KMART QUARTER NIPS WALL ST. OUTLOOK

NEW YORK — Kmart Corp. reported third-quarter profits of $9 million, or 2 cents a share, marginally above Wall Street’s break-even estimates, but sales fell below plan.
A year earlier, the retailer lost $118 million, or 26 cents a share, after adjusting for a gain of $49 million from the sale of an interest in Sports Authority.
The improvement reflected a gross margin that expanded to 22.6 percent of sales from 21.2 percent and a drop in selling, general and administrative expenses to 21.5 percent of sales from 23 percent.
The margin improvement stemmed from fewer markdowns to move old inventory and less promotional activity. The SG&A dip was related to lower expenses in operating stores and savings in closed stores and sourcing activities.
On Tuesday, rumors that Kohlberg Kravis Roberts & Co. was interested in Kmart pushed the stock up 1 5/8 to 11 1/4. Nothing substantiated the rumors on Wednesday, and the stock eased 7/8 to 10 3/8 on the Big Board. Volume remained active, with nearly 10 million shares traded.
Floyd Hall, chairman, said he was encouraged by the progress, but “much work still needs to be done.” He said that while same-store sales in the quarter were marginally positive — up 0.1 percent — they didn’t meet expectations. He said he was “cautiously optimistic” about the near-term.
Sales for the quarter dropped 1.6 percent to $7.85 billion from $7.98 billion. Same-store sales for the general merchandise operation grew 9.4 percent; overall comps rose 0.1 percent.
“You can’t cut it with comp-store gains of under 1 percent,” said Robert Buchanan, retail analyst, NatWest Securities. “And they can’t drive sales by cutting prices…I still think it’s an uphill battle.” However, Jeffrey Edelman of Deutsche Morgan Grenfell, said, “I think the customer is beginning to respond to better merchandise selections.”
Excluding nonrecurring items, Kmart had a nine-month profit of $5 million, or 1 cent a share, from a loss of $204 million. Including discontinued operations, the loss narrowed by 63 percent to $56 million. Sales fell 0.5 percent to $23.74 billion.

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