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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (33242)	3/13/2001 12:35:22 PM
From: T L Comiskey	Respond to of 65232

ss Tuesday, March 13, 2001 Kmart Net Down 39.5 Pct, Exceeds Views CHICAGO (Reuters) - Kmart Corp., the No. 3 U.S. retailer, on Tuesday reported a 39.5 percent drop in fiscal fourth-quarter earnings due to the slowing U.S. economy and the costs of its efforts to improve store operations, and told analysts it sees more tough times ahead. Net income for the quarter ended Jan. 31 declined to $249 million, or 48 cents per diluted share, from $412 million, or 77 cents a share, a year earlier. Despite the drop in profits, the discounter's results topped the First Call/Thomson Financial consensus estimate for 47 cents a share. Kmart shares were down 10 cents at $9.05 in morning New York Stock Exchange trade. The stock has underperformed the Standard & Poor's retail index by about 2 percent in the last 52 weeks. Net sales rose 4.8 percent to $11.64 billion from $11.1 billion a year earlier. Sales at stores open at least a year, a key measure of performance, rose 2.1 percent. Consumers, spooked by wave after wave of job cuts, falling stock markets and higher fuel prices, have cut back on spending, resulting in slower sales and profit growth for most retailers. "Obviously if the economy were better, they would sell through at a higher rate," said Midwest Research retail analyst Jeff Stinson. "Their focus on getting inventories down had a negative impact on gross margin, and these guys are also investing in store payroll to improve customer service." Gross margin for the quarter fell to 21.6 percent of sales from 22.2 percent a year earlier, hurt by inventory liquidation. Kmart, hit hard by competition from other discounters like Wal-Mart Stores Inc., in July announced the closure of 72 underperforming stores. The company also said in August it would invest $2 billion in infrastructure improvements over the next two years in an effort to improve store operations and customer service. "With a heightened sense of urgency, we are properly focused on the massive structural and cultural transformation necessary to convert these gains into a strong and sustainable improvement in our financial performance," Chairman and Chief Executive Chuck Conaway said in a statement. As a result of its efforts, Kmart said its customer service marks are improving, same-store sales growth is better and it is closing the gap on its competitors. However, Kmart cautioned that planned changes for its stores and the slowdown seen in consumer spending will keep a lid on sales growth. "Although I'm extremely optimistic about the progress we are making, we are really tempered by the additional work that is ahead of us and the economic outlook for 2001," Conaway told analysts on a conference call. "The changes we are going through are massive, and sales will obviously be affected as we rip up stores to reset assortments." Disruption is also expected as Kmart shifts two-thirds of its food distribution to Fleming Cos. Inc.. In February, the retailer named Fleming as its sole food distributor in a 10-year deal valued at about $4.5 billion. Stinson and other Wall Street analysts also cautioned that Kmart still has work to do. "There's still a lot of uncertainty from an earnings standpoint," Stinson said. "Chuck has a big task ahead of him." Sanford C. Bernstein retail analyst Emme Kozloff, who rates the company at market performer, said investors should steer clear of Kmart shares until measurable progress is made. "We believe investors are better served sitting on the sidelines until management proves through visible metrics like margin improvement and ROIC (return on invested capital) that the restructuring plan has gained a sustainable traction," she wrote in research note. Kmart operates more than 2,100 stores.