 8- STOCK BASED COMPENSATION

At March 29, 2003, the Company has various stock-based employee compensation
plans which are described more fully in Note 11 of the Notes to Consolidated
Financial Statements in the Companys 2002 Annual Report on Form 10-K. The
Company accounts for those plans in accordance with Accounting Principles Board
Opinion No. 25, Accounting For Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as no options granted under those plans had an exercise price less than
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation.

|                                                                                                                                    |             |      |                |      |      |           |     |      | 
|----------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---- | -------------- | ---- | ---- | --------- | --- | ---- | 
|                                                                                                                                    |             |      | 13 Weeks Ended |     
|                                                                                                                                    |             |      |                |     
|                                                                                                                                    |             |      | March 29,      |      |      | March 30, |    
|millions, except earnings per share                                                                                                 |             | 2003 |                |      | 2002 |          
|                                                                                                                                    |             |      |                |      |      |          
|Net income  as reported                                                                                                            |             | $    | 192            |      |      | $         | 110 |     
|Less: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related taxes |             |      | 10             |      |      |           | 15  |     
|                                                                                                                                    |             |      |                |      |      |          
|Net income  pro forma                                                                                                              |             | $    | 182            |      |      | $         | 95  |     
|                                                                                                                                    |             |      |                |      |      |          
|                                                                                                                                    |             |      |                |      |      |           |     |     
|Earnings per share  basic                                                                                                          |             |      |                |      |      |           |     |     
|                                                                                                                                    | As reported |      | $              | 0.60 |      |           | $   | 0.34 | 
|                                                                                                                                    | Pro forma   |      |                | 0.57 |      |           |     | 0.30 | 
|Earnings per share  diluted                                                                                                        |             |      |                |      |      |           |     |     
|                                                                                                                                    | As reported |      | $              | 0.60 |      |           | $   | 0.34 | 
|                                                                                                                                    | Pro forma   |      |                | 0.57 |      |           |     | 0.29 | 

8



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 9  IMPLEMENTATION OF NEW ACCOUNTING STANDARD

The Company receives allowances from its vendors through a variety of programs
and arrangements, including
co-operative advertising and markdown reimbursement programs. Given the
promotional nature of the Companys business, the allowances are generally
intended to offset the Companys costs of promoting, advertising and selling
the vendors products in its stores. Vendor allowances are recognized as a
reduction of cost of sales or related selling expense when the purpose for
which the vendor funds were intended to be used has been fulfilled.
Co-operative advertising allowances are reported as a reduction of advertising
expense in the period in which the advertising occurs. Markdown reimbursements
are credited to cost of goods sold during the period in which the related
promotional markdown is taken.

The FASBs Emerging Issues Task Force (EITF) Issue No. 02-16, Accounting By
A Customer (Including A Reseller) For Cash Consideration Received From A
Vendor addressed the accounting treatment for vendor allowances. The adoption
of EITF Issue No. 02-16 in 2003 did not have a material impact on the
Companys financial position or results of operations.

NOTE 10  LEGAL PROCEEDINGS

Pending against the Company and certain of its officers and directors are a
number of lawsuits, described below, that relate to the credit card business
and public statements about it. The Company believes that all of these claims
lack merit and is defending them vigorously.

On October 18, 2002, a lawsuit was filed in the United States District Court
for the Northern District of Illinois against the Company and certain current
and former officers alleging that certain public announcements by the Company
concerning its credit card business violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Additional lawsuits of the same tenor followed; with one exception, which is
pending in the United States District Court for the Northern District of
California, these cases are pending in the Northern District of Illinois. The
plaintiffs purport to represent classes of shareholders who purchased the
Companys common shares between January 17, 2002, and October 17, 2002. The
Northern District of Illinois actions have been consolidated and the Department
of the Treasury of the State of New Jersey has been appointed lead plaintiff
for the purported class.

On November 15, 2002, two lawsuits were filed in the United States District
Court for the Northern District of Illinois against the Company, certain
officers and directors, and alleged fiduciaries of Sears 401(k) Savings Plan
(the Plan), seeking damages and equitable relief under the Employee
Retirement Income Security Act (ERISA). The plaintiffs purport to represent
participants and beneficiaries of the Plan, and allege breaches of fiduciary
duties under ERISA in connection with the Plans investment in the Companys
common shares and alleged communications made to Plan participants regarding
the Companys financial condition. Additional lawsuits of the same tenor
followed. These actions have been consolidated into a single class action.
The plaintiffs have been ordered to file a consolidated amended complaint by
May 14, 2003.

On October 23, 2002, a purported derivative suit was filed in the Supreme Court
of the State of New York against the Company (as a nominal defendant) and
certain current and former directors seeking damages on behalf of the Company.
The complaint purports to allege a breach of fiduciary duty by the directors
with respect to the Companys management of its credit business. After the
Company filed a motion to dismiss the complaint, the plaintiff was granted
leave to amend the complaint. The Company has until May 30, 2003 to answer or
move to dismiss the amended complaint. Two similar suits were subsequently
filed in the Circuit Court of Cook County, Illinois, and a third was filed in
the United States District Court for the Northern District of Illinois.
Motions have been made to dismiss these actions, or, in the alternative, to
stay them, pending disposition of the action in New
York. The Cook County, Illinois actions have been stayed pending resolution of
the motion to dismiss the amended complaint in the New York action.

9



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company is subject to various other legal and governmental proceedings,
many involving litigation incidental to the businesses. Some matters contain
class action allegations, environmental and asbestos exposure allegations and
other consumer based claims that involve compensatory, punitive or treble
damage claims in very large amounts as well as other types of relief. The
consequences of these matters are not presently determinable but, in the
opinion of management of the Company after consulting with legal counsel and
taking into account insurance and reserves, the ultimate liability is not
expected to have a material effect on annual results of operations, financial
position, liquidity or capital resources of the Company.

NOTE 11  FINANCIAL GUARANTEES

The Company had total financial guarantees of $83 million at March 29, 2003,
which primarily included a $79 million guaranty representing a commitment by
the Company to guarantee the performance of certain municipal bonds issued in
connection with the Companys headquarters building. This guaranty expires in
2012. In addition, the Company had additional guarantees of approximately $5
million in which the Company guaranteed leases of certain Company affiliates.

NOTE 12  SEGMENT DISCLOSURES

In response to guidance issued by the Securities and Exchange Commission
related to the use of non-GAAP financial measures, the Company revised its
segment presentation to include noncomparable items within the segment to which
it relates. The following tables set forth-operating results and total assets
by segment:

For the 13 weeks ended March 29, 2003

|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |       |              |     |   |        |       |       | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | -------- | - | ---------- | ----- | --- | --------- | ------ | --- | ----- | ---- | ----- | ------------ | --- | - | ------ | ----- | ----- | 
|                                       |                                      |                          |        | Retail and |          |   | Credit and |       |     | Corporate |        |     |       |      |       |              |     |   |       
|                                       |                                      |                          |        | Related    |          |   | Financial  |       |     | and       |        |     | Sears |      |       | Consolidated |    
|millions                               |                                      | Services                 |        |            | Products |   |            | Other |     |           | Canada |     |       | GAAP |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      
|Merchandise sales and services         |                                      | $                        | 6,644  |            |          | $ |           |       |     | $         | 63     |     |       | $    | 767   |              |     | $ | 7,474  |      
|Credit and financial products revenues |                                      |                          |       |            |          |   | 1,330      |       |     |           |       |     |       |      | 76    |              |     |   | 1,406  |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      
|                                       | Total revenues                       |                          |        | 6,644      |          |   |            | 1,330 |     |           |        | 63  |       |      |       | 843          |     |   |        | 8,880 |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |       |              |     |   |        |      
|Costs and expenses                     |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |       |              |     |   |        |      
|                                       | Cost of sales, buying and occupancy  |                          |        | 4,914      |          |   |            |      |     |           |        | 24  |       |      |       | 536          |     |   |        | 5,474 |      
|                                       | Selling and administrative           |                          |        | 1,561      |          |   |            | 218   |     |           |        | 101 |       |      |       | 230          |     |   |        | 2,110 |      
|                                       | Provision for uncollectible accounts |                          |        |           |          |   |            | 471   |     |           |        |    |       |      |       | 12           |     |   |        | 483   |      
|                                       | Depreciation and amortization        |                          |        | 183        |          |   |            | 4     |     |           |        | 11  |       |      |       | 27           |     |   |        | 225   |      
|                                       | Interest                             |                          |        | 9          |          |   |            | 242   |     |           |        |    |       |      |       | 28           |     |   |        | 279   |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      
|                                       |                                      | Total costs and expenses |        |            | 6,667    |   |            |       | 935 |           |        |     | 136   |      |       |              | 833 |   |        |       | 8,571 | 
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      
|Operating income (loss)                |                                      | $                        | (23    | )          |          | $ | 395        |       |     | $         | (73    | )   |       | $    | 10    |              |     | $ | 309    |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      
|Total assets                           |                                      | $                        | 12,964 |            |          | $ | 32,732     |       |     | $         | 2,200  |     |       | $    | 3,512 |              |     | $ | 51,408 |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |     |       |      |      

10



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SEARS, ROEBUCK AND CO.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the 13 weeks ended March 30, 2002

|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |       |              |     |   |        |       |       | 
|-------------------------------------- | ------------------------------------ | ------------------------ | ------ | ---------- | -------- | - | ---------- | ----- | --- | --------- | ------ | -- | ----- | ---- | ----- | ------------ | --- | - | ------ | ----- | ----- | 
|                                       |                                      |                          |        | Retail and |          |   | Credit and |       |     | Corporate |        |    |       |      |       |              |     |   |       
|                                       |                                      |                          |        | Related    |          |   | Financial  |       |     | and       |        |    | Sears |      |       | Consolidated |    
|millions                               |                                      | Services                 |        |            | Products |   |            | Other |     |           | Canada |    |       | GAAP |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      
|Merchandise sales and services         |                                      | $                        | 6,768  |            |          | $ |           |       |     | $         | 58     |    |       | $    | 821   |              |     | $ | 7,647  |      
|Credit and financial products revenues |                                      |                          |       |            |          |   | 1,318      |       |     |           |       |    |       |      | 72    |              |     |   | 1,390  |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      
|                                       | Total revenues                       |                          |        | 6,768      |          |   |            | 1,318 |     |           |        | 58 |       |      |       | 893          |     |   |        | 9,037 |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |       |              |     |   |        |      
|Costs and expenses                     |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |       |              |     |   |        |      
|                                       | Cost of sales, buying and occupancy  |                          |        | 5,005      |          |   |            |      |     |           |        | 21 |       |      |       | 600          |     |   |        | 5,626 |      
|                                       | Selling and administrative           |                          |        | 1,512      |          |   |            | 228   |     |           |        | 94 |       |      |       | 227          |     |   |        | 2,061 |      
|                                       | Provision for uncollectible accounts |                          |        |           |          |   |            | 371   |     |           |        |   |       |      |       | 10           |     |   |        | 381   |      
|                                       | Depreciation and amortization        |                          |        | 168        |          |   |            | 5     |     |           |        | 12 |       |      |       | 25           |     |   |        | 210   |      
|                                       | Interest                             |                          |        | (4         | )        |   |            | 271   |     |           |        |   |       |      |       | 25           |     |   |        | 292   |      
|                                       | Special charges and impairments      |                          |        |           |          |   |            |      |     |           |        |   |       |      |       | 111          |     |   |        | 111   |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |       |              |     |   |        |      
|                                       |                                      | Total costs and expenses |        |            | 6,681    |   |            |       | 875 |           |        |    | 127   |      |       |              | 998 |   |        |       | 8,681 | 
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      
|Operating income (loss)                |                                      | $                        | 87     |            |          | $ | 443        |       |     | $         | (69    | )  |       | $    | (105  | )            |     | $ | 356    |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      
|Total assets                           |                                      | $                        | 10,659 |            |          | $ | 27,317     |       |     | $         | 2,363  |    |       | $    | 3,264 |              |     | $ | 43,603 |      
|                                       |                                      |                          |        |            |          |   |            |       |     |           |        |    |       |      |      

11



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##### Table of Contents



SEARS, ROEBUCK AND CO.




INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors and Shareholders of
Sears, Roebuck and Co.

We have reviewed the accompanying Condensed Consolidated Balance Sheets of
Sears, Roebuck and Co. as of March 29, 2003 and March 30, 2002, and the related
Condensed Consolidated Statements of Income and Cash Flows for the 13-week
periods ended March 29, 2003 and March 30, 2002. These condensed consolidated
financial statements are the responsibility of the Companys management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the Consolidated Balance Sheet of
Sears, Roebuck and Co. as of December 28, 2002, and the related Consolidated
Statements of Income, Shareholders Equity, and Cash Flows for the year then
ended (not presented herein); and in our report dated February 28, 2003, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying Condensed
Consolidated Balance Sheet as of December 28, 2002 is fairly stated, in all
material respects, in relation to the Consolidated Balance Sheet from which it
has been derived.

|                                                 |  | 
|------------------------------------------------ |  | 
|/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP |  | 
|                                                 |  | 
|Chicago, Illinois                                |  | 
|May 5, 2003                                      |  | 

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##### Table of Contents



SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002




Item 2. Managements Discussion and Analysis of Operations, Financial Condition and Liquidity

Operating results for the Company are reported for three domestic segments and
Sears Canada. The domestic segments include the Companys operations in the
United States and Puerto Rico. The Companys segments are defined as follows:

|  |  |                                            |  |                                                                                                                                                                                                                                                               |   |                                                                                                                                                           |                                                                                                                                                                               |                               |                                                                                                                                                                               |                                                                                                 
|- |  | ------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------
| |  | Retail and Related Services consisting of: |  |                                                                                                                                                                                                                                                              |   | Credit and Financial Products
includes domestic credit
card operations and related
financial product offerings
(credit protection and insurance products)
|  |  | -                                          |  | Full-line Stores (includes operations
of Sears Auto Centers and online revenues
of Sears.com)                                                                                                                                                                 |   |                                                                                                                                                           |                                                                                                                                                                              
| 
|  |  | -                                          |  | Specialty Stores (Dealer Stores,
Hardware Stores, National Tire & Battery,
The Great Indoors, Commercial Sales and Outlet stores)                                                                                                                             |   |                                                                                                                                                          |                                                                                                                                                                               | Corporate and Other includes:
|  |  |                                            |  |                                                                                                                                                                                                                                                               |   |                                                                                                                                                           | -                                                                                                                                                                             |                               | Activities that are of an
overall holding company
nature, primarily consisting
of administrative activities,
the costs of which are not
allocated to the Companys
businesses
|  |  | -                                          |  | Direct to Customer (includes Lands End
online and catalog operations as well as
results of operations for Lands End
retail stores; also includes direct
marketing of goods, services and
memberships, through specialty catalogs
and other direct channels) |   |                                                                                                                                                           |                                                                                                                                                                               | -                             |                                                                                                                                                                               | Home improvement services
(primarily siding and windows
through Sears Home
Improvement Services)
|  |  |                                            |  |                                                                                                                                                                                                                                                               |  |                                                                                                                                                           | Sears Canada conducts
similar retail, credit, and
corporate operations in
Canada through Sears Canada
Inc. (Sears Canada), a
consolidated, 54.4% owned
subsidiary of Sears.
|  |  | -                                          |  | Product Repair Services (includes
product repair, service contract
protection and installation services for
all major brands of home products; also
sells and services residential heating
and cooling systems)                                               |   |                                                                                                                                                           |                                                                                                                                                                               |                               |                                                                                                                                                                               |                                                                                                 

STRATEGIC INITIATIVES

In March 2003, the Company announced plans to evaluate strategic alternatives
for the Credit and Financial Products segment, including the possible sale of
all or a portion of the segment. The evaluation is progressing as scheduled
and the Company expects to conclude its evaluation and any related actions that
arise from the evaluation in the second half of 2003.

CONSOLIDATED OPERATIONS

Total revenueswere $8.9 billion and $9.0 billion for the 13 weeks ended March
29, 2003 and March 30, 2002, respectively.



| |  |  | Revenues from merchandise sales and serviceswere $7.5 billion for
the 13 weeks ended March 29, 2003, a decrease of 2.3% from the prior
year. Revenues in Full-line Stores were $4.7 billion in the first
quarter of 2003, a decrease of 8.8% from the comparable 2002 period.
Lower store sales in the first quarter of 2003 were attributable to the
weak retail environment, the effects of merchandise category exits and
edits, and the later Easter holiday. Specialty Stores revenues were
$1.1 billion in the first quarter of 2003, flat to the comparable prior
year period. Direct to Customer revenues increased to $368 million in
the first quarter of 2003, primarily due to the addition of Lands End,
which was acquired in June 2002. The revenues of Lands End for the 13
weeks ended March 29, 2003 were $333 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Credit and financial products revenueswere $1.4 billion for the 13
weeks ended March 29, 2003, an increase of 1.2% from the comparable
prior year period. Increases in credit revenues in the first quarter
of 2003 were primarily due to the growth of the domestic Sears Gold
MasterCard (MasterCard) product with average credit card balances up
10.7% as compared to the first quarter of 2002. This increase was
partially offset by a decline in the yield, which is attributable to a
reduced finance charge on credit products in a lower interest rate
environment, an increase in the size of the MasterCard portfolio, which
has a lower yield than the proprietary card, and lower late fees.                                                                                                                               

Costs and expenseswere $8.6 billion for the 13 weeks ended March 29, 2003,
compared with $8.7 billion for the comparable prior year period.

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002



| |  |  | Cost of sales, buying and occupancyas a percentage of merchandise
sales and services was 73.2% in the first quarter of 2003, compared to
73.6% in the first quarter of 2002. Correspondingly, gross margin
rates were 26.8% and 26.4% for the 13 weeks ended March 29, 2003 and
March 30, 2002, respectively. The improvement in the retail gross
margin rate was primarily due to the planned reduction in the
unprofitable promotional activity within Sears Canada, as well as
improvements in vendor sourcing and the inclusion of Lands Ends
results in the first quarter of 2003, whose business has a higher gross
margin rate. These benefits were partially offset by an increase in
domestic promotional activity due to the highly competitive and weak
retail environment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Selling and administrativeexpenses as a percentage of total
revenues were 23.8% in the first quarter of 2003, compared to 22.8% in
the comparable prior year period. This increase was due to unfavorable
expense leverage, which resulted from the decline in revenues as well
as the inclusion of Lands End, which has a higher expense ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | The provision for uncollectible accounts(provision) was $483
million in the first quarter of 2003, compared to $381 million in the
first quarter of 2002. The increase in the 2003 provision reflects an
increase in net charge-offs as a result of higher balances, the
seasoning of the MasterCard portfolio, an increase in bankruptcies and
the soft economic environment.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Interestexpense was $279 million for the 13 week period ended
March 29, 2003, compared to $292 million for the comparable prior year
period. The decrease in interest expense was due to the favorable
funding rate environment, partially offset by additional borrowings to
finance the Lands End acquisition and higher credit card receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Special charges and impairmentsreflect costs incurred from
strategic actions implemented by the Company to restructure its
operations and costs due to asset impairments. During the first
quarter of 2002, Sears Canada converted its seven stores operating
under the Eatons banner to Sears Canada stores, resulting in severance,
asset impairment and other exit costs amounting to $111 million. This
restructuring enabled Sears Canada to better leverage its buying and
advertising efforts, and Sears Canada brand equity.                                                                                                                                                                                                                                                    

Other incomewas $1 million for the 13 weeks ended March 29, 2003, as compared
to $78 million for the comparable prior year period. The decrease in 2003 was
primarily due to a $71 million pretax gain on the sale of a portion of the
Companys holdings in Advance Auto Parts (AAP) in the first quarter of 2002.

Income taxesas a percentage of income before taxes, minority interest and
cumulative effect of change in accounting principle were 37.1% in the first
quarter of 2003, compared with 34.1% in the first quarter of 2002. The
increase in the effective income tax rate in 2003 was attributable to
favorability in the first quarter of 2002 due to the lower tax rate on the sale
of a portion of the Companys investment in AAP, as well as a lower effective
tax rate for Sears Canada in the prior year as a result of the special charge
taken related to the conversion of the Eatons stores.

During 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, resulting in a charge
of $208 million (net of income taxes and minority interest), representing the
cumulative effect of the change in accounting for goodwillas of the beginning
of 2002. The charge reflects goodwill impairment primarily related to National
Tire & Battery (NTB) and Orchard Supply Hardware, offset by the reversal of
negative goodwill related to Sears Canadas purchase of Eatons.

Net incomewas $192 million and $110 million for the 13 weeks ended March 29,
2003 and March 30, 2002, respectively. As noted above, the Companys results
of operations for the first quarter of 2002 were affected by accounting
changes, special charges and a gain on the sale of investments. In aggregate,
these items reduced first quarter 2002 net income by $190 million. First
quarter 2003 reported results were not affected by any such items.

Due to holiday buying patterns, merchandise sales are typically higher in the
fourth quarter than in other quarterly periods, and a disproportionate share of
operating income is typically earned in the fourth quarter. This business

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

seasonality results in performance for the 13 weeks ended March 29, 2003 which
is not necessarily indicative of performance for the balance of the year.

SEGMENT OPERATIONS

The Company is organized into four principal business segments  Retail and
Related Services, Credit and Financial Products, Corporate and Other, and Sears
Canada. Following is a discussion of results of operations by business
segment.

Retail and Related Services

Retail and Related Services results and key statistics were as follows:

|                                                          |                                            |           |                |       |           |   |       |       |  
|--------------------------------------------------------- | ------------------------------------------ | --------- | -------------- | ----- | --------- | - | ----- | ----- | -
|                                                          |                                            |           | 13 Weeks Ended |      
|                                                          |                                            |           |                |      
|millions, except number of stores                         |                                            | March 29, |                |       | March 30, |  
|                                                          |                                            | 2003      |                |       | 2002      |  
|                                                          |                                            |           |                |       |           |   |      
|Full-line Stores                                          |                                            | $         | 4,651          |       |           | $ | 5,102 |      
|Specialty Stores                                          |                                            |           | 1,123          |       |           |   | 1,118 |      
|Direct to Customer                                        |                                            |           | 368            |       |           |   | 42    |      
|Product Repair Services                                   |                                            |           | 502            |       |           |   | 506   |      
|                                                          |                                            |           |                |       |           |  
|                                                          | Total Retail and Related Services revenues |           |                | 6,644 |           |   |       | 6,768 |  
|                                                          |                                            |           |                |       |           |  
|                                                          |                                            |           |                |       |           |   |       |      
|Cost of sales, buying and occupancy                       |                                            |           | 4,914          |       |           |   | 5,005 |      
|Selling and administrative                                |                                            |           | 1,561          |       |           |   | 1,512 |      
|Depreciation and amortization                             |                                            |           | 183            |       |           |   | 168   |      
|Interest                                                  |                                            |           | 9              |       |           |   | (4    | )    
|                                                          |                                            |           |                |       |           |  
|                                                          | Total costs and expenses                   |           |                | 6,667 |           |   |       | 6,681 |  
|                                                          |                                            |           |                |       |           |  
|Operating (loss) income                                   |                                            | $         | (23            | )     |           | $ | 87    |      
|                                                          |                                            |           |                |       |           |  
|                                                          |                                            |           |                |       |           |   |       |      
|Number of:                                                |                                            |           |                |       |           |   |       |      
|                                                          |                                            |           |                |       |           |   |       |      
|                                                          | Full-line Stores                           |           |                | 870   |           |   |       | 870   |  
|                                                          |                                            |           |                |       |           |   |       |      
|                                                          | Specialty Stores                           |           |                | 1,304 |           |   |       | 1,299 |  
|                                                          |                                            |           |                |       |           |   |       |      
|                                                          | Lands End Retail Stores                   |           |                | 15    |           |   |       |      |  
|                                                          |                                            |           |                |       |           |  
|Total Retail Stores                                       |                                            |           | 2,189          |       |           |   | 2,169 |      
|                                                          |                                            |           |                |       |           |  
|                                                          |                                            |           |                |       |           |   |       |      
|Comparable store sales percentage (decrease) increase (1) |                                            |           |                |       |           |   |       |      
|                                                          | Hardlines                                  |           |                | -5.0  | %         |   |       | -2.4  | %
|                                                          | Softlines                                  |           |                | -12.7 | %         |   |       | -8.3  | %
|                                                          | Full-line Stores                           |           |                | -7.5  | %         |   |       | -3.8  | %
|                                                          | Specialty Stores                           |           |                | -2.7  | %         |   |       | 2.2   | %
|                                                          | Total                                      |           |                | -6.7  | %         |   |       | -2.9  | %



---

|(1) |  | For purposes of determining comparable store sales, a store is considered to be
comparable at the beginning of the 13th month after the store is opened.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

---

Retail and Related Services revenues decreased 1.8% in the first quarter of
2003, primarily due to the decline in Full-line Store revenues, partially
offset by the addition of Lands End in June 2002. Comparable store sales
declined 6.7% for the quarter. Full-line Stores revenues decreased 8.8% for
the 13 weeks ended March 29, 2003 from the comparable prior year period, and
comparable store sales declined 7.5% as a result of the weak retail
environment, the effects of merchandise category exits and edits, and the later
Easter holiday. In Hardlines, comparable store sales declined 5.0% in the
first quarter of 2003, as sales of home appliances, electronics and other
big-ticket items declined due to factors such as the weak economy, competition
and price deflation. Lawn
and garden sales on a comparable basis increased 12.4% for the first quarter.
In Softlines, comparable store sales declined 12.7% in the first quarter of
2003 reflecting the later Easter selling season as well as the fact that the
majority of the merchandise category exits and edits were in Softlines. The
Company expects improving

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

comparable store sales trends in its Full-line Stores, primarily in the second
half of 2003, due to the expected positive impacts of the continued roll-out of
Lands End and a lower level of sales disruption resulting from repositioning
efforts.

Specialty Stores revenues increased 0.4% in the first quarter of 2003 compared
with the first quarter of 2002 with comparable store sales declining 2.7%. The
addition of three new The Great Indoors stores and a comparable store sales
increase of 3.8% for Dealer stores contributed to the modest increase. The
comparable store sales increase within Dealer Stores was due to increases in
lawn and garden sales as well as appliance sales. These favorable increases
were offset by sales declines in Outlet stores, Hardware stores and NTB stores
which posted comparable store sales declines of 13.6%, 3.5% and 4.8%,
respectively. As stated above, the Company has opened three The Great Indoors
stores since the first quarter of 2002, bringing the total to 20 stores. To
date, the results of The Great Indoors stores have not met the expectations of
management. As a result, the Company has slowed the pace of The Great Indoors
store openings and initiated actions to improve the profitability and
productivity of the format. The Company expects to open one The Great Indoors
store in 2003.

Direct to Customer revenues for the 13 weeks ended March 29, 2003 increased
over the comparable prior year period primarily due to the acquisition of
Lands End, which contributed $333 million in revenues in the first quarter of
2003. Product Repair Services revenues decreased slightly in the first quarter
of 2003 compared to the first quarter of 2002. Prior year revenue benefited
from a significant vendor product recall, which was offset by current year
revenue increases resulting from an agreement to provide repair services for an
appliance manufacturer, as well as higher service contract revenue.

Retail and Related Services gross margin as a percentage of Retail and Related
Services revenues was flat to prior year as an increase in promotional activity
in a highly competitive and weak retail environment was offset by the inclusion
of Lands End, which has a higher margin rate, and improvements in sourcing.

Retail and Related Services selling and administrative expense as a percentage
of Retail and Related Services revenues increased 120 basis points in the first
quarter of 2003 compared to the prior year. While the Company continues to
recognize expense savings from its productivity initiatives, selling and
administrative expense leverage was unfavorably affected by decreases in
Full-line Store revenues and the inclusion of Lands End, which has a higher
expense ratio.

Retail and Related Services reported an operating loss of $23 million for the
13 weeks ended March 29, 2003, compared to operating income of $87 million in
the first quarter of 2002, as a result of lower store sales, increased
promotional activity and increased operating expense.

Credit and Financial Products

Credit and Financial Products results were as follows:

|                                       |                          |           |                |     |           |   |       |     | 
|-------------------------------------- | ------------------------ | --------- | -------------- | --- | --------- | - | ----- | --- | 
|                                       |                          |           | 13 Weeks Ended |    
|                                       |                          |           |                |    
|millions                               |                          | March 29, |                |     | March 30, |  
|                                       |                          | 2003      |                |     | 2002      |  
|                                       |                          |           |                |     |           |   |      
|Credit and Financial Products revenues |                          | $         | 1,330          |     |           | $ | 1,318 |    
|                                       |                          |           |                |     |           |  
|                                       |                          |           |                |     |           |   |       |    
|Selling and administrative             |                          |           | 218            |     |           |   | 228   |    
|Provision for uncollectible accounts   |                          |           | 471            |     |           |   | 371   |    
|Depreciation and amortization          |                          |           | 4              |     |           |   | 5     |    
|Interest                               |                          |           | 242            |     |           |   | 271   |    
|                                       |                          |           |                |     |           |  
|                                       | Total costs and expenses |           |                | 935 |           |   |       | 875 | 
|                                       |                          |           |                |     |           |  
|                                       |                          |           |                |     |           |   |       |    
|Operating income                       |                          | $         | 395            |     |           | $ | 443   |    
|                                       |                          |           |                |     |           |  

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

A summary of Credit information is as follows:

|                                                                 |                 |  |                |       |   |           |      |       |  
|---------------------------------------------------------------- | --------------- |  | -------------- | ----- | - | --------- | ---- | ----- | -
|                                                                 |                 |  | 13 Weeks Ended |      
|                                                                 |                 |  |                |      
|                                                                 |                 |  | March 29,      |       |   | March 30, |     
|                                                                 |                 |  | 2003           |       |   | 2002      |     
|                                                                 |                 |  |                |       |   |           |     
|Credit share (1)                                                 |                 |  | 41.7           | %     |   |           | 43.8 | %    
|Average account balance as of March 29, 2003
and March 30, 2002: |                 |  |                |       |   |           |      |      
|                                                                 | Sears Card      |  | $              | 1,232 |   |           | $    | 1,200 |  
|                                                                 | MasterCard      |  | $              | 1,730 |   |           | $    | 1,363 |  
|                                                                 | Total portfolio |  | $              | 1,401 |   |           | $    | 1,235 |  
|                                                                 |                 |  |                |       |   |           |      |      
|Portfolio yield:                                                 |                 |  |                |       |   |           |      |      
|                                                                 | Sears Card      |  |                | 18.51 | % |           |      | 19.64 | %
|                                                                 | MasterCard      |  |                | 14.67 | % |           |      | 14.84 | %
|                                                                 | Total portfolio |  |                | 16.94 | % |           |      | 18.64 | %



---

|(1) |  | Credit share is the percentage of retail sales, excluding Direct to Customer, Orchard Supply Hardware and National Tire &
Battery, paid for with a Sears credit product (Sears Card or MasterCard).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                 |            |           |                |        |       |  |  |           |   |  |       |        |  |  |  |       |  
|-------------------------------- | ---------- | --------- | -------------- | ------ | ----- |  |  | --------- | - |  | ----- | ------ |  |  |  | ----- | -
|                                 |            |           | 13 Weeks Ended |       
|                                 |            |           |                |       
|millions                         |            | March 29, |                |        | % of  |  |  | March 30, |   |  | % of  |       
|                                 |            | 2003      |                |        | Total |  |  | 2002      |   |  | Total |       
|                                 |            |           |                |        |       |  |  |           |   |  |       |        | 
|Average credit card receivables: |            |           |                |        |       |  |  |           |   |  |       |        |  |  |  |      
|                                 | Sears Card |           | $              | 17,817 |       |  |  | 59.0      | % |  | $     | 21,618 |  |  |  | 79.2  | %
|                                 | MasterCard |           |                | 12,375 |       |  |  | 41.0      | % |  |       | 5,668  |  |  |  | 20.8  | %
|                                 |            |           |                |        |       |  |  |           |   |  |       |        | 
|                                 | Total      |           | $              | 30,192 |       |  |  | 100.0     | % |  | $     | 27,286 |  |  |  | 100.0 | %
|                                 |            |           |                |        |       |  |  |           |   |  |       |        | 
|                                 |            |           |                |        |       |  |  |           |   |  |       |        |  |  |  |      
|Ending credit card receivables:  |            |           |                |        |       |  |  |           |   |  |       |        |  |  |  |      
|                                 | Sears Card |           | $              | 17,160 |       |  |  | 58.1      | % |  | $     | 20,698 |  |  |  | 76.6  | %
|                                 | MasterCard |           |                | 12,380 |       |  |  | 41.9      | % |  |       | 6,309  |  |  |  | 23.4  | %
|                                 |            |           |                |        |       |  |  |           |   |  |       |        | 
|                                 | Total      |           | $              | 29,540 |       |  |  | 100.0     | % |  | $     | 27,007 |  |  |  | 100.0 | %
|                                 |            |           |                |        |       |  |  |           |   |  |       |        | 

Portfolio Initiatives

During the first quarter of 2003, the Company continued to focus its account
management efforts on improving portfolio performance. Ending credit card
receivables declined to $29.5 billion from $30.8 billion at year-end 2002.
While it is typical to see such a post-holiday decline in credit card
receivables, substitutions, convenience checks and balance transfer offers and
direct mail marketing to obtain new customers were significantly curtailed. In
addition, $17 billion of unused lines of credit have been eliminated since
year-end 2002 through closure of inactive accounts and the reduction of credit
lines on certain delinquent and/or inactive accounts. The Company is
addressing excess unused lines of credit and has plans to further reduce credit
lines, primarily on inactive accounts, during the second quarter of 2003.

The Company is also repricing a significant number of accounts effective July
2003, and has enhanced the collection process to accelerate escalated
collection activity on the higher risk segments of the total credit card
portfolio.

The benefits of these actions are expected to be realized during the second
half of 2003, as total portfolio net charge-offs are expected to average 6.5% -
7.0% in 2003.

2003 Compared with 2002

For the 13 weeks ended March 29, 2003, Credit and Financial Products revenues
increased 0.9% to $1.3 billion compared to the prior year. The modest increase
in revenues was primarily due to a 10.7% increase in average balances,
partially offset by a 170 basis point decline in portfolio yield. The decline
in portfolio yield is primarily

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

attributable to a reduced finance charge rate on variable priced credit
products due to a lower interest rate environment, lower late fees and a shift
of the portfolio composition from an average of 20.8% MasterCard account
balances in the first quarter of 2002 to 41.0% in the first quarter of 2003.
The MasterCard product generally carries a risk-based variable finance charge
rate that typically is lower than the finance charge rate on the Sears Card.
In addition, MasterCard accountholders typically repay their account balances
more quickly, which reduces the yield generated on the portfolio. The increase
in average balances per card was primarily attributable to the growth of the
MasterCard portfolio, which generally carries a higher average credit line and
outstanding balances, and has greater utility due to its global acceptance and
cash access features.

Interest expense decreased by $29 million in the first quarter of 2003 compared
to the prior year. The decrease was attributable to the Companys use of
variable rate funding in a lower interest rate environment, partially offset by
higher funding levels to support receivables growth. As of March 29, 2003 and
March 28, 2002, approximately 80% and 87%, respectively, of the Companys
funding portfolio was variable rate debt. The Company allocates domestic debt
and interest expense to its Credit and Financial Products segment, assuming
that the segment would be capitalized at a 9 to 1 debt to equity ratio.

Selling and administrative expense decreased 4.4% in the first quarter of 2003
from the prior year. The decrease was primarily due to reductions in
communication and payroll expenses which more than offset increases in consumer
fraud costs due to the growth of the MasterCard portfolio.

The provision for uncollectible accounts increased by $100 million in the first
quarter of 2003 compared to the prior year primarily due to an increase in net
charge-offs over the prior year as a result of higher balances, the seasoning
of the MasterCard portfolio, an increase in bankruptcies and the soft economic
environment. In addition, the Company increased its allowance for
uncollectible accounts by $10 million from December 28, 2002 to reflect
increased delinquencies and higher expected charge-offs resulting from a soft
economic environment and the seasoning of the MasterCard portfolio. See
Discussion of Portfolio Quality below.

Credit and Financial Products operating income decreased by $48 million in the
first quarter of 2003 from the prior year, primarily due to an increase in the
provision which was partially offset by lower funding costs, lower selling and
administrative expenses and increased revenues.

Discussion of Portfolio Quality

The quality of the Companys credit card portfolio at any time reflects, among
other factors, the credit worthiness of the individual accountholders, the
general economic conditions, the success of the Companys account management
and collection activities and the life cycle stage of the portfolio. The
Companys financial results are sensitive to changes in delinquencies and net
charge-offs of the Companys credit card receivable portfolio. During periods
of economic weakness, delinquencies and net charge-offs are more likely to
increase.

Portfolio growth since the first quarter of 2002 is primarily attributable to
substitution programs conducted in 2002. The average account balance for the
MasterCard product has increased from the prior year, from $1,363 in the first
quarter of 2002 to $1,730 in the first quarter of 2003. Such balance growth is
due to the seasoning of the portfolio and the expanded utility of the product,
as customers can use the MasterCard at other merchants, and as a result of its
balance transfer and cash access features. While the expanded utility and
higher balances have generated additional revenues, the Company has experienced
an increase in charge-off rates. The increase in charge-offs is primarily
related to the continuing soft economic environment, the seasoning of the
MasterCard portfolio and increased bankruptcy filing levels.

During the first quarter of 2003, the Company continued to adjust the risk
criteria across a number of activities including balance transfer and
convenience check strategies and MasterCard substitution thresholds. The
Company has also revoked lines of credit and accelerated credit line decreases
on certain delinquent and/or inactive accounts.

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

As of the end of the first quarters of 2003 and 2002, MasterCard accounts
represented approximately 41.9% and 23.4%, respectively, of total ending credit
card receivables. The Company expects that the MasterCard percentages will
grow slightly in 2003, as continued growth in MasterCard credit card
receivables will offset expected declines in Sears Card receivables. The age
of the MasterCard portfolio is an important factor related to the delinquency
and loss levels because delinquencies and charge-offs typically increase as
young portfolios mature (referred to as seasoning). Consequently, as the
MasterCard portfolio matures, the delinquency and charge-off rates are expected
to increase in 2003. The Company expects the total portfolio net charge-offs
to average 6.5% - 7.0% in 2003.

Delinquencies

The entire balance of an account, including any balances related to
zero-percent sales in that account, is considered delinquent if the minimum
payment is not received by the payment due date. The aging methodology is
based on the number of completed billing cycles during which a customer has
failed to make a required payment. Delinquencies not only have the potential
to reduce earnings by increasing the allowance for uncollectible accounts and
related provision expense, but they also result in additional operating costs
dedicated to resolving the delinquencies. The Company contractually charges
off accounts at 240 days, whereas most bank card issuers charge off at 180
days. As a result, the Companys delinquency rates are not directly comparable
to participants in the bank card industry. The Companys 60-plus day
delinquency rates are presented in the chart below:

(GRAPH)

During the first quarter of 2003, 60-plus day delinquency rates for the
portfolio increased by 56 basis points compared to the first quarter of 2002.
The 60-plus day delinquency rate for the Sears Card portfolio increased to
10.14% at March 29, 2003, compared to 8.77% at March 30, 2002. The 60-plus day
delinquency rate for the

MasterCard portfolio increased to 4.72% at March 29, 2002, compared to 2.55% at
March 30, 2002. The Sears Card delinquency rate increase reflects the effects
of the soft economic environment. The increase in the MasterCard portfolio
delinquency rate reflects the seasoning of the portfolio as well as the soft
economic environment.

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

Charge-offs

Net charge-offs consist of the principal amount of losses (excluding accrued
finance charges and credit card fees) less current period recoveries. The
Company charges off credit card receivable balances automatically when a
customers number of missed monthly payments outstanding reaches eight.
Accounts may be charged off sooner in the event of customer bankruptcy. The
Company has a re-aging policy to cure delinquent accounts when the customer has
demonstrated a pattern of meeting payment requirements by making two
consecutive monthly payments. Accounts cannot be re-aged more than once in a
twelve-month period. For accounts more than 150 days past due, the Company
provides a workout or renewal program to qualified accountholders. Accounts in
a current workout program are considered current upon receipt of the first
agreed upon payment and remain current as long as they abide by the terms of
the program.

Gross charge-offs reflect the uncollectible principal of a customer account.
Uncollectible finance charges and fees are recorded as a reduction of revenue.
Recoveries reflect the amounts collected on previously charged off credit card
receivable accounts. The Companys charge-off activity for the credit card
portfolio is summarized below:

|                                               |  |            |     |                |           |   |     |   |      |  
|---------------------------------------------- |  | ---------- | --- | -------------- | --------- | - | --- | - | ---- | -
|                                               |  |            |     | 13 Weeks Ended |          
|                                               |  |            |     |                |          
|millions                                       |  | March 29,  |     |                | March 30, |  
|                                               |  | 2003       |     |                | 2002      |  
|                                               |  |            |     |                |           |   |     |  
|Gross charge-offs                              |  |            |     |                |           |   |     |  
|                                               |  | Sears Card |     | $              | 408       |   |     | $ | 446  |  
|                                               |  | MasterCard |     |                | 164       |   |     |   | 39   |  
|                                               |  |            |     |                |           |   |     |  
|                                               |  | Total      |     |                | 572       |   |     |   | 485  |  
|Recoveries                                     |  |            |     |                |           |   |     |  
|                                               |  | Sears Card |     |                | (104      | ) |     |   | (113 | )
|                                               |  | MasterCard |     |                | (7        | ) |     |   | (1   | )
|                                               |  |            |     |                |           |   |     |  
|                                               |  | Total      |     |                | (111      | ) |     |   | (114 | )
|Net charge-offs                                |  |            |     |                |           |   |     |  
|                                               |  | Sears Card |     |                | 304       |   |     |   | 333  |  
|                                               |  | MasterCard |     |                | 157       |   |     |   | 38   |  
|                                               |  |            |     |                |           |   |     |  
|                                               |  | Total      |     | $              | 461       |   |     | $ | 371  |  
|                                               |  |            |     |                |           |   |     |  
|Bankruptcy filings                             |  | $          | 255 |                |           | $ | 199 |  
|                                               |  |            |     |                |           |   |     |  
|Net charge-offs as a % of average receivables: |  |            |     |                |           |   |     |  
|                                               |  |            |     |                |           |   |     |  
|                                               |  | Sears Card |     |                | 6.83      | % |     |   | 6.16 | %
|                                               |  |            |     |                |           |   |     |  
|                                               |  | MasterCard |     |                | 5.06      | % |     |   | 2.65 | %
|                                               |  |            |     |                |           |   |     |   |     
|                                               |  | Total      |     |                | 6.11      | % |     |   | 5.43 | %

Net charge-offs as a percent of average balances increased to 6.11% in the
first quarter of 2003, up 68 basis points from the comparable prior year
period. The MasterCard net charge-off rate increase reflects the seasoning of
the portfolio, increased bankruptcies and increased charge-offs related to
balance transfers, convenience checks, cash advances and higher average credit
lines on the MasterCard accounts. The charge-off rate for both portfolios was
also affected by the economic environment as both contractual and bankruptcy
charge-offs increased. On a unit basis, bankruptcy filings were up 7.4% for
the 13 weeks ended March 29, 2003 compared to the prior year. Bankruptcy
filings increased $56 million in the first quarter of 2003 over prior year
levels primarily due to the MasterCard portfolio. Because the MasterCard
accounts have a higher average balance, the dollar value of the bankruptcy
filings has increased, and is expected to increase again in 2003, as the
MasterCard portfolio matures. The Companys net charge-off rate is presented
in the following chart:

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

(GRAPH)

Provision and Allowance for Uncollectible Accounts

The Company maintains an allowance for uncollectible accounts at an amount
estimated to be adequate to absorb probable losses, net of recoveries, inherent
in the existing portfolio. The Company provides for the estimated balance of
uncollectible finance charges and credit card fees in its allowance for
uncollectible accounts. The amount of the allowance necessary is determined
primarily based on a migration analysis of current and past due accounts and
the current and projected level of bankruptcies. In evaluating the adequacy of
the allowance, management also considers recent trends in delinquencies,
recoveries, bankruptcies and charge-offs as well as economic conditions and
other portfolio data. Management believes that the allowance for uncollectible
accounts is adequate to cover anticipated losses in the reported credit card
receivable portfolio under current conditions. The following table summarizes
the activity in the domestic allowance for uncollectible accounts for the
periods indicated:

|                                        |  |           |                |   |           |            |       |              |  |   |        |   | 
|--------------------------------------- |  | --------- | -------------- | - | --------- | ---------- | ----- | ------------ |  | - | ------ | - | 
|                                        |  |           | 13 Weeks Ended |   |           |            |       |             
|                                        |  |           |                |   |           | Year Ended |      
|millions                                |  | March 29, |                |   | March 30, |            |       | December 28, | 
|                                        |  | 2003      |                |   | 2002      |            |       | 2002         | 
|                                        |  |           |                |   |           |            |       |              |  |  
|Balance, beginning of year              |  | $         | 1,780          |   |           | $          | 1,115 |              |  | $ | 1,115  |  
|                                        |  |           |                |   |           |            |       |              |  |   |        |   | 
|Domestic provision                      |  |           | 471            |   |           |            | 371   |              |  |   | 2,203  |  
|                                        |  |           |                |   |           |            |       |              |  |   |        |   | 
|Net charge-offs                         |  |           | (461           | ) |           |            | (371  | )            |  |   | (1,538 | )
|                                        |  |           |                |   |           |            |       |              | 
|Allowance for uncollectible accounts    |  | $         | 1,790          |   |           | $          | 1,115 |              |  | $ | 1,780  |  
|                                        |  |           |                |   |           |            |       |              | 
|Allowance as percent of ending balances |  |           | 6.06           | % |           |            | 4.13  | %            |  |   | 5.79   | %

As of March 29, 2003, the Companys allowance for uncollectible accounts as a
percentage of credit card receivables was 6.06% compared with 4.13% as of March
30, 2002 and 5.79% as of December 28, 2002. The increase from the first
quarter of 2002 is primarily due to increases in the allowance in the remainder
of 2002. In the second quarter of 2002, the Company refined its methodology
for determining the uncollectible portion of current accounts and credit card
fee balances, resulting in an increase to the allowance for uncollectible
accounts in the amount of $300 million. In accordance with Accounting
Principles Board Opinion No. 20, Accounting

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

Changes, the effect of this change in accounting was recorded as a change in
accounting estimate. In addition, the Company increased its domestic allowance
for uncollectible accounts by $365 million in 2002 to reflect increased
delinquencies and bankruptcies resulting from a soft economy, the seasoning of
the MasterCard portfolio and an increase in receivable balances.

Corporate and Other

Corporate and Other segment results were as follows:

|                                    |  |                |     |   |           |   |     |  
|----------------------------------- |  | -------------- | --- | - | --------- | - | --- | -
|                                    |  | 13 Weeks Ended |    
|                                    |  |                |    
|millions                            |  | March 29,      |     |   | March 30, |  
|                                    |  | 2003           |     |   | 2002      |  
|                                    |  |                |     |   |           |  
|Home Improvement Services revenues  |  | $              | 63  |   |           | $ | 58  |  
|                                    |  |                |     |   |           |  
|                                    |  |                |     |   |           |   |     |  
|Cost of sales, buying and occupancy |  |                | 24  |   |           |   | 21  |  
|Selling and administrative          |  |                | 101 |   |           |   | 94  |  
|Depreciation and amortization       |  |                | 11  |   |           |   | 12  |  
|                                    |  |                |     |   |           |  
|Total costs and expenses            |  |                | 136 |   |           |   | 127 |  
|                                    |  |                |     |   |           |  
|                                    |  |                |     |   |           |   |     |  
|Operating loss                      |  | $              | (73 | ) |           | $ | (69 | )
|                                    |  |                |     |   |           |  

Revenues from the home improvement services businesses included in the
Corporate and Other segment increased by 8.6% to $63 million in the first
quarter of 2003 primarily due to increased revenue generated from cabinet
refacing, partially offset by a decline in siding revenues. Segment operating
loss for the quarter of $73 million, was higher than the prior year due
primarily to the increase in selling and administrative expense.

Sears Canada

Sears Canada results were as follows:

|                                           |                          |           |                |     |           |   |      |     | 
|------------------------------------------ | ------------------------ | --------- | -------------- | --- | --------- | - | ---- | --- | 
|                                           |                          |           | 13 Weeks Ended |    
|                                           |                          |           |                |    
|millions                                   |                          | March 29, |                |     | March 30, |  
|                                           |                          | 2003      |                |     | 2002      |  
|                                           |                          |           |                |     |           |   |     
|Merchandise sales and services             |                          | $         | 767            |     |           | $ | 821  |    
|Credit revenues                            |                          |           | 76             |     |           |   | 72   |    
|                                           |                          |           |                |     |           |  
|                                           | Total revenues           |           |                | 843 |           |   |      | 893 | 
|                                           |                          |           |                |     |           |  
|                                           |                          |           |                |     |           |   |      |    
|Cost of sales, buying and occupancy        |                          |           | 536            |     |           |   | 600  |    
|Selling and administrative                 |                          |           | 230            |     |           |   | 227  |    
|Provision for uncollectible accounts       |                          |           | 12             |     |           |   | 10   |    
|Depreciation and amortization              |                          |           | 27             |     |           |   | 25   |    
|Interest                                   |                          |           | 28             |     |           |   | 25   |    
|Special charges and impairments            |                          |           |               |     |           |   | 111  |    
|                                           |                          |           |                |     |           |  
|                                           | Total costs and expenses |           |                | 833 |           |   |      | 998 | 
|                                           |                          |           |                |     |           |  
|Operating income (loss)                    |                          | $         | 10             |     |           | $ | (105 | )  
|                                           |                          |           |                |     |           |  
|                                           |                          |           |                |     |           |   |      |    
|Comparable store sales percentage decrease |                          |           | -14.1          | %   |           |   | -0.7 | %  

Similar to the domestic segments, Sears Canada focused on improving its
business model in 2002 in order to increase profitability in the current
challenging environment. During 2002, the Company completed its conversion of
the remaining Eatons stores to Sears Canada Stores. This conversion resulted
in a pretax charge of $111 million in the first quarter of 2002 consisting of
severance costs, asset impairments and other exit costs.

Total Sears Canada revenues were $843 million for the 13 weeks ended March 29,
2003, a 5.6% decrease compared to the prior year. Sears Canadas total
merchandise sales decreased by 6.6% in the first quarter of 2003 while same
store sales decreased by 14.1%. The decline in revenue is reflective of a
planned reduction in unprofitable sales promotions, a substantially lower
seasonal clearance inventory position and continued consumer caution.

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

Credit revenues for the 13 weeks ended March 29, 2003 increased 5.6% compared
to the prior year primarily due to an increase in balances, specifically for
MasterCard. Within Sears Canada credit operations, the net charge-off rate
increased to 4.8% in the first quarter of 2003 from 4.2% in the first quarter
of 2002. Canada experienced similar economic conditions as the U.S. and as a
result, charge-offs increased.

Sears Canada gross margin rate as a percentage of merchandise sales and
services revenues improved by 320 basis points in the first quarter of 2003
reflecting a planned reduction in unprofitable sales promotions and lower
clearance inventory levels.

Sears Canada selling and administrative expense increased $3 million in the
quarter as compared to the first quarter of 2002, as reductions in advertising
and payroll expenses were more than offset by increases in outsourcing,
pension and severance expenses.

Sears Canada reported operating income for the 13 weeks ended March 29, 2003 of
$10 million compared with an operating loss of $105 million for the 13 weeks
ended March 30, 2002. The first quarter of 2002 included a pretax charge of
$111 million for severance costs, asset impairments and other exit costs
associated with the conversion of seven stores operating under the Eatons
banner to Sears Canada stores. First quarter 2003 results demonstrated
significant improvement in margin rate over the prior year, which more than
offset the decline in merchandise sales.

ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION

Net cash provided by operating activities was $33 million compared to net cash
used in operating activities of $45 million for the 13 weeks ended March 29,
2003 and March 30, 2002, respectively. The cash provided in the first quarter
of 2003 resulted from the decline of the credit card receivables portfolio
offset by cash used to fund inventory increases and pay operating liabilities.

As of March 29, 2003, the Companys current assets exceeded current liabilities
by $22.4 billion. This working capital surplus primarily results from the
$31.3 billion of credit card receivables outstanding at the end of the quarter
of which $25.0 billion were segregated in securitization entities for financing
purposes. The liquidity of these assets provides financial flexibility and
access to multiple sources of capital.

Net cash used in investing activities was $103 million and $50 million for the
13 weeks ended March 29, 2003 and March 30, 2002, respectively. The first
quarter of 2002 investing activity includes proceeds from the disposition of a
portion of the Companys holdings in Advance Auto Parts.

The Company may from time to time consider selective strategic transactions to
create value and improve performance, which may include acquisitions,
dispositions, restructurings, joint ventures and partnerships. Proceeds from
any transaction, should such a transaction occur, are expected to be utilized
by returning cash to the Companys shareholders, reducing debt or for general
corporate purposes.

Financing Activities

The Companys financing activities include net borrowings, dividend payments
and share issuances and repurchases. Net cash provided by financing activities
totaled $1.9 billion for the 13 weeks ended March 29, 2003, compared to net
cash used in financing activities of $22 million for the comparable prior year
period.

23



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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

The Companys total debt balances were as follows:

|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |   |        |  |  |  |       |  
|------------------------------------ |  | --------- | ------ |  | ----- |  | ----- | --------- |  | - | ------ | - |  | ------------ | ----- | - | ----- | - | ------ |  |  |  | ----- | -
|                                     |  | March 29, |        |  | % of  |  |       | March 30, |  |   | % of   |   |  | December 28, |       |   | % of  |  
|millions                             |  | 2003      |        |  | Total |  |       | 2002      |  |   | Total  |   |  | 2002         |       |   | Total |  
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |  
|Short-term borrowings                |  | $         | 6,775  |  |       |  | 21.1  | %         |  | $ | 3,485  |   |  |              | 13.3  | % |       | $ | 4,525  |  |  |  | 15.1  | %
|Long-term debt (1)                   |  |           | 25,356 |  |       |  | 78.9  | %         |  |   | 22,692 |   |  |              | 86.7  | % |       |   | 25,503 |  |  |  | 84.9  | %
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |  
|Total borrowings                     |  | $         | 32,131 |  |       |  | 100.0 | %         |  | $ | 26,177 |   |  |              | 100.0 | % |       | $ | 30,028 |  |  |  | 100.0 | %
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |   |        |  | 
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |   |        |  |  |  |       |  
|SFAS 133 hedge accounting adjustment |  |           | 574    |  |       |  |       |           |  |   | (194   | ) |  |              |       |   |       |   | 609    |  |  |  |       |  
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |   |        |  | 
|Total debt                           |  | $         | 32,705 |  |       |  |       |           |  | $ | 25,983 |   |  |              |       |   |       | $ | 30,637 |  |  |  |       |  
|                                     |  |           |        |  |       |  |       |           |  |   |        |   |  |              |       |   |       |   |        |  | 
|Memo: Sears Canada debt              |  | $         | 1,598  |  |       |  |       |           |  | $ | 1,563  |   |  |              |       |   |       | $ | 1,478  |  |  |  |       |  



---

|(1) |  | Includes capitalized lease obligations and current portion of long-term debt.
|--- |  | -----------------------------------------------------------------------------

---

The Companys total borrowings increased $2.1 billion in the first quarter of
2003 from $30.0 billion at December 28, 2002 to $32.1 billion at March 20,
2003. During the first quarter, the Company borrowed $1.4 billion of a $2.0
billion private asset-backed facility and increased its asset-backed commercial
paper outstanding by $0.8 billion. The proceeds from these short-term
borrowings resulted in an increase in cash to $3.8 billion, up $1.9 billion
from year-end 2002.

The Company uses interest rate derivatives to synthetically convert fixed rate
debt to variable rate debt. The interest rate derivatives qualify as fair
value hedges in accordance with SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, and as such are recorded on the balance
sheet at market value with an offsetting entry to the underlying hedged item,
which is debt. The market valuation increased favorably by $0.8 billion in the
first quarter of 2003 compared to the prior year.

As of March 29, 2003, the Company has $1.25 billion remaining in share
repurchase authorization, and views share repurchase as an attractive
investment.

Liquidity

The Companys principal sources of liquidity are operating cash flows and
various capital market borrowings. The Companys financial capacity and
flexibility results from its access to the capital markets and the quality and
liquidity of its assets, principally its credit card receivables. This access
to capital markets also allows the Company to effectively manage liquidity and
interest rate risk. Liquidity risk is the measure of the Companys ability to
fund maturities and provide for the operating needs of its businesses.
Interest rate risk is the effect on net income from changes in interest rates.
The Companys policy is to manage interest rate risk through the strategic use
of fixed and variable rate debt and interest rate derivatives. The Company
does not use derivatives for trading purposes. The Companys cost of funds is
affected by a variety of general economic conditions, including the overall
interest rate environment, as well as the Companys debt ratings and
fluctuations of its credit spread over applicable reference rates.

Capital market borrowings are used primarily to support the Companys Credit
business. Ongoing access to the capital markets is critical to the Credit
business and the Company regularly reviews a range of strategic alternatives
for addressing funding needs. Economic and market conditions could affect the
Companys ability to access the public debt markets. However, the Company
believes it has a sufficient range of alternatives to obtain the financing
necessary to maintain its current level of operations, capital expenditures and
dividends. As of March 29, 2003, the following were available to the Company:

24



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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002



| |  |  | Cash and marketable securities of $3.8 billion;                                                                            
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Asset backed commercial paper conduit programs with access up to
$3.6 billion, of which $1.3 billion capacity is available;
|
| |  |  | A $3.5 billion unsecured, committed 364-day revolving credit facility;                                                     
|
| |  |  | A $2.0 billion asset-backed facility, of which $0.6 billion capacity is available; and                                     
|
| |  |  | A $0.5 billion committed credit facility for Sears Canada.                                                                 

The Companys long-term debt is due to be repaid as follows: $2.8 billion
remaining in 2003; $3.8 billion in 2004; $4.1 billion in 2005; $3.0 billion
in 2006 and $11.7 billion thereafter. The Company has not identified any
reasonably possible circumstances that would trigger any early payment or
acceleration provisions in the debt portfolio. Debt obligations due to mature
in the next year are expected to be satisfied with a combination of the
liquidation of short-term investments, short-term borrowings, new long-term
debt issuances and operating cash flows.

In the first quarter of 2003, the Company announced plans to evaluate strategic
alternatives for the Credit and Financial Products segment, including the
possible sale of all or a portion of the segment. Because of the uncertainty
regarding the future of the Credit and Financial Products segment stemming from
that evaluation as well as the economic and geopolitical uncertainties, the
Company believed it prudent to arrange short-term funding capacity in the first
quarter of 2003 to enhance its liquidity position and partially pre-fund 2003
debt maturities. Proceeds from any transaction related to the strategic
evaluation, should such a transaction occur, are expected to be utilized
primarily to reduce debt and return cash to the Companys shareholders as well
as for general corporate purposes.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The Companys significant accounting policies are discussed in the Notes to the
Consolidated Financial Statements that are included in the Companys 2002
Annual Report on Form 10-K that is filed with the Securities and Exchange
Commission. In most cases, the accounting policies utilized by the Company are
the only ones permissible under U.S. Generally Accepted Accounting Principles
for businesses in our industry. However, the
application of certain of these policies requires significant judgements or a
complex estimation process that can affect the results of operations and
financial position of the Company, as well as the related footnote disclosures.
The Company bases its estimates on historical experience and other assumptions
that it believes are reasonable. If actual amounts are ultimately different
from previous estimates, the revisions are included in the Companys results of
operations for the period in which the actual amounts become known. The
accounting policies and estimates that can have a significant impact on the
operating results, financial position and footnote disclosures of the Company
are described in the Management Discussion and Analysis in the Companys 2002
Annual Report on Form 10-K.

OUTLOOK

Given the current economic environment and cautious consumer sentiment, the
Company expects that near-term retail sector growth will be modest.
Correspondingly, the Company anticipates that second quarter earnings per share
will be between $0.85 and $1.00. The second quarter outlook assumes a
mid-single digit comparable store sales decrease. Margin improvement from
better sourcing and the addition of Lands End, is expected to be offset by
additional markdowns reflective of higher inventory levels and the very
promotional retail environment. For the full year, the Company expects
earnings per share between $4.95 and $5.15. This full year expectation
excludes any effect that may result from activities related to the strategic
review of the Credit and Financial Products segment and includes the effect of
the resumption of the Companys share repurchase program. For a

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SEARS, ROEBUCK AND CO.
13 Weeks Ended March 29, 2003 and March 30, 2002

discussion of additional factors that could affect this outlook, please refer
to the following cautionary statement regarding forward-looking information.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The above Outlook and certain other statements made in this quarterly report on
Form 10-Q and in other public announcements by the Company are forward-looking
statements that are subject to risks and uncertainties that may cause the
Companys actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Forward-looking statements
include information concerning the Companys future financial performance,
business strategy, plans, goals and objectives. Statements preceded by,
followed by or that otherwise include the words believes, expects,
anticipates, intends, estimates, plans, forecasts, is likely to,
projected and similar expressions or future or conditional verbs such as
will, should, would, may and could are generally forward-looking in
nature and not historical facts. This quarterly report also contains
statements about the Companys expectations regarding possible strategic
alternatives for its Credit and Financial Products business and the timeline
for completing a review of such alternatives. These statements are forward
looking statements based on assumptions about the future that are subject to
risks and uncertainties, and actual results may differ materially from the
results projected in the forward looking statements. For example, there can be
no assurance that the Company will identify an acceptable purchaser or
negotiate acceptable terms for the sale of all or part of its Credit and
Financial Products business and there can be no assurances as to the timing of
such a transaction or transactions. These outcomes depend on many factors
outside the Companys control, such as the willingness of third parties to
accept terms that are acceptable to the Company.

Following are some of the risks and uncertainties that could affect our
financial condition or results of operations, and could cause actual results,
performance or achievements to differ from the future results, performance or
achievements expressed or implied by these forward-looking statements:
competitive conditions in retail and credit; changes in consumer confidence and
spending; delinquency and charge-off trends in the credit card receivables
portfolio; consumer debt levels and the level of consumer bankruptcies; the
success of initiatives to address increased delinquencies and credit losses and
improve credit profitability; the success of the Full-line Store strategy and
other strategies; the possibility that the Company will identify new business
and strategic options for one or more of its business segments, potentially
including selective acquisitions, dispositions, restructurings, joint ventures
and partnerships; the Companys ability to integrate and operate Lands End
successfully; the successful integration of Sears retail businesses with a
third-party credit card program, which involves significant training and the
integration of complex systems and processes; the outcome of pending legal
proceedings; anticipated cash flow; social and political conditions such as
war, political unrest and terrorism or natural disasters; the possibility of
negative investment returns in the Companys pension plan; changes in interest
rates; the volatility in financial markets; changes in the Companys debt
ratings, credit spreads and cost of funds; the possibility of interruptions in
systematically accessing the public debt markets; general economic conditions
and normal business uncertainty. In addition, Sears typically earns a
disproportionate share of its operating income in the fourth quarter due to
seasonal buying patterns, which are difficult to forecast with certainty.
Additional discussion of these and other risks and uncertainties is contained
elsewhere under Managements Discussion and Analysis and Quantitative and
Qualitative Disclosures About Market Risk.

While the Company believes that its forecasts and assumptions are reasonable,
it cautions that actual results may differ materially. The Company intends
the forward-looking statements to speak only as of the time first made and
does not undertake to update or revise them as more information becomes
available.

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SEARS, ROEBUCK AND CO.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The nature of market risks faced by the Company at March 29, 2003 are disclosed
in the Companys Form
10-K for the year ended December 28, 2002. As of March 29, 2003, 80% of the
Companys funding portfolio was variable rate (including current maturities of
fixed-rate long-term debt that will reprice in the next 12 months and
fixed-rate debt synthetically converted to variable rate through the use of
derivative financial instruments). Based on the size of the Companys variable
rate funding portfolio as of March 29, 2003, which totaled $25.6 billion, a 100
basis point change in interest rates would affect pretax funding cost by
approximately $256 million per annum. This estimate assumes that the funding
portfolio remains constant for an annual period and the interest rate change
occurs at the beginning of the period. This estimate also does not take into
account the effect of changes in revenue resulting from either changes in terms
of the assets or in the index applicable to the variable rate receivables.

The Company primarily uses variable rate funding to match funding costs with
the finance charge revenues generated by its credit card portfolio, as finance
charges on credit card balances vary with the prime rate. The objective of
variable rate funding is to reduce net interest margin risk by better aligning
the Companys funding with its credit card assets. However, the Company is
exposed to basis risk on any differences in the variable rate on the Companys
debt, primarily LIBOR-based, and the prime-based variable rate finance charge
on the Companys credit card portfolio. Additionally, the Companys ability to
increase the finance charge yield of its variable rate credit card assets may
be limited at some point by competitive conditions.




Item 4. Disclosure Controls and Procedures

The Companys management, including Alan J. Lacy, Chairman of the Board of
Directors, President and Chief Executive Officer (principal executive officer)
and Glenn R. Richter, Senior Vice President and Chief Financial Officer
(principal financial officer), have evaluated the effectiveness of the
Companys disclosure controls and procedures, as such term is defined in
Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934,
as amended, within 90 days of the filing date of this Quarterly Report on Form
10-Q. Based upon their evaluation, the principal executive officer and
principal financial officer concluded that the Companys disclosure controls
and procedures are effective. There were no significant changes in the
Companys internal controls or in other factors that could significantly affect
these controls, since the date the controls were evaluated.

27



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SEARS, ROEBUCK AND CO.







PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Pending against the Company and certain of its officers and directors are a
number of lawsuits, described below, that relate to the credit card business
and public statements about it. The Company believes that all of these claims
lack merit and is defending them vigorously.

On October 18, 2002, a lawsuit was filed in the United States District Court
for the Northern District of Illinois against the Company and certain current
and former officers alleging that certain public announcements by the Company
concerning its credit card business violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Additional lawsuits of the same tenor followed; with one exception, which is
pending in the United States District Court for the Northern District of
California, these cases are pending in the Northern District of Illinois. The
plaintiffs purport to represent classes of shareholders who purchased the
Companys common shares between January 17, 2002, and October 17, 2002. The
Northern District of Illinois actions have been consolidated and the Department
of the Treasury of the State of New Jersey has been appointed lead plaintiff
for the purported class.

On November 15, 2002, two lawsuits were filed in the United States District
Court for the Northern District of Illinois against the Company, certain
officers and directors, and alleged fiduciaries of Sears 401(k) Savings Plan
(the Plan), seeking damages and equitable relief under the Employee
Retirement Income Security Act (ERISA). The plaintiffs purport to represent
participants and beneficiaries of the Plan, and allege breaches of fiduciary
duties under ERISA in connection with the Plans investment in the Companys
common shares and alleged communications made to Plan participants regarding
the Companys financial condition. Additional lawsuits of the same tenor
followed. These actions have been consolidated into a single class action.
The plaintiffs have been ordered to file a consolidated amended complaint by
May 14, 2003.

On October 23, 2002, a purported derivative suit was filed in the Supreme Court
of the State of New York against the Company (as a nominal defendant) and
certain current and former directors seeking damages on behalf of the Company.
The complaint purports to allege a breach of fiduciary duty by the directors
with respect to the Companys management of its credit business. After the
Company filed a motion to dismiss the complaint, the plaintiff was granted
leave to amend the complaint. The Company has until May 30, 2003 to answer or
move to dismiss the amended complaint. Two similar suits were subsequently
filed in the Circuit Court of Cook County, Illinois, and a third was filed in
the United States District Court for the Northern District of Illinois. Motions
have been made to dismiss these actions, or, in the alternative, to stay them,
pending disposition of the action in New York. The Cook County, Illinois
actions have been stayed pending resolution of the motion to dismiss the
amended complaint in the New York action.

The Company is subject to various other legal and governmental proceedings,
many involving litigation incidental to the businesses. Some matters contain
class action allegations, environmental and asbestos exposure allegations and
other consumer based claims that involve compensatory, punitive or treble
damage claims in very large amounts as well as other types of relief. The
consequences of these matters are not presently determinable but, in the
opinion of management of the Company after consulting with legal counsel and
taking into account insurance and reserves, the ultimate liability is not
expected to have a material effect on annual results of operations, financial
position, liquidity or capital resources of the Company.

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SEARS, ROEBUCK AND CO.




Item 6. Exhibits and Reports on Form 8-K.



|(a) |  | Exhibits.                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | An Exhibit Index has been filed as part of this Report on Page E-1.                                                                                                                                                                                                      
|   
|(b) |  | Reports on Form 8-K.                                                                                                                                                                                                                                                     
|   
|    |  | A Current Report on Form 8-K dated January 16, 2003 was filed with the
Securities and Exchange Commission on January 16, 2003 to report, under Item
5, that the Registrant issued a press release (attached as Exhibit 99
thereto).                                      
|   
|    |  | A Current Report on Form 8-K dated February 6, 2003 was filed with the
Securities and Exchange Commission on February 6, 2003 to report, under Item
5, that the Registrant issued a press release (attached as Exhibit 99
thereto).                                      
|   
|    |  | A Current Report on Form 8-K dated March 26, 2003 was filed with the
Securities and Exchange Commission on March 26, 2003 to report, under Item
5, that the Registrant was evaluating strategic alternatives for the
Registrants Credit and Financial Products business.

29



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SEARS, ROEBUCK AND CO.




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|            |  |                                     |  |                                                                                                                          
|----------- |  | ----------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|            |  | SEARS, ROEBUCK AND CO.
(Registrant)
|            |  |                                     |  |                                                                                                                          
|May 8, 2003 |  | By                                  |  | /s/ Thomas E. Bergmann                                                                                                   
|            |  |                                     |  |                                                                                                                          
|            |  |                                     |  | Thomas E. Bergmann
Vice President and Controller
(Principal Accounting Officer and duly
authorized officer of Registrant)

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SEARS, ROEBUCK AND CO.




CERTIFICATIONS

I, Alan J. Lacy, Chairman of the Board of Directors, President and Chief
Executive Officer of Sears, Roebuck and Co., certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Sears,
Roebuck and Co.                                                                                                                                                                                                                                                  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;                   
|
| | 4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | (a) |  | designed such disclosure controls and procedures 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 quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and;                                                                                                                                       



| | 6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  |  |     |  |                                                                                       
|----------------- |  | --- |  | --------------------------------------------------------------------------------------
|Date: May 8, 2003 |  |     |  |                                                                                       
|                  |  |     |  |                                                                                       
|                  |  | By: |  | /s/ Alan J. Lacy                                                                      
|                  |  |     |  |                                                                                       
|                  |  |     |  | Alan J. Lacy
Chairman of the Board of Directors, President
and Chief Executive Officer

31



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SEARS, ROEBUCK AND CO.

I, Glenn R. Richter, Senior Vice President and Chief Financial Officer of
Sears, Roebuck and Co., certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Sears,
Roebuck and Co.                                                                                                                                                                                                                                                  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report.                   
|
| | 4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | (a) |  | designed such disclosure controls and procedures 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 quarterly report is being prepared;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and;                                                                                                                                       



| | 6. |  | The registrants other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  |  |     |  |                                                                   
|----------------- |  | --- |  | ------------------------------------------------------------------
|Date: May 8, 2003 |  |     |  |                                                                   
|                  |  |     |  |                                                                   
|                  |  | By: |  | /s/ Glenn R. Richter                                              
|                  |  |     |  |                                                                   
|                  |  |     |  | Glenn R. Richter
Senior Vice President
and Chief Financial Officer

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SEARS, ROEBUCK AND CO.

E-1
EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3(a).       |  | Restated Certificate of Incorporation as in effect on
May 13, 1996 (incorporated by reference to Exhibit
3(a) to Registration Statement No. 333-8141 of the
Registrant).                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3(b).       |  | By-laws, as amended to February 14, 2001
(incorporated by reference to Exhibit 3.(ii) to
Registrants Annual Report on Form 10-K for the
fiscal year ended December 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4.          |  | Registrant hereby agrees to furnish the Commission,
upon request, with the instruments defining the
rights of holders of each issue of long-term debt of
the Registrant and its consolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10(a).      |  | $3,500,000,000 364-day Credit Agreement dated as of
February 24, 2003 among Sears Roebuck Acceptance
Corp. (SRAC), the banks, financial institutions and
other institutional lenders listed on the signature
pages thereof, Bank One, NA, as syndication agent,
Barclays Bank PLC and Bank of America, N.A., as
documentation agents, Salomon Smith Barney Inc. and
Banc One Capital Markets, Inc. as joint lead
arrangers and joint bookrunners, and Citibank, N.A.,
as agent for the Lenders (incorporated by reference
to Exhibit 10(a) to SRACs Current Report on Form 8-K
dated February 24, 2003).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10(b).      |  | Credit Arrangement Support Letter dated as of
February 24, 2003 between Registrant and Sears
Roebuck Acceptance Corp. (incorporated by reference
to Exhibit 10(b) to SRACs Current Report on Form 8-K
dated February 24, 2003).                                                                                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|*12.        |  | Computation of ratio of income to fixed charges for
Sears and consolidated subsidiaries for each of the
five years ended December 28, 2002 and for the
three-month period ended March 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|*15.        |  | Acknowledgement of awareness from Deloitte & Touche
LLP, dated [May 5, 2003], concerning unaudited
interim financial information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|*99(a).     |  | Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|*99(b).     |  | Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

*Filed herewith.

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