NEW YORK — Shares of Kmart Holding Corp. were on a tear Monday, jumping more than 30 percent in intraday Nasdaq trading, after the discounter proved that it didn’t have such a bad first quarter after all.
After going as high as $24.43, shares ended the trading day at $22.53, up $4.05, or 21.9 percent, as the Dow Jones Industrial Average, Nasdaq, Standard & Poor’s 500 and S&P Retail Index all managed gains of more than 2 percent. The Dow climbed 201.84 points, or 2.2 percent, to end the day at 9,318.96.
In the three months ended April 30, Kmart’s final quarter in bankruptcy, losses exclusive of interest, reorganization costs, taxes and discontinued operations contracted to $32 million from a loss of $920 million in the prior year.
Overall, the loss was down to $862 million, or $1.65 a share, from $1.44 billion, or $2.87, in the 2002 quarter. Much of last year’s loss came from a $542 million charge for store closures.
Sales for the quarter fell 13.9 percent to $6.18 billion from $7.18 billion. The results were hurt in part by the 320-plus stores that the company shuttered during its final round of closings announced in mid-January. Comparable-store sales for stores open at least a year, however, declined 3.2 percent.
Gross margin, as a percentage of sales, rose to 23 percent for the quarter, up from 10.4 percent a year ago. Gross margin dollars nearly doubled, rising 90.5 percent to $1.42 billion in the quarter, thanks to 2003 liquidation sales, a decrease in sales of food and consumables and a decrease in promotional markdowns.
Julian Day, president and chief executive officer, said in a statement, “This management team is very focused on building the financial foundation of the new company. We are strengthening our business by driving profitable sales, identifying opportunities to further improve efficiency and reduce costs, and enhancing the productivity of our assets.”
Kmart said it cut selling, general and administrative expenses, including advertising costs, by $249 million to $1.42 billion, or 23 percent of sales, from $1.67 billion, or 23.3 percent of sales.
Referring to Martha Stewart’s indictment on insider trading charges two weeks ago, the company said in its Form 10-Q filed with the Securities and Exchange Commission, “Although product sales have not been significantly affected by past events, the company is not able to determine the potential effects these events may have on the future sales of its Martha Stewart brand products.”Bob Carbonell, Bernard Sands’ vice president and director of credit, observed, “Kmart’s numbers were not unexpected and should make many people happy for the short term. It has very little debt and substantial equity. Now the process begins where Kmart has to improve its position.
“I think everyone is giving this company a short-term grace period,” he continued. “I also think that what you’ll find is that everyone will be watching the monthly sales reports closely.”
Kmart is expected to report monthly sales figures only when it issues its quarterly reports, contrary to the actual updates by most retailers on the first or second Thursday of every month.
That shift in reporting of monthly sales has some financial firms that track credit reports expecting an increase of intense discussions between Kmart’s key suppliers and the retailer over the next several months. Vendors for now have enough information to make decisions next month regarding shipments for the holiday season. However, they’ll likely want increased assurances of Kmart’s financial picture as they get closer to the decision-making period in October when they have to decide whether to approve production for spring shipments. Waiting until the end of the quarter, particularly to learn what the same-store sales figures are, is too much risk for skeptical vendors, one firm said.
Walter Loeb of Loeb Associates wasn’t as enthused about Kmart’s results. “I don’t like the numbers because Kmart is depending on a very few names to get sales. The questions still are who is the Kmart customer and what are they buying. The company has shrunk and yet its same-store sales, at a negative 3.2 percent, are still declining. That means that the company remains unhealthy. The only meaningful assessment one can make will be sometime over Christmas when we see how Kmart stacks up with the other boys.”
Others remain concerned about Kmart’s lack of an apparel merchandiser. As reported, Kmart has been without a chief merchant for at least a year, and last month lost Nicholas Just, general merchandise manager for apparel. The responsibilities of both positions have been assumed by Bill Underwood, the retailer’s sourcing and global logistics point-person, according to Kmart.Kmart shares began trading on the over-the-counter market on May 7 following its exit from bankruptcy a day earlier. Back then, shares opened at $15 and rose as high as $15.05 in intraday trading before falling to as low as $13.45 and closing at $13.55. As reported, equity holders of old Kmart common shares received nothing upon the firm’s emergence from bankruptcy. Those shares last traded on May 6 at 10 cents.
Based on the current share price, Kmart’s market capitalization is about $1.31 billion. A retail executive with experience in the discount channel speculated that perhaps one reason the stock has shot up is because of distressed securities buyers who are taking an interest because they think Kmart is undervalued.
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