Sears 2010 Annual Report Download - page 7

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.
Our business has been and will continue to be affected by worldwide economic conditions; a failure of the
economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions,
including inflation, could lead to reduced revenues and gross margins, and negatively impact our liquidity.
Many economic and other factors are outside of our control, including consumer and commercial credit
availability, consumer confidence and spending levels, inflation, employment levels, housing sales and remodels,
consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of
which on our business, results of operations and financial condition cannot be predicted with certainty. These
economic conditions adversely affect the disposable income levels of, and the credit available to, our customers,
which could lead to reduced demand for our merchandise. Also affected are our vendors, upon which we depend
to provide us with financing on our purchases of inventory and services. Our vendors could seek to change either
the availability of vendor credit to us or other terms under which they sell to us, or both, which could negatively
impact our liquidity. In addition, the inability of vendors to access liquidity, or the insolvency of vendors, could
lead to their failure to deliver inventory or other services. Certain of our vendors also are experiencing increases
in the cost of various raw materials, such as cotton, oil-related materials, steel and rubber, which could result in
increases in the prices that we pay for merchandise, particularly apparel, appliances and tires.
In addition to credit terms from vendors, our liquidity needs are funded by our operating cash flows and, to
the extent necessary, borrowings under our credit agreements and commercial paper program. The availability of
financing depends on numerous factors, including economic and market conditions, our credit ratings, and
lenders’ assessments of our prospects and the prospects of the retail industry in general. The lenders under our
credit facilities may not be able to meet their commitments if they experience shortages of capital and liquidity
and there can be no assurance that our ability to otherwise access the credit markets, will not be adversely
affected by changes in the financial markets and the global economy.
The domestic and international political situation also affects consumer confidence. The threat, outbreak or
escalation of terrorism, military conflicts or other hostilities could lead to a decrease in consumer spending. Any
of these events and factors could cause us to increase inventory markdowns and promotional expenses, thereby
reducing our gross margins and operating results.
Due to the seasonality of our business, our annual operating results would be adversely affected if our
business performs poorly in the fourth quarter.
Our business is seasonal, with a high proportion of revenues, operating income and operating cash flows
being generated during the fourth quarter of our 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 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 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 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 online,
• seasonal fluctuations due to weather conditions,
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