KMart Profits Still On The Rise

By Don Hogsett -- Home Textiles Today, 3/14/2005 12:00:00 AM

Troy, Mich. —

Helped by stronger margins and lower costs — a $107 million savings — fourth quarter profits at Kmart Corp., climbing consistently higher since the retailer emerged from bankruptcy a year ago, rose 14.4 percent, to $309 million from $270 million last year.

Sales decreased 6.6 percent, to $5.9 billion from $6.3 billion last year. More importantly, same-store sales, while still losing ground, improved substantially. Compos declined 4.5 percent during the Christmas quarter, a considerable improvement over the previous two fiscal quarters, when same-store sales dropped 12.8 percent and 14.9 percent respectively. And it was a big improvement over a steep 13.5 percent decline during the prior-year fourth quarter.

Aylwin Lewis, president and CEO, commented, "After a strong first two months of the fourth quarter, we continued to deliver solid financial results through the close of 2004. While we are pleased with our performance, our return to solid, profitable operations is only the first stage in our effort to revitalize this organization. We look forward to what still needs to be accomplished and plan to continue our momentum by further improving our operations and the customer shopping experience in 2005."

Driving the earnings gain during the all-important Christmas quarter was a combination of stronger margins, lower costs and sharply reduced interest expense. Hacking away at overhead, the retailer reduced expenses 9.1 percent, to $1.1 billion from $1.2 billion last year, generating a cash savings of $107 million. Measured as a percentage of sales, the expense ratio improved 50 basis points, or five-tenths of a percentage point, to 18.1 percent from 18.6 percent a year ago.

Margins grew stronger as well, rising 40 basis points, to 25.5 percent from 25.1 percent.

In another lift to the bottom line, interest expense was whittled 66.7 percent, to $23 million from $69 million last year, yielding a cash savings of $46 million.

Inventories outpaced sales during the closing quarter as the retailer improved its in-stock position and stockpiles rose 1.3 percent, to $3.28 billion from $3.24 billion last year, compared with the 6.6 percent decline in overall sales.

For all of last year, the retailer recorded a profit of $1.1 billion, compared with a year-before loss of $628 million, when the company was weighed down by $769 million in bankruptcy costs.

Kmart Holding Corp.