Kmart overhaul stems earnings woes

Don Hogsett, August 24, 2001

Troy, MI — Cutting prices on thousands of items to shore up business in a straitened economic environment, Kmart recorded a 1 percent decline in second-quarter sales and a sharply narrowed loss of $95 million, compared with a year-ago deficit of $448 million.

Faced with a weakening economic outlook and forced to stay competitive, the giant retailer lowered the price of 20,000 items in its stores as part of its BlueLight Always program, putting downward pressure on overall sales, which slipped by 0.9 percent, to $8.9 billion from $9.0 billion last year. On the upside, same-store sales eked out a gain of 1.0 percent despite the pricing deflation.

In the midst of a radical overhaul of operations, the retailer narrowed its losses by almost 80 percent, to $95 million from $448 million last year. Included in this year's deficit is a $92 million pre-tax charge to buy the 40 percent of BlueLight.com it didn't already own. Excluding the one-time item, the retailer posted a smaller loss of $20 million, in line with Wall Street expectations, and an improvement of almost 97 percent from a year-before loss before charges of $621 million.

But Wall Street, concerned about the possible impact of price deflation on future sales and earnings, knocked the retailer's stock down by 7.3%, or 88 cents a share, to $11.22 from $12.10 a share.

Average gross margin, excluding non-comparable items, improved by 30 basis points, to 20.8 percent from 20.5 percent a year ago, mostly due to a reduction in merchandise shrinkage.

Operating costs, before non-comparable items, climbed by 80 basis points, to 20.0 percent from 19.2 percent a year ago, as increased store labor costs more than offset savings from lower advertising costs.

"We are pleased with our results as we continue our strategies to transform Kmart," said ceo Chuck Conaway, architect of the retailer's latest turnaround strategy. "As planned, we completed our conversion of our entire store base to the Fleming distribution network and reset over 90 percent of our store base during the quarter."

During the second quarter, Kmart opened one supercenter and closed a discount store. As of Aug. 1, Kmart operated 2,113 stores, down from 2,165 a year ago.

Featured Video

  • Live From New York: Fashion Comes Across the Pond

    Camera Icon More Videos

Subscribe to
Home & Textiles Today eDaily
Receive the news you need to know about the trends in the industry delivered right to your inbox.

CURRENT ISSUE

HTT Cover October 2017

See the October 2017 issue of Home & Textiles Today. In this issue, we look at the Top 25 Online Retailers.  H&TT's exclusive annual ranking of the biggest online sellers of home textiles finds that while pure play etailers continue to fly, bricks & clicks are digging into omnichannel. See details!