Kmart finds less is more in 2nd Qtr

By Don Hogsett -- Home Textiles Today, 9/1/2003 12:00:00 AM

TROY, MI —

Helped by sharply stronger margins and lower costs, and putting behind it many of the bankruptcy and restructuring costs that dogged the bottom line a year ago, Kmart Holding Corp. reported a narrowed second quarter loss of $5 million, compared with a year-ago deficit of $293 million.

After closing 599 stores as part of a massive restructuring, Kmart sales declined by 21.3 percent, to $5.7 billion from $7.2 billion a year ago. Same-store sales, still weak, declined by 5.4 percent.

Wall Street drove the stock sharply higher in value once the news was released on Aug. 29. In mid-day trading, Kmart shares had jumped up more than 8 percent in value, by $2.45 a share, to $31.89.

Since emerging from bankruptcy in May, Kmart shares have more than doubled in value from a low of $12, and have produced a big payday — a paper gain in the neighborhood of $800 million — for investor Edward Lampert, who owns roughly half the company's stock.

Lampert, through his Greenwich, CT-based ESL Investments, is also a major owner of textiles producer WestPoint Stevens, and a major shareholder in Sears, Roebuck & Co.

Helping to fuel the bottom-line improvement, Kmart boosted its margins by 410 basis points, or 4.1 percentage points, to 21.8 percent from 17.7 percent a year ago.

Driving the margin improvement, Kmart said, was "a decrease in shrinkage and an overall improvement in the company's sales mix and lower buying and occupancy costs under post-bankruptcy accounting.

Lifted by the stronger margins, the retailer reported a small operating profit of $6 million, compared with a prior-year operating loss of $264 million.

Keeping a watchful eye on stockpiles, Kmart reduced its inventories by 23.1 percent. That was more than the 21 percent decline in sales, to $4.1 billion from $5.3 billion last year.

Kmart Holding Corp.