Sears Canada Reports Operating EBITDA Increase of 10.9% for the Fourth Quarter and 8.6% for the Full-Year Comparable Periods



    TORONTO, Feb. 27 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its
unaudited fourth quarter and full-year results. Due to the previously
announced change in the Company's fiscal year end from the Saturday closest to
the end of December to the Saturday closest to the end of January, the opening
portion of this fourth quarter news release includes the 18-week period and
57-week period ending February 2, 2008 compared to the 13-week period and
52-week period ending December 30, 2006. To aid in understanding the results
for fiscal 2007, additional information is provided for the 13-week period and
52-week period ending December 29, 2007 (the "comparable period").

    
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                                57 Weeks                18 Weeks
                               Ended Feb.              Ended Feb.
                                 2, 2008    52 Weeks     2, 2008    13 Weeks
                                      vs.  Ended Dec.         vs.  Ended Dec.
                                52 Weeks    29, 2007    13 Weeks    29, 2007
    Financial                  Ended Dec.    vs. Dec.  Ended Dec.    vs. Dec.
    Indicators                  30, 2006    30, 2006    30, 2006    30, 2006
    -------------------------------------------------------------------------
    Revenues                       +6.6%       -1.5%      +22.5%       -3.4%
    -------------------------------------------------------------------------
    Same Store Sales                 N/A       -0.8%         N/A       -2.4%
    -------------------------------------------------------------------------
    Gross Margin Rate            +73 bps.    +65 bps.   +173 bps.   +159 bps.
    -------------------------------------------------------------------------
    Operating EBITDA(1)           +16.8%       +8.6%      +30.1%      +10.9%
    -------------------------------------------------------------------------
    Net Earnings                 +102.2%      +88.6%      +27.6%       +8.5%
    -------------------------------------------------------------------------

    (1) Non-GAAP measure. Please refer to Section 1.f.i. of Management's
        Discussion and Analysis contained in the 2006 Annual Report.
        Operating EBITDA is equal to Net Earnings Before Interest, Income
        Taxes, Depreciation, Amortization and Unusual Items.
    

    Total revenues for the 18-week period ended February 2, 2008 were
$2.296 billion compared to $1.874 billion for the 13 weeks ended December 30,
2006. Operating EBITDA for the period was $259.2 million, an increase of
$59.9 million or 30.1% over the 13-week period last year. Net earnings for the
period, which include unusual items, totalled $138.4 million or $1.29 per
share, compared to $108.5 million or $1.01 per share last year.
    Total revenues for the 13-week comparable period ended December 29, 2007
decreased 3.4%. Same store sales decreased by 2.4% compared to the same period
last year. For this comparable period, as a percentage to total revenues,
gross margins increased by 159 basis points and expenses were flat to last
year. The resulting operating EBITDA exceeded 2006 by more than $21 million,
an increase of 10.9%. Net earnings for this comparable period increased 8.5%
compared to the same period last year.
    Commenting on the fourth quarter, Dene Rogers, President and Chief
Executive Officer, Sears Canada Inc., said, "Our results are strong and we
were able to offset the impact of cross-border shopping in the U.S. in the
first half of the quarter; our associates met the challenges before them and
provided our customers with exceptional value throughout the holiday shopping
season."
    Same store sales in the second half of the year ended December 29, 2007
decreased 2.9% as compared to the same period last year whereas same store
sales in the first half of the year increased 1.9% compared to the same period
last year. The sales in the second half were impacted by the strong Canadian
dollar which caused a significant increase in cross-border shopping in the
U.S.
    Total revenues for the full 57-week year ended February 2, 2008 were
$6.326 billion compared to $5.933 billion for the 52-week period ended
December 30, 2006. Operating EBITDA for the full 57-week year was
$542.6 million, an increase of $78.1 million or 16.8% over the 52-week period
last year. Net earnings for the full year,were $308.5 million or $2.87 per
share, compared to $152.6 million or $1.42 per share last year.
    Total revenues for the 52-week comparable period ended December 29, 2007
decreased 1.5%. Same store sales decreased 0.8% compared to the same period
last year. Margins increased 65 basis points and expenses reduced by 17 basis
points, resulting in an operating EBITDA increase of $39.9 million or 8.6%.
Net earnings for this comparable period increased 88.6% compared to the same
period last year.
    "We had a strong performance in 2007, being able to significantly
increase our profitability over 2006," commented Mr. Rogers on the 2007
results. "I thank our 37,000 associates who have given their best to improve
our financial results this year, and who continue to improve our customers'
lives by providing quality services, products and solutions that earn their
trust and build lifetime relationships."

    This release contains information which is forward-looking and is subject
to important risks and uncertainties. Forward-looking information concerns the
Company's future financial performance, business strategy, plans, goals and
objectives. Factors which could cause actual results to differ materially from
current expectations include, but are not limited to: the ability of the
Company to successfully implement its cost reduction, productivity improvement
and strategic initiatives and whether such initiatives will yield the expected
benefits; the impact of the sale of the Company's Credit and Financial
Services operations and the results achieved pursuant to the Company's
long-term marketing and servicing alliance with JPMorgan Chase Bank, N.A.;
general economic conditions; competitive conditions in the businesses in which
the Company participates; changes in consumer spending; seasonal weather
patterns; customer preference toward product offerings; changes in the
Company's relationship with its suppliers; interest rate fluctuations and
other changes in funding costs; fluctuations in foreign currency exchange
rates; the possibility of negative investment returns in the Company's pension
plan; the outcome of pending legal proceedings; and changes in laws, rules and
regulations applicable to the Company. While the Company believes that its
forecasts and assumptions are reasonable, results or events predicted in this
forward-looking information may differ materially from actual results or
events.

    Sears Canada is a multi-channel retailer with a network of 197 corporate
stores, 183 dealer stores, 51 home improvement showrooms, over 1,800 catalogue
merchandise pick-up locations, 106 Sears Travel offices and a nationwide home
maintenance, repair, and installation network. The Company also publishes
Canada's most extensive general merchandise catalogue and offers shopping
online at www.sears.ca.



    
    SEARS CANADA INC.
    RECONCILIATION OF EARNINGS BEFORE UNUSUAL ITEMS TO NET EARNINGS
    (in millions, except per share amounts)

    Unaudited

    For the 18-week period ended February 2, 2008 and the 13-week period
    ended December 30, 2006

    -------------------------------------------------------------------------
                                                                    Earnings
                                                                       (loss)
                              Before tax         After tax         per share
    -------------------------------------------------------------------------
                           2007     2006     2007     2006     2007     2006
    -------------------------------------------------------------------------
    Earnings before
     unusual items      $ 217.9  $ 156.1  $ 141.1  $ 108.5  $  1.32  $  1.01
    -------------------------------------------------------------------------
      Environmental
       remediation         (4.5)       -     (2.9)       -    (0.03)       -
      Restructuring
       activities           0.3        -      0.2        -        -        -
    -------------------------------------------------------------------------
    Net earnings        $ 213.7  $ 156.1  $ 138.4  $ 108.5  $  1.29  $  1.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the 57-week period ended February 2, 2008 and the 52-week period
    ended December 30, 2006

    -------------------------------------------------------------------------
                                                                    Earnings
                                                                       (loss)
                              Before tax        After tax          per share
    -------------------------------------------------------------------------
                           2007     2006     2007     2006     2007     2006
    -------------------------------------------------------------------------
    Earnings before
     unusual items      $ 379.8  $ 264.4  $ 244.0  $ 169.1  $  2.28  $  1.57
    -------------------------------------------------------------------------
      Sale of real
       estate              74.0        -     55.9        -     0.51        -
      Sale of real
       estate joint
       ventures            12.5        -     11.4        -     0.11        -
      Sale of corporate
       airplane             3.5        -      2.3        -     0.02        -
      Settlement of
       lawsuit             (3.6)       -     (2.4)       -    (0.02)       -
      Environmental
       remediation         (4.5)       -     (2.9)       -    (0.03)       -
      Restructuring
       activities           0.3    (25.2)     0.2    (16.5)       -    (0.15)
    -------------------------------------------------------------------------
    Net earnings        $ 462.0  $ 239.2  $ 308.5  $ 152.6  $  2.87  $  1.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF CASH FLOWS

    For the 18 and 57-week periods ended February 2, 2008 and
    the 13 and 52-week periods ended December 30, 2006

    Unaudited

                                          Fourth Quarter        Fiscal Year
                                         ----------------    ----------------

    (in millions)                         2007      2006      2007      2006
    -------------------------------------------------------------------------

    Cash flow generated from (used for)
     operating activities
      Net earnings                     $ 138.4   $ 108.5   $ 308.5   $ 152.6
      Non-cash items included in net
       earnings, principally
       depreciation, pension expense,
       future income taxes and gain on
       sale of real estate joint
       ventures and capital assets        83.7      87.8     168.9     269.7
      Changes in non-cash working
       capital balances related to
       operations                         82.8     228.7    (217.1)   (114.2)
      Other, principally pension
       contributions and changes to
       long-term assets and liabilities   (3.6)    (32.1)    (17.2)    (59.9)
    -------------------------------------------------------------------------
                                         301.3     392.9     243.1     248.2
    -------------------------------------------------------------------------

    Cash flow generated from (used for)
     investing activities
      Purchases of capital assets        (35.0)    (18.4)    (72.4)    (50.2)
      Proceeds from sale of capital
       assets                              0.7       4.4     104.4       5.4
      Proceeds on sale of real estate
       joint ventures, net of cash sold
       (Note 4)                              -         -       5.2         -
      Investments                            -         -      (3.0)        -
      Changes in restricted cash
       (Note 12)                          (0.1)     (3.9)      4.9      (6.7)
      Deferred charges                    (0.6)        -      (0.7)     (0.5)
    -------------------------------------------------------------------------
                                         (35.0)    (17.9)     38.4     (52.0)
    -------------------------------------------------------------------------

    Cash flow generated from (used for)
     financing activities
      Repayment of long-term obligations
       (Note 3)                         (130.7)     (5.2)   (132.8)   (507.0)
      Issuance of long-term obligations
       (Note 3)                              -         -         -     300.0
      Deferred charges                       -         -         -      (2.6)
      Dividends paid                         -         -         -     (12.9)
    -------------------------------------------------------------------------
                                        (130.7)     (5.2)   (132.8)   (222.5)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and
     short-term investments              135.6     369.8     148.7     (26.3)
    Cash and short-term investments at
     beginning of period                 736.0     353.1     722.9     749.2
    -------------------------------------------------------------------------
    Cash and short-term investments at
     end of period                     $ 871.6   $ 722.9   $ 871.6   $ 722.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash at end of period              $  64.7   $  95.0   $  64.7   $  95.0
    Short-term investments at end of
     period                              806.9     627.9     806.9     627.9
    -------------------------------------------------------------------------
    Total cash and short-term
     investments at end of period      $ 871.6   $ 722.9   $ 871.6   $ 722.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SEARS CANADA INC.
    CONSOLIDATED STATEMENTS OF EARNINGS
    For the 18 and 57-week periods ended February 2, 2008 and
    the 13 and 52-week periods ended December 30, 2006

    Unaudited

                                 Fourth Quarter             Fiscal Year
                            -----------------------   -----------------------
    (in millions, except
     per share amounts)          2007         2006         2007         2006
    -------------------------------------------------------------------------

    Total revenues          $ 2,295.8    $ 1,874.0    $ 6,326.4    $ 5,932.8
    -------------------------------------------------------------------------
    Cost of merchandise
     sold, operating,
     administrative and
     selling expenses         2,036.6      1,674.7      5,783.8      5,468.3

    Depreciation and
     amortization                43.0         37.2        150.1        152.1
    Interest expense, net        (1.7)         6.0         12.7         48.0
    Unusual items -
     expense (gain)  (Note 4)     4.2            -        (82.2)        25.2
    -------------------------------------------------------------------------
    Earnings before income
     taxes                      213.7        156.1        462.0        239.2
    -------------------------------------------------------------------------
    Income tax expense
      Current                    39.0         11.3         75.7         35.5
      Future                     36.3         36.3         77.8         51.1
    -------------------------------------------------------------------------
                                 75.3         47.6        153.5         86.6
    -------------------------------------------------------------------------
    Net earnings            $   138.4    $   108.5    $   308.5    $   152.6
    Other comprehensive
     income (Note 13)             0.2            -            -            -
    -------------------------------------------------------------------------
    Total comprehensive
     income                 $   138.6    $   108.5    $   308.5    $   152.6
    -------------------------------------------------------------------------

    Net earnings per
     share (Note 5)         $    1.29    $    1.01    $    2.87    $    1.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted net earnings
     per share (Note 5)     $    1.29    $    1.01    $    2.87    $    1.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    For the 18 and 57-week periods ended February 2, 2008 and
    the 13 and 52-week periods ended December 30, 2006

                                 Fourth Quarter             Fiscal Year
                            -----------------------   -----------------------
    Unaudited
    (in millions)                2007         2006         2007         2006
    -------------------------------------------------------------------------
    Opening Balance         $   939.0    $   660.8    $   769.3    $   631.6
    Cumulative impact of
     adopting new financial
     instruments standards,
     net of income taxes
     of $0.2 (Note 2)               -            -         (0.4)           -
    Net earnings                138.4        108.5        308.5        152.6
    Dividends declared              -            -            -        (12.9)
    Notional dividends
     (Note 8)                       -            -            -         (2.0)
    -------------------------------------------------------------------------

    Closing Balance         $ 1,077.4    $   769.3    $ 1,077.4    $   769.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    SEARS CANADA INC.
    Consolidated Statements of Financial Position

    Unaudited
                                                          As at        As at
    (in millions)                                    February 2, December 30,
                                                           2008         2006
    -------------------------------------------------------------------------

    ASSETS
    Current Assets
    Cash and short-term investments                   $   871.6    $   722.9
    Restricted cash (Note 12)                               5.2         10.1
    Accounts receivable                                   118.4        135.9
    Income taxes recoverable                                0.4          0.6
    Inventories                                           855.4        804.5
    Prepaid expenses and other assets                     115.4        120.0
    Current portion of future income tax assets            30.6        121.2
    -------------------------------------------------------------------------
                                                        1,997.0      1,915.2

    Capital assets                                        742.0        874.3
    Deferred charges                                      205.0        220.2
    Future income tax assets                               24.9         15.2
    Other long-term assets                                 34.2         35.4
    -------------------------------------------------------------------------
                                                      $ 3,003.1    $ 3,060.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current liabilities
    Accounts payable                                  $   683.6    $   810.1

    Accrued liabilities                                   439.0        480.0
    Income and other taxes payable                         81.5        105.1
    Principal payments on long-term obligations due
     within one year                                       16.1        146.7
    Future income tax liabilities                             -          0.1
    -------------------------------------------------------------------------
                                                        1,220.2      1,542.0

    Long-term obligations (Note 3)                        356.0        395.6
    Accrued benefit liability (Note 11)                   164.1        167.7
    Other long-term liabilities                           169.7        170.0
    -------------------------------------------------------------------------
                                                        1,910.0      2,275.3
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY
    Capital stock (Note 8)                                 15.7         15.7
    Retained earnings                                   1,077.4        769.3

    Accumulated other comprehensive income (Note 13)          -            -
    -------------------------------------------------------------------------
                                                        1,093.1        785.0
    -------------------------------------------------------------------------
                                                      $ 3,003.1    $ 3,060.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Sears Canada Inc.
    Notes to the Interim Consolidated Financial Statements
    February 2, 2008

    Unaudited

    1.  BASIS OF PRESENTATION

    These unaudited interim consolidated financial statements (the "financial
    statements") of Sears Canada Inc. (the "Company") have been prepared in
    accordance with Canadian generally accepted accounting principles
    ("GAAP") and follow the same accounting policies and methods of
    application as those used in the preparation of the audited annual
    consolidated financial statements for the 52-week period ended December
    30, 2006, except as described in Note 2 Accounting Policies and
    Estimates.

    These interim financial statements have not been examined by the
    Company's external auditors and do not contain all disclosures required
    by Canadian GAAP for annual financial statements. Accordingly, these
    financial statements should be read in conjunction with the most recently
    prepared annual financial statements for the 52-week period ended
    December 30, 2006. Figures as at February 2, 2008 and for the 18 and 57-
    week periods then ended and for the 13 weeks ended December 30, 2006, are
    unaudited.

    The Company's operations are seasonal in nature. Accordingly, merchandise
    and service revenues, as well as performance payments received from
    JPMorgan Chase & Co, N.A. (Toronto Branch) ("JPMorgan Chase") under the
    long-term credit card marketing and servicing alliance, will vary by
    quarter based upon consumer spending behaviour. Historically, the
    Company's revenues and earnings are higher in the fourth quarter than in
    any of the other three quarters due to the holiday season. The Company is
    able to adjust certain variable costs in response to seasonal revenue
    patterns; however, costs such as occupancy are fixed, causing the Company
    to report a disproportionate level of earnings in the fourth quarter.
    This business seasonality results in quarterly performance that is not
    necessarily indicative of the year's performance.

    Historically, the Company's fiscal year consisted of a 52 or 53-week
    period ending on the Saturday closest to December 31. In order to end its
    fiscal year on a date which allows for a full seasonal cycle, including
    the liquidation of holiday merchandise, and to align itself with the
    fiscal year of Sears Holdings Corporation ("Sears Holdings"), the
    Company's board of directors approved, in the first quarter of 2007, the
    change in the date of the fiscal year end to the Saturday closest to
    January 31. As a result, the Company's 2007 fiscal year is a transition
    year comprised of 57 weeks ended February 2, 2008, with the first,
    second, third and fourth quarters ended on March 31, 2007, June 30, 2007,
    September 29, 2007 and February 2, 2008, respectively. The fourth quarter
    and fiscal year for the 2006 consolidated financial statements presented
    as comparatives herein are the 13 and 52-week periods ended December 30,
    2006 ("2006").

    The 2008 fiscal year will comprise 52 weeks with the first, second, third
    and fourth quarters ending on May 3, 2008, August 2, 2008, November 1,
    2008 and January 31, 2009, respectively.

    Certain comparative figures have been reclassified to conform to the
    current period's presentation.

    2.  ACCOUNTING POLICIES AND ESTIMATES

    Vendor rebates

    The Company has arrangements with its vendors that provide for
    discretionary rebates and rebates subject to binding agreements.
    Discretionary rebates are recognized as a reduction of purchases when
    paid by the vendor or when the vendor becomes obligated to pay. Rebates
    subject to binding agreements are recognized as a reduction of purchases
    for the period, provided the rebate is probable and reasonably estimable.

    Asset Retirement Obligations and Conditional Asset Retirement Obligations

    The Company recognizes legal obligations associated with the retirement
    of capital assets, when those obligations result from the acquisition,
    construction, development or normal operation of the asset ("Asset
    Retirement Obligation" or "ARO"), at the time the asset is purchased or
    at the time the obligation becomes legally mandated. For AROs for which
    the timing and/or method of settlement are conditional on a future event
    that may or may not be within the control of the entity ("conditional
    ARO"), a liability will be recognized by the Company if the fair value of
    the obligation can be reasonably estimated. Otherwise, the Company
    discloses the fact that a conditional ARO exists, including the reasons
    why fair value cannot be estimated.

    The legal obligation to remove asbestos is a conditional ARO. If the
    Company commits to renovating a leased or owned building that contains or
    may contain asbestos, or if asbestos is inadvertently disturbed, for
    example, through normal wear and tear, the Company will be legally
    obligated to comply with asbestos removal standards. At February 2, 2008,
    the Company has included in accrued liabilities an ARO totalling less
    than $0.5 million related to the removal of asbestos. The Company has not
    recorded any additional liability related to asbestos removal because
    neither the timing nor the cost of such removal can be reasonably
    estimated at this time. The cost to remove asbestos would vary
    significantly depending on the extent of renovation and the location of
    the asbestos, among other factors. The timing of asbestos removal is
    often indeterminable as it is dependant on plans for the nature of future
    renovations, which are revised regularly, or on the inadvertent
    disturbance of asbestos, which cannot be foreseen.

    New Policies:

    These financial statements follow the same accounting policies and
    methods of application as the most recent annual financial statements for
    the 52-week period ended December 30, 2006, with the following
    exceptions:

    Financial Instruments, Hedges and Comprehensive Income

    On December 31, 2006, the Company adopted the Canadian Institute of
    Chartered Accountants ("CICA") Handbook Section 1530 "Comprehensive
    Income", Section 3251 "Equity", Section 3855 "Financial Instruments -
    Recognition and Measurement", Section 3861 "Financial Instruments -
    Disclosure and Presentation" and Section 3865 "Hedges". These sections
    apply to fiscal years beginning on or after October 1, 2006 and provide
    guidance for recognition, measurement and disclosure of financial assets,
    financial liabilities and non-financial derivatives, and describe when
    and how hedge accounting may be applied. Section 1530 provides for the
    reporting and presentation of comprehensive income, which represents the
    change in equity from transactions and other events and circumstances
    from non-owner sources. It includes all changes in equity during a period
    except those resulting from investments by owners and distributions to
    owners. Other comprehensive income comprises revenues, expenses, gains
    and losses that are recognized in comprehensive income, but which are
    excluded from net income, in conformity with generally accepted
    accounting principles. Section 3251, which replaces Section 3250
    "Surplus", requires the Company to report a new component in
    shareholders' equity called accumulated other comprehensive income, which
    comprises the accumulated balance of all components of other
    comprehensive income.

    Under the new standards, all financial assets must be classified as held
    for trading, held-to-maturity, loans and receivables or available-for-
    sale investments. All financial liabilities are classified as held for
    trading or other financial liabilities. Initially, all financial
    instruments are recorded on the consolidated balance sheet at fair value.
    After initial recognition, at each period end, all financial instruments
    are re-measured to their fair value, except for held-to-maturity
    investments, loans and receivables and other financial liabilities, which
    are measured at amortized cost. Any gain or loss arising from a change in
    the fair value of a financial asset or financial liability classified as
    held for trading is included in net income for the period in which it
    arises. The gain or loss resulting from a change in fair value of a
    financial asset classified as available-for-sale is recognized in other
    comprehensive income until the financial asset is derecognized through
    disposal or becomes impaired.

    The Company mitigates the risk of foreign currency fluctuations by
    entering into foreign exchange futures contracts and, since January 4,
    2004, had designated such contracts as hedges under CICA Accounting
    Guideline 13 ("AcG-13") "Hedging Relationships". Upon adoption of Section
    3855, these contracts were de-designated as hedges and were recorded at
    fair value. The Company also recorded at fair value embedded derivatives
    in U.S. dollar denominated purchase orders with non-U.S. based vendors
    and recorded at fair value fixed price energy contracts, which were
    identified as non-financial derivatives. Any changes in fair value of
    these derivatives are reported in net income. The initial impact of
    measuring the above derivatives at fair value was a net unrealized loss
    of $0.4 million, net of tax, which was recorded in opening retained
    earnings.

    In addition, upon adoption of the new standards, the Company classified
    its short-term investments as available-for-sale, accounts receivable as
    loans and receivables, and accounts payable, accrued liabilities, long-
    term obligations and other long-term liabilities as other financial
    liabilities. The initial impact of measuring the available-for-sale
    short-term investments at fair value was a net unrealized gain of less
    than $0.1 million, net of tax, which was recorded in opening accumulated
    other comprehensive income as at December 31, 2006.

    Accounting Changes

    On December 31, 2006 the Company adopted CICA Handbook Section 1506
    "Accounting Changes", which establishes criteria for changing accounting
    policies, together with the accounting treatment and disclosure of
    changes in accounting policies, changes in accounting estimates and
    correction of errors. In accordance with this new standard, the Company
    makes voluntary changes to accounting policies only if the changes result
    in the financial statements providing reliable and more relevant
    information. Changes to accounting policy required as a result of a
    change in GAAP are made in accordance with specific transitional
    provisions contained within the new accounting guidance. Changes in
    accounting estimates are recognized prospectively. Adoption of this new
    standard has not materially affected these financial statements.

    3.  LONG-TERM OBLIGATIONS

    The Company's cash interest payments in the 18 and 57-week periods ended
    February 2, 2008 were $13.2 million (2006 - $13.9 million) and
    $39.6 million (2006 - $67.3 million), respectively.

    Interest expense on long-term debt for the 18 and 57-week periods ended
    February 2, 2008 amounted to $10.2 million (2006 - $10.2 million) and
    $41.0 million (2006 - $65.5 million), respectively.

    During the fourth quarter of 2007 the Company repaid, upon maturity,
    $125.0 million of secured debentures due November 5, 2007.

    During the first and third quarters of 2007, the Company disposed of
    interests in two real estate joint ventures. As part of these
    transactions, the purchasers assumed the associated long-term debt
    totalling $37.4 million.

    On March 15, 2006, the Company repaid the maturing $200.0 million 6.75%
    secured medium-term notes and drew the equivalent of Canadian
    $300.0 million on its secured U.S. $260.0 million term loan with a
    floating interest rate based on LIBOR plus 150 to 175 basis points. To
    mitigate the risk of fluctuations in the Canadian/U.S. exchange rate and
    the floating interest rate, the Company concurrently entered into cross-
    currency interest rate swaps and applied hedge accounting on these
    instruments.

    On September 29, 2006, the Company repaid the outstanding balance of the
    term loan of U.S. $259.3 million, settled the cross-currency interest
    rate swaps and discontinued hedge accounting. The costs of settlement of
    the swaps of $8.9 million and the write-off of previously capitalized
    debt issue costs of $0.9 million were included in the $65.5 million of
    total interest expense on long-term debt in the 52-week period ended
    December 30, 2006.

    Substantially all of the tangible and intangible assets of the Company
    are pledged as security for the credit facility and the outstanding
    medium-term notes.

    As at February 2, 2008, there were no borrowings from the revolving
    $200.0 million credit facility other than letters of credit issued under
    the Company's offshore merchandise purchasing program of $65.3 million.
    There are financial and non-financial covenants included in the credit
    facility agreement which impact the Company's ability to draw funds and
    determine the cost of those funds. The Company was in compliance with all
    applicable covenants at February 2, 2008.

    4.  UNUSUAL ITEMS

    The Company recorded a pre-tax expense of $4.2 million (2006 - Nil) and a
    pre-tax gain of $82.2 million (2006 - pre-tax expense of $25.2 million)
    related to unusual items in the 18 and 57-week periods ended February 2,
    2008, respectively. The unusual items are as follows:



                              18-Week      13-Week      57-Week      52-Week
                               Period       Period       Period       Period
                                Ended        Ended        Ended        Ended
                           February 2, December 30,  February 2, December 30,
    (in millions)                2008         2006         2008         2006
    -------------------------------------------------------------------------

    Sale of real estate     $       -            -    $    74.0            -
    Sale of real estate
     joint ventures                 -            -         12.5            -
    Sale of corporate
     airplane                       -            -          3.5            -
    Settlement of lawsuit           -            -         (3.6)           -
    Enviromental remediation     (4.5)           -         (4.5)           -
    Restructuring activities      0.3            -          0.3        (25.2)
    -------------------------------------------------------------------------
    Total unusual items -
     gain (expense)         $    (4.2)   $       -    $    82.2    $   (25.2)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Sale of real estate

    During the third quarter of 2007, the Company sold the property upon
    which the Full-line store in Hamilton, Ontario is situated and its head
    office property in Toronto, Ontario for total combined proceeds of
    $88.0 million, net of transaction costs, resulting in a pre-tax gain of
    $74.0 million. Concurrently, the Company entered into agreements to
    leaseback the properties for periods not exceeding thirty-six months.

    Sale of real estate joint ventures

    During the third quarter of 2007, the Company sold its interest in a real
    estate joint venture for proceeds of Nil, resulting in a pre-tax gain of
    $3.2 million. As part of this transaction, the Company disposed of total
    assets and liabilities in the amount of $14.8 million and $18.0 million,
    respectively, including long-term debt assumed by the purchaser of
    $14.9 million.

    During the first quarter of 2007, the Company sold its interest in a real
    estate joint venture for proceeds of $5.2 million, net of cash sold of
    $0.9 million, resulting in a pre-tax gain of $9.3 million. As part of
    this transaction, the Company disposed of total assets and liabilities in
    the amount of $20.4 million and $23.6 million, respectively, including
    long-term debt assumed by the purchaser of $22.5 million.

    Sale of corporate airplane

    During the second quarter of 2007, the Company recorded a pre-tax gain of
    $3.5 million on the sale of its corporate airplane.

    Settlement of lawsuit

    During the second quarter of 2007, the Company expended $5.0 million to
    settle a lawsuit relating to a commercial dispute. Of the total
    settlement, a pre-tax expense of $3.6 million is included in unusual
    items for the 13-week period ended June 29, 2007 as $1.4 million was
    accrued in prior years.

    Environmental remediation reserve

    During the fourth quarter of 2007, the Company increased its reserve for
    environmental remediation, primarily for properties affected by former
    gas bar and logistics operations, by $4.5 million. The Company continues
    to monitor its obligations and will increase or decrease the reserve as
    required.

    Restructuring activities

    Pre-tax restructuring charges for the 18 and 57-week periods ended
    February 2, 2008 were a credit of $0.3 million (2006 - Nil) and a credit
    of $0.3 million (2006 - an expense of $25.2 million), respectively.
    During the fourth quarter of 2007 the Company reversed $0.3 million of
    severance expense which had been accrued in a prior year. The 2006
    charges are primarily severance related, including a $4.9 million charge
    resulting from pension enhancements, in connection to the implementation
    of various productivity improvement initiatives, previously announced in
    2005. In addition, the Company incurred a $0.5 million non-cash charge
    during 2006 related to the write-down of fixed assets from the product
    repair services organization.

    A summary of the changes in the accrued liability related to these
    activities is outlined below:


    -------------------------------------------------------------------------
                                                               Restructuring
    (in millions)                                                  Liability
    -------------------------------------------------------------------------
    Accrued liability January 1, 2005                              $     3.5
    Cash expense                                                        65.4
    Cash payments                                                      (51.7)
    -------------------------------------------------------------------------
    Accrued liability December 31, 2005                            $    17.2
    Cash expense                                                        19.8
    Cash payments                                                      (32.4)
    -------------------------------------------------------------------------
    Accrued liability December 30, 2006                            $     4.6
    Cash payments                                                       (1.4)
    -------------------------------------------------------------------------
    Accrued liability March 31, 2007                               $     3.2
    Cash payments                                                       (0.9)
    -------------------------------------------------------------------------
    Accrued liability June 30, 2007                                $     2.3
    Cash payments                                                       (0.2)
    Accrued liability September 29, 2007                           $     2.1
    -------------------------------------------------------------------------
    Cash payments                                                       (0.2)
    Adjustment to prior period accrued liability                        (0.3)
    -------------------------------------------------------------------------
    Accrued liability February 2, 2008                             $     1.6
    -------------------------------------------------------------------------

    5.  NET EARNINGS PER SHARE

    A reconciliation of the number of shares used in the net earnings per
    share calculation is as follows:




                              18-Week      13-Week      57-Week      52-Week
                               Period       Period       Period       Period
                                Ended        Ended        Ended        Ended
                           February 2, December 30,  February 2, December 30,
                                 2008         2006         2008         2006
                          ---------------------------------------------------
                               Number       Number       Number       Number
                            of shares    of shares    of shares    of shares
    -------------------------------------------------------------------------
    Average number of
     shares per basic net
     earnings per share
     calculation          107,620,995  107,620,995  107,620,995  107,577,587
    Effect of dilutive
     instruments
     outstanding               21,650       24,568       24,343      145,395
    -------------------------------------------------------------------------
    Average number of
     shares per diluted
     net earnings per
     share calculation    107,642,645  107,645,563  107,645,338  107,722,982
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the 18 and 57-week periods ended February 2, 2008, 174,791 options
    were excluded from the calculation of diluted net earnings per share as
    they were anti-dilutive.

    6.  SEGMENTED INFORMATION

    Segmented Statement of Earnings

                              18-Week      13-Week      57-Week      52-Week
                               Period       Period       Period       Period
                                Ended        Ended        Ended        Ended
                           February 2, December 30,  February 2, December 30,
    (in millions)                2008         2006         2008         2006
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total revenues
    Merchandising(*)          2,282.1      1,860.7      6,272.6      5,880.1
    Real Estate Joint
     Ventures                    13.7         13.3         53.8         52.7
    -------------------------------------------------------------------------
    Total revenues          $ 2,295.8    $ 1,874.0    $ 6,326.4    $ 5,932.8
    -------------------------------------------------------------------------

    Earnings (loss) before
     interest, unusual items
     and income taxes
    Merchandising(*)            209.4        156.0        367.5        288.8
    Real Estate Joint
     Ventures                     6.8          6.1         25.0         23.6
    -------------------------------------------------------------------------
    Earnings before
     interest, unusual
     items and income taxes     216.2        162.1        392.5        312.4
    Interest expense, net        (1.7)         6.0         12.7         48.0
    Unusual items - (gain)
     expense                      4.2            -        (82.2)        25.2
    Income taxes                 75.3         47.6        153.5         86.6
    -------------------------------------------------------------------------
    Net earnings            $   138.4    $   108.5    $   308.5    $   152.6
    -------------------------------------------------------------------------
    (*) The Merchandising segment includes revenue and earnings from the
    alliance with JPMorgan Chase as follows: for the 18-week period ended
    February 2, 2008 - $31.7 million (2006 - $25.0 million) and $19.3 million
    (2006 - $15.1 million); for the 57-week period ended February 2, 2008 -
    $87.8 million (2006 - $80.6 million) and $59.9 million (2006 -
    $59.9 million), respectively.

    Segmented Statement of Capital Employed ((*))
    -------------------------------------------------------------------------
                                                          As at        As at
                                                     February 2, December 30,
    (in millions)                                          2008         2006
    -------------------------------------------------------------------------
    Merchandising                                     $ 1,366.4    $ 1,195.8
    Real Estate Joint Ventures                             98.8        131.5
    -------------------------------------------------------------------------
    Total                                             $ 1,465.2    $ 1,327.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Capital Employed represents the total of long-term obligations,
    including principal payments on long-term obligations due within one
    year, and shareholders' equity.


    Segmented Statement of Total Assets
    -------------------------------------------------------------------------
                                                          As at        As at
                                                     February 2, December 30,
    (in millions)                                          2008         2006
    -------------------------------------------------------------------------
    Merchandising                                     $ 2,894.6    $ 2,913.1
    Real Estate Joint Ventures                            108.5        147.2
    -------------------------------------------------------------------------
    Total                                             $ 3,003.1    $ 3,060.3
    -------------------------------------------------------------------------

    Included in capital assets of the Merchandising segment as at February 2,
    2008 are assets held for sale relating to the Company's Calgary, Alberta
    Full-line store in the amount of $2.8 million. The Company has
    conditionally sold this property for proceeds of $40.0 million, to be
    received in the first quarter of 2008. This transaction is expected to
    yield an estimated pre-tax gain of $37.2 million, net of closing costs.

    7.  INCOME TAXES

    The Company's total net cash payments of income taxes in the 18 and 57-
    week periods ended February 2, 2008 were $12.3 million (2006 -
    $4.8 million) and $52.1 million (2006 - $211.9 million), respectively.

    8.  CAPITAL STOCK

    As at February 2, 2008, 107,620,995 common shares were issued and
    outstanding. Sears Holdings is the beneficial holder of 75,572,390, or
    70.2%, of the common shares of the Company as at February 2, 2008.

    Cash received from the issuance of capital stock upon the exercise of
    options amounted to Nil (2006 - Nil) and Nil (2006 - less than
    $0.1 million), respectively, in the 18 and 57-week periods ended February
    2, 2008.

    Under the Employees Stock Plan and the Directors' Share Purchase Plan,
    Deferred Share Units ("DSUs") are credited with notional dividend
    equivalents when dividends are paid on common shares by the Company.
    During the 18 and 57-week periods ended February 2, 2008, the Company
    credited Nil (2006 - Nil) and Nil (2006 - $2.0 million), respectively, to
    capital stock for notional dividend equivalents. As at February 2, 2008,
    Nil DSUs were outstanding.

    9.  STOCK-BASED COMPENSATION

    Details of the Company's stock-based compensation plans are contained in
    Note 10 to the Company's consolidated financial statements for the
    52-week period ended December 30, 2006.

    No stock options have been granted under the Stock Option Plan for
    Directors since the last grant in 2003. As at February 2, 2008, there
    were Nil stock options outstanding under the Stock Option Plan for
    Directors.

    Following the last grant in 2005, the Company has discontinued granting
    of shares under the Directors' Share Purchase Plan. As at February 2,
    2008, there were Nil DSUs outstanding under the Directors' Share Purchase
    Plan.

    Since the last grant in 2004, the Company discontinued the granting of
    options and Special Incentive Shares and Options under the Employees
    Stock Plan. As at February 2, 2008, there were 251,740 stock options, Nil
    Special Incentive Shares and Options and Nil DSUs outstanding under the
    Employees Stock Plan.

    At the end of each fiscal period, the Company records a liability for
    tandem awards equal to the amount by which the market price of its shares
    at the end of the period exceeds the exercise price of the vested tandem
    awards. Compensation expense is recorded to adjust the liability for
    changes in the market price of the Company's shares and for awards
    exercised in the period. During the 18 and 57-week periods ended February
    2, 2008, a credit of $0.7 million (2006 - expense of $0.7 million) and a
    credit of $0.3 million (2006 - expense of $0.6 million), respectively,
    were recorded related to tandem awards.

    Cash payments for stock appreciation rights made during the 18 and 57-
    week periods ended February 2, 2008 were less than $0.1 million (2006 -
    less than $0.1 million) and $0.2 million (2006 - $0.2 million),
    respectively.

    10. GUARANTEES

    The Company has provided the following significant guarantees to third
    parties:

    Sub-lease agreements

    The Company has entered into a number of agreements to sub-lease premises
    to third parties. The Company retains ultimate responsibility to the
    landlord for payment of amounts under the lease agreements should the
    sub-lessee fail to pay. The total future lease payments under such
    agreements are $19.0 million.

    Other indemnification agreements

    In the ordinary course of business the Company has provided
    indemnification commitments to counterparties in transactions such as
    leasing transactions, royalty agreements, service arrangements,
    investment banking agreements, director and officer indemnification
    agreements and indemnification of trustees under indentures for
    outstanding public debt. The Company has also provided certain
    indemnification agreements in connection with the sale of the Credit and
    Financial Services operations in November 2005. The foregoing
    indemnification agreements require the Company to compensate the
    counterparties for costs incurred as a result of changes in laws and
    regulations or as a result of litigation claims or statutory claims or
    statutory sanctions that may be suffered by a counterparty as a
    consequence of the transaction. The terms of these indemnification
    agreements will vary based on the contract and typically do not provide
    for any limit on the maximum potential liability. Historically, the
    Company has not made any significant payments under such indemnifications
    and no amount has been accrued in the financial statements with respect
    to these indemnification commitments.

    11. ASSOCIATE FUTURE BENEFITS

    Information about the Company's defined benefit plans is contained in
    Note 7 of the Company's financial statements for the 52-week period
    ended December 30, 2006. The net benefit plan expense for the 18 and 57-
    week periods ended February 2, 2008 was $7.4 million (2006 -
    $14.4 million) and $28.9 million (2006 - $62.8 million), respectively.
    The Company contributed a total of $1.7 million (2006 - $31.6 million)
    and $21.3 million (2006 - $60.6 million) to its associate future benefit
    plans during the 18 and 57-week periods ended February 2, 2008,
    respectively.

    As discussed in Note 19 of the Company's consolidated financial
    statements for the year ended December 30, 2006, the Company initiated an
    asset/liability study to determine a strategic asset allocation for the
    pension fund assets. Pending completion of this study, the pension fund
    assets were allocated 70% fixed income and 30% equity. During the second
    quarter of 2007, the Company completed this study and adopted a policy
    for asset allocation comprised of 50% fixed income, 30% alternative
    assets and 20% equity. This change resulted in a reduction in the
    Company's annual pension expense. The asset allocation may be changed
    from time to time in terms of weighting between equity, fixed income and
    other asset classes.

    On February 5, 2007, the Company announced amendments to its post-
    retirement program. Effective July 1, 2008, the Company will amend its
    pension plan by introducing a defined contribution component. The current
    defined benefit component will continue to accrue benefits related to
    future compensation increases although no further service credit will be
    earned. In addition, the Company will no longer provide medical, dental
    and life insurance benefits at retirement for associates who have not
    achieved the eligibility criteria for these post-retirement benefits as
    at December 31, 2008. These changes will not impact current retirees of
    the Company. The amendments to the post-retirement medical, dental and
    life insurance benefits generate a one-time curtailment to the benefit
    plan obligation of approximately $87.0 million. There is no immediate
    recognition of the curtailment in the income statement as the decrease in
    the accrued benefit obligation is fully offset by unamortized net
    actuarial losses.

    12. COMMITMENTS AND CONTINGENCIES

    Three class action lawsuits in the provinces of Quebec, Saskatchewan and
    Ontario were commenced against the Company in 2005 arising out of Sears'
    pricing of tires. The plaintiffs allege that Sears inflated the regular
    retail price of certain brands of tires sold by Sears in order to then
    claim that the same brands were on sale for up to 45% off the regular
    retail price so as to induce potential customers into believing that
    substantial savings were being offered. The plaintiffs seek general
    damages, special damages, and punitive damages, as well as costs and pre-
    and post-judgment interest. No dollar amounts are specified. The
    plaintiffs intend to proceed with the Quebec action and seek
    certification as a class action on a national basis. The outcome of this
    action is indeterminable, and the monetary damages, if any, cannot be
    reliably estimated. Therefore, the Company has not made a provision for
    any potential liability.

    In addition, the Company is involved in various negotiations including
    certain tax matters and legal proceedings incidental to the normal course
    of business. Sears is of the view that although the outcome of such
    litigation cannot be predicted with certainty, the final disposition is
    not expected to have a material adverse effect on the Company's
    consolidated financial position or results of operations.

    Restricted Cash

    Cash is considered to be restricted when it is subject to contingent
    rights of a third party customer, vendor, or government agency. As at
    February 2, 2008, the Company recorded $5.2 million (2006 -
    $10.1 million) of restricted cash, under current assets, representing
    funds held in trust in accordance with regulatory requirements governing
    advance ticket sales related to Sears Travel.

    13. ACCUMULATED OTHER COMPREHENSIVE INCOME

    The opening balance adjustment in accumulated other comprehensive income
    from the unrealized gain on available-for-sale investments was less than
    $0.1 million, net of tax. For the 18 and 57-week periods ended February
    2, 2008, the Company recorded other comprehensive income from the
    unrealized gain on available-for-sale investments of $0.2 million and
    Nil, net of tax, respectively.
    





For further information:

For further information: Media Relations Contact: Vincent Power, Sears
Canada Inc., (416) 941-4422, vpower@sears.ca


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