Troy, MI, Dec. 8--Kmart Holding Corp. on Friday reported a steep slide in sales as it cut back on discounts, a move that helped narrow its quarterly loss and turn a rare profit in November.
Shares of Kmart, which have been volatile since they were issued upon the company's bankruptcy exit in May, fell about six percent on Friday.
The third-largest U.S. discount chain filed the largest-ever retail bankruptcy in January 2002, after a poor holiday shopping season compounded financial woes. It emerged with a cleaner balance sheet and a new management team.
Kmart is counting on its exclusive brands such as Martha Stewart Everyday home decor and Thalia clothing to drive sales. However, some analysts question whether Kmart can compete with fast-growing titans like Wal-Mart Stores Inc. and Target Corp.
In a filing with the U.S. Securities and Exchange Commission on Friday, Kmart reiterated that it has not seen any significant sales impact from Martha Stewart's legal woes. She faces criminal charges alleging she hid insider trading.
Sales at stores open at least a year--a key retail gauge known as same-store sales--fell 8.6 percent. Last year, Kmart held several company-wide sales events, which boosted revenue but eroded profits.
The Troy, Michigan-based retailer said it lost $23 million, or 26 cents per share, in the third quarter ended Oct. 29. That compares with a loss of $383 million, or 76 cents per share.
Kmart said quarterly sales fell 21.2 percent to $5.09 billion from $6.46 billion a year earlier, hurt by store closings as part of its bankruptcy exit. Kmart closed 316 stores in its fiscal first quarter, and shut some 28 percent of the chain since its bankruptcy filing.
Kmart made no mention of its holiday sales expectations. Last year, the fourth quarter, which includes the holiday season, accounted for 29 percent of annual revenues.
Since emerging from bankruptcy, Kmart has vowed to focus on "profitable sales," meaning fewer discounts. That appears to have turned off some shoppers. Kmart said it operated profitably in November, but same-store sales were down in the mid-teens.
Last year, Kmart managed only one profitable month, and that was December, the heart of the holiday shopping season.
Other discounters such as Wal-Mart and Target reported higher November same-store sales, although many lower-end stores had a disappointing month.
"They decided to risk losing some sales in favor of making money," said Kurt Barnard, head of consulting firm Retail Forecasting Group.
"Creditors will be very, very happy to hear this," he said. "This pretty much guarantees a steady flow of merchandise through the holiday season."
Some suppliers stopped shipments to Kmart shortly before its bankruptcy, and they have been watching closely for any signs of weakness.
Kmart, however, said it had about $900 million in cash and cash equivalents, and borrowing availability of about $1.6 billion on its $2 billion credit facility as of Oct. 29.
In fact, Kmart said it voluntarily reduced the size of its credit facility to $1.5 billion to reduce costs.
The third quarter marks the peak of retailers' borrowing needs as they build up inventory for the holiday shopping season. Kmart said at its lowest point of liquidity this year, it had more than $800 million in cash and cash equivalents.
Kmart's common stock was canceled when it emerged from bankruptcy, and new shares in Kmart Holding Corp. were issued to creditors. The company has no formal analyst coverage, and the thinly held stock tends to be volatile.
Edward Lampert, a financier who is now Kmart's chairman, owns more than 50 percent of the stock through his ESL Investments Inc. and affiliates.
