Sears 2011 Annual Report Download - page 20

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We have divided our “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” into the following six sections:
• Overview of Holdings
• Results of Operations:
Fiscal Year
Holdings’ Consolidated Results
Business Segment Results
• Analysis of Consolidated Financial Condition
• Contractual Obligations and Off-Balance Sheet Arrangements
• Application of Critical Accounting Policies and Estimates
• Cautionary Statement Regarding Forward-Looking Information
The discussion that follows should be read in conjunction with the consolidated financial statements and
notes thereto included in Item 8.
OVERVIEW OF HOLDINGS
Holdings is the parent company of Kmart and Sears. We are a broadline retailer and, at the end of 2011, had
2,172 Kmart and domestic full-line stores and 1,338 specialty retail stores in the United States operating through
Kmart and Sears and 500 full-line and specialty retail stores in Canada operating through Sears Canada, a
95%-owned subsidiary. We plan to close 173 stores and change the format of 8 stores in the first half of 2012.
We currently conduct our operations in three reportable business segments: Kmart, Sears Domestic and
Sears Canada. The nature of operations conducted within each of these segments is discussed within the
“Business Segments” section of Item 1 in this report on Form 10-K. Our business segments have been
determined in accordance with accounting standards regarding the determination, and reporting, of business
segments.
The retail industry is highly competitive and as such, Holdings faces significant challenges, including the
current macroeconomic environment, as many of our product categories are impacted by the housing market and
availability of credit to our customers. The retail industry is also rapidly evolving as retail is increasingly
impacted by new technologies and social media. We believe that this evolution provides us with significant
growth opportunities, if we are able to transform our portfolio of businesses by leveraging our existing store
network with emerging technologies and our Shop Your Way Rewards program to develop lasting relationships
with our customers.
We consider ourselves to be an asset-rich enterprise with multiple resources at our disposal. At year end, we
had $3.2 billion in liquidity and significant value in our asset portfolio, including valuable iconic proprietary
brands, a valuable real estate portfolio, well- known stand-alone businesses and a flexible financial structure. We
are taking actions to address our operating performance in three areas:
• First, we are implementing immediate actions which we believe will improve our financial
performance, including cost and inventory reductions, closure of marginally performing stores, actions
to improve margins, and bringing in talent to strengthen the leadership team. We have reduced
inventory by $544 million below last year’s level and our promotional cadence has been adjusted to be
more targeted.
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