Kmart feels sting of $1B in restructuring costs
May 20, 2002,
Troy, MI — Jolted by more than $1 billion in restructuring costs, and with sales and margins both eroding, bankrupt Kmart Corp. recorded a loss last year of $2.4 billion, almost 10 times the size of the year-before deficit of $244.0 million.
Underlining the magnitude of the big discounter's woes, even without all the one-time items that acted as a drag, the retailer put up a daunting loss of $987.0 million.
"These results reconfirm the significant difficulties Kmart experienced last year, including unsuccessful sales and marketing initiatives, an erosion in supplier confidence and below-plan sales and earnings" during the crucial Christmas quarter, said James Adamson, the newly hired chairman and ceo brought in to chart a turnaround course for the company.
Sales for all of last year slipped by 2.4 percent, to $36.2 billion from $37.0 billion a year ago, a shortfall of close to a billion dollars. Same-store sales were virtually flat, slipping just 0.1 percent, a somewhat better performance than many had been expecting.
The retailer said the downturn in total and same-store sales was "due primarily to fewer sales transactions resulting from reduced promotional activity and increased competition in the discount retail industry; the deflationary effect of the Blue Light Always program, in which prices were lowered on more than 30,000 high-frequency items; and the effect of prior-year clearance sales of discontinued merchandise." As if that weren't enough to hold a lid on sales, the year-over-year comparison is skewed by an extra week of sales the year before and by store closings during 2001.
The lower level of sales — down by almost a billion dollars — along with sharply weakened margins and higher costs, combined to put operating profits under crushing pressure last year. The retailer posted an operating loss of $1.4 billion vs. $32.0 million the year before.
Average gross margin narrowed by 270 basis points, to 17.2 percent from 19.9 percent the previous year. Squeezed between lower sales and eroding margins, gross margin dollars fell back by 15.7 percent, to $6.2 billion from $7.4 billion. Due largely to the drop in sales, operating costs, measured as a percentage of sales, climbed by 100 basis points, to 21.0 percent from 20.0 percent a year ago. Measured in absolute dollars, costs increased by 2.5 percent, to $7.6 billion from $7.4 billion in fiscal year 2000.