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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

SEARS, ROEBUCK AND CO.

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.

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

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

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

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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.

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SEARS, ROEBUCK AND CO.
Condensed Consolidated Balance Sheets

See accompanying notes.

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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.

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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.

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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

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

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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.

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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	)

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

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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

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

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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.

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