Byline: Catherine M. Curan

NEW YORK — Third-quarter earnings at Kmart Corp. dropped 58.5 percent to $39 million, or 8 cents a share, well below the average Wall Street estimate of 16 cents a share. The retailer blamed unseasonably warm weather for slow apparel sales, and said gross margins were pressured by more promotional items and lower-margin merchandise. Kmart earned $94 million, or 20 cents, a year ago. Kmart shares declined 1/2 to 15 5/8 Monday on the New York Stock Exchange.
In the fourth quarter, results will get a boost from the sale of Kmart’s 21.5 percent equity interest in Australian retailer Coles Myer for $928 million, and an initial public offering of OfficeMax, which realized $642 million. Both transactions were completed after the third quarter. Kmart now holds a 25 percent stake in OfficeMax, down from 90 percent. An IPO for The Sports Authority subsidiary is planned this month. In the quarter ended Oct. 26, total sales increased 8.6 percent to $8.8 billion from $8.1 billion, with same-store sales up 3.5 percent. The company said sales in the core U.S. Kmart division strengthened in the quarter, with same-store sales up 2.7 percent. In the first half, same-store sales declined 0.7 percent. A Kmart spokesman said the company is closing stores that perform poorly as part of a refurbishment program, and it will have closed, renovated or relocated more than 1,500 stores by the end of fiscal 1995.
Janet Mangano, retail analyst at Burnham Securities, said, “Kmart’s gross margin was down dramatically in last year’s fourth quarter because of the company’s inventory realignment program. I expect improvement in the fourth quarter over that very depressed level.” Mangano expects 67 cents a share in the fourth quarter against 53 cents, the first gain in per-share earnings in seven quarters. For the year she sees earnings at 99 cents against $1.15.

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