Sears 2006 Annual Report Download - page 8

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Our success depends on our ability to differentiate ourselves from our competitors with respect to shopping
convenience, a quality assortment of available merchandise and superior customer service. We must also
successfully respond to our customers’ changing tastes. The performance of our competitors, as well as changes
in their pricing policies, marketing activities, new store openings and other business strategies, could have a
material adverse effect on our business, financial condition and results of operations.
Due to the seasonality of our business, our annual operating results would be adversely affected if our
fourth quarter results fail to meet our expectations.
Our business is seasonal, with a high proportion of revenues and operating cash flows being generated
during the fourth quarter of our fiscal year, which includes the holiday season. As a result, our fourth quarter
operating results significantly impact our annual operating results. Our fourth quarter operating results may
fluctuate significantly, based on many factors, including holiday spending patterns and weather conditions.
Our comparable store sales may fluctuate for a variety of reasons, which could adversely affect our results
of operations.
Our business is sensitive to customers’ spending patterns, which in turn are subject to prevailing economic
conditions. Our comparable store sales and results of operations have fluctuated in the past, and we expect them
to continue to fluctuate in the future. A variety of other factors affect our comparable store sales and financial
performance, including:
• actions by our competitors, including opening of new stores in our existing markets or changes to the
way these competitors go to market on line,
• seasonal fluctuations due to weather conditions,
• changes in our merchandise strategy and mix,
• changes in population and other demographics, and
• timing of our promotional events.
Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected
for any other quarter, and comparable store sales for any particular future period may decrease. For more
information on our results of operations, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Item 7 of this Form 10-K.
We rely on foreign sources for significant amounts of our merchandise, and our business may therefore be
negatively affected by the risks associated with international trade.
We depend on a large number of products produced in foreign markets. We face risks associated with the
delivery of merchandise originating outside the United States, including:
• potential economic and political instability in countries where our suppliers are located,
• increases in shipping costs,
• transportation delays and interruptions,
• adverse fluctuations in currency exchange rates, and
• changes in U.S. and foreign laws affecting the importation and taxation of goods, including duties,
tariffs and quotas, or changes in the enforcement of those laws.
A decline in general economic conditions, consumer-spending levels and other conditions could lead to
reduced consumer demand for our merchandise thereby reducing our revenues and gross margins.
Many economic and other factors outside our control, including consumer confidence, consumer spending
levels, employment levels, prevailing interest rates, housing sales and remodels and consumer debt levels, as well
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