Kmart cuts losses, bumps margin
December 8, 2003,
Kmart Holding Corp. decreased its net loss 94 percent from a year ago, down to $23 million for the third quarter, compared to the $383 million loss a year ago.
The company said the sales decrease was due primarily to the year-over-year comparison with several company-wide promotional events and the reduced frequency of mid-week advertising circulars this year. The decrease in same-store sales and the closure of 316 stores during the first quarter of this year also impacted total sales.
On a positive note, gross margin increased $61 million to $1.167 billion. As a percentage of sales, gross margin jumped to 22.9 percent from 17.1 percent.
The bump was produced by lower distribution costs as Kmart began in-sourcing food and consumables as well as lower depreciation expense and the write-off of long-lived assets related to Fresh Start accounting. In addition, gross margin benefited from the reclassification of co-op advertising dollars, which are now recorded under cost of sales, buying and occupancy.
"The actions we have taken to drive profitability contributed to a mid-teens decline in November same-store sales, but allowed us to operate the company profitably in November 2003," said Julian Day, president and ceo.
Last year, the company reported a loss for November. Neither period included the Thanksgiving weekend.
Kmart had approximately $0.9 billion in cash and cash equivalents as of October 29, and borrowing availability of approximately $1.6 billion on its $2 billion credit facility inclusive of outstanding letters of credit.
The company added that because of its favorable liquidity position, it has voluntarily reduced the size of its credit facility to $1.5 billion to reduce the overall cost of the facility.
"The strength of our liquidity position is especially noteworthy, as we have progressed through the peak buying period for the holiday season with no direct borrowings drawn from our credit facility," said Day.