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Kmart's 1Q beats the Street

Don Hogsett -- Home Textiles Today, May 21, 2001

TROY, MI — Weighed down by the $23 million pricetag on an early retirement program designed to save millions in future payroll costs, as well as rising expenses and interest costs, Kmart Corp. posted a first-quarter loss of $25 million, compared with a year-before profit of $22 million.

But even with the big one-time charge, the retailer easily beat Wall Street expectations, posting a loss of 5 cents a share vs. a consensus forecast of a 7 cents per share loss.

Excluding costs of the employee buy-out program, the retailer posted a loss of $10 million, or 2 cents a share.

Sales in the opener edged up by 1.7 percent, to $8.3 billion from $8.2 billion last year, and same-store sales moved up by 1.7 percent as well.

Acting as a drag on the bottom line, in addition to the severance costs, was sharply rising interest expense and a small increase in operating costs. Interest costs jumped up by 20.3 percent, to $83 million from $69 million last year, costing the company an extra $14 million. Operating costs climbed higher by 40 basis points, to 19.7 percent of sales, compared with 19.3 percent a year ago. In absolute dollars, costs climbed faster than sales, rising by 3.9 percent, to $1.64 billion from $1.58 billion, an extra $62 million.

"These results are in line with our plan to fix our business by taking decisive, aggressive and focused steps to transform our company," said Chuck Conaway, who became chairman and ceo a year ago.

Conaway added, "We are making strong progress on several key operating metrics. The company's in-stock levels have improved from 79 percent in October 2000 to 88 percent at the end of the first quarter of 2001. Likewise, Kmart's Super Service Index, our measure of service excellence, has increased from 40 percent last fall to 57 percent today."

During the first quarter, Kmart opened 10 new discount stores, one supercenter and closed three discount stores.

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