| 2:56PM Kmart (KM) 2.86 -0.44: Kmart can't catch a break these days as the market is growing increasingly unsettled by speculation that the company is headed for a bankruptcy filing. For clarification purposes, Kmart dismissed such speculation on Jan. 2, saying that it has sufficient funds and available lines of credit to carry out its strategies. That disclaimer was made in response to a research report from Prudential that same day in which analyst, Wayne Hood, said he would not be surprised if KM filed for Chapter 11 if trends do not improve. Separately, Hood downgraded KM to SELL from Hold to reflect his pessimistic outlook. Since then, the market has heeded Hood's call as KM's stock has plummeted 48%, continuing a slide that began way back in August when KM peaked at 13.55. Regrettably for investors with long positions, KM isn't doing much these days to help its cause. Roughly a week after Hood's call, KM said that, based on its Dec. sales performance, it didn't expect to report earnings that were consistent with analysts' expectations. Furthermore, the company didn't inspire a whole lot of confidence with a subsequent admission that it is in discussions with its lenders regarding its existing and possible supplemental financing facilities. Investor confidence has been eroded further by Moody's downgrade late Friday of the company's unsecured senior debt three notches to B2, its fifth highest "junk" grade. The downgrade stemmed from Moody's uncertainty about the long-term prospects of KM's franchise and the traction of its turnaround strategy. S&P also followed suit with a two notch downgrade of the company's debt to B- from BB, citing concerns about KM's loss of financial flexibility in recent weeks. On top of all that, KM indicated this morning that same-store sales for the week ended Jan. 9 fell short of its expectations, tracking below its Jan. forecast for sales that are flat to 2% higher. Understandably, the drop in KM's stock price and speculation of bankruptcy have acted as a drag on closely-affiliated companies like Fleming (FLM), Footstar (FTS) and Martha Stewart Living (MSO). FLM, for one, did some damage control today saying that avg. KM receivables represented less than 0.5% of its annualized sales. In its most recent 10-K filing, FTS reported that Meldisco's net sales from KM's operations accounted for approximately 58% of FTS's consolidated net sales in FY00. As for MSO, its latest 10K filing revealed that KM constituted the substantial majority of its $24.3 mln worth of merchandising revenues in 2000, which represented roughly 8.5% of MSO's total sales. Time will tell what the ultimate impact of KM's troubles will be on these, and other, companies. If nothing else, though, situations like these underscore the importance of knowing your company and knowing when, or if, the market has unfairly punished it because of its relationship with another troubled company. To that end, SEC filings are a good place to get acquainted with them.-- Patrick J. O'Hare, Briefing.com |
