Kmart posts happy holiday numbers

Don Hogsett, January 20, 2003

Against all odds and confounding many skeptics, bankrupt retail giant Kmart Corp. parlayed a trifecta of stronger margins, sharply improved same-store sales and lower costs into a December profit of $349 million. It's the first monthly profit the retailer has managed since filing last January for Chapter 11 bankruptcy protection.

During the all-important Christmas selling season, the retailer did a substantially better job of drawing consumers into its stores than it has during its 12 months in bankruptcy, and same-store sales declined at a relatively modest pace of 5.7 percent, a dramatic improvement over the huge 17.2 percent plunge recorded in November.

Overall sales, swollen by Christmas shopping, almost doubled from November levels, jumping up by 90.8 percent, to $4.7 billion from $2.5 billion the prior month.

The retailer managed to hold on to more of each sales dollar, and average gross margin expanded by 110 basis points, or 1.1 percentage points, to 19.6 percent from 18.5 percent in November. Given the stronger sales and better pricing, gross margin dollars more than doubled, climbing by 103.1 percent, to $924 million from $455 million.

Helped by the strong spike provided by holiday sales, the retailer's expense ration — costs measured as a percentage of sales — improved hugely, to 12.0 percent from 19.0 percent in November. But measured in absolute dollars, costs actually climbed higher by 20.9 percent, to $566 million from $468 million, as the company geared up for the crucial Christmas season.

Given a big lift by improved same-store sales for the holiday, stronger margins and lower costs, Kmart put up an operating profit of $358 million during December, compared with a month-before operating loss of $13 million, when the retailer's costs exceeded its take.

Still taking a bite out of the bottom line, Kmart rang up about $8 million in bankruptcy costs in both December and November.

As of Jan. 1, at the end of the big Christmas rush, Kmart had about $1.1 billion in cash on hand, up more than 152 percent from $442 million in November. And its inventory position had improved considerably, with stockpiles whittled down by 21.5 percent, to $5.3 billion from $6.7 billion at the end of November.

Its cash position improving during the holiday season, the retailer repaid $777 million of its debt-in-possession credit financing, and as of Jan. 1 had a cash availability of $1.6 billion, up more than 97 percent from $789 million in November.

Kmart monthly financials
dollar amounts in $millions

December November
( ): denotes loss
a - Net income in both December and November was reduced by about $8 million in bankruptcy costs.
Sales $4,705 $2,466
Same-store sales -5.7% -17.2%
Oper. income (EBIT) 358 (13)
Net income 349a (40)a
Average gross margin 19.6% 18.5%
SG&A expenses 12.0% 19.0%

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