Kmart finds bankruptcy an expensive prospect

Don Hogsett, May 27, 2002

Troy, MI — Weighed down by more than $760.0 million in markdowns tied to going-out-of-business sales and inventory reduction, and hobbled by $219.0 million in reorganization costs, bankrupt Kmart Corp. recorded a staggering April loss of $1.02 billion.

Sales at the beleaguered retailer declined to $3.20 billion for the five-week period ended May 2, stunted by a 16.4 percent decline in same-store sales, Kmart reported in a federal filing. Excluding the 283 stores the company is in the process of closing, sales totaled $2.10 billion.

Taking the biggest bite out of the bottom line were markdown charges totaling $760.0 million. Most of the total, $478.0 million was tied to going-out-of-business sales at the 283 stores shut or in the process of being shuttered. Another $270.0 million in markdown money stems from the acceleration of inventory reductions at remaining stores. All told, the markdown charges for the month resulted in a negative average gross margin of 3.2 percent, compared with a positive average gross margin of 18.3 percent a month before, during March.

Operating costs amounted to 20.8 percent of sales during April, compared with 25.2 percent in April, as the retailer hacked away at costs and reduced its overhead.

Additionally, bankruptcy costs totaled $249.0 million in April, with $219.0 million tied to the shutdown of 283 stores. Factored into that total are lease terminations and employee severance costs. Also, Kmart paid $21.0 million in fees to lawyers and accountants during the month and $6.0 million in bonuses handed out to retain key employees.

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