KMART WARNS OF EARNINGS SLIDE IN 2ND QUARTER, WILL SHUT 72 UNITS

Byline: Vicki M. Young / With contributions from Valerie Seckler

NEW YORK — Kmart Corp. Tuesday said it would take a $740 million pretax charge in the second quarter in connection with a series of strategic initiatives and that even excluding the pretax charge, its second quarter and year-end results would fall below expectations.
The initiatives, which include the closure of 72 stores, were outlined as Kmart guided Wall Street to second-quarter earnings expectations of between 4 and 7 cents a share. The retailer will report second-quarter results Aug. 10.
Richard L. Church, retail analyst at Salomon Smith Barney, in his research note Tuesday, revised downward second-quarter earnings per share to 5 cents from 19 cents. For the full year, he projected EPS of 90 cents, down from a previous estimate of $1.13. Shares of the company on Tuesday dipped 3/16, or 2.7 percent, to close at 6 7/8 on the New York Stock Exchange.
In the most dramatic action since Chuck Conaway become chief executive of Kmart, the 2,165-unit discounter said it will close 66 traditional Kmart and six Super Kmart stores, with the majority to be closed by Nov. 1. Conaway said in a statement, that following implementation of its initiatives, the retailer can focus its “resources and energies on expediting supply chain infrastructure improvements, building a customer-focused culture, and developing new marketing initiatives so that we can create a new position in the marketplace and develop a sustainable bond with our customers.”
Retail consultant Walter Loeb said he likes the planned store closings, but thinks Kmart could stand to shutter more locations, perhaps as many as 200 sites.
Michael D. Jamison, managing director and chief investment officer at Brandywine Asset Management, said Tuesday that even with the announced moves, “Kmart still has to face issues concerning the sourcing of merchandise, size of its stores and its financial flexibility.”
For the store closures, Kmart will record a pretax charge of $375 million, composed of $300 million for the closures and $75 million for the write-down of inventory in the stores. Even though the stores to be shut are “marginally profitable,” Kmart said they were targeted because they did not “justify the related capital investment” needed to keep the sites in operation.
The 72 stores are spread across 28 states. Illinois, at nine, has the largest number of closures, with California and Florida each weighing in with seven. Five stores will be shut in Missouri, while three stores each will close in Georgia, Ohio and Pennsylvania. Two stores will close in each of the following eight states: Alabama, Indiana, Kansas, Louisiana, Michigan, Mississippi, Montana and Oregon. The remaining states — Arizona, Arkansas, Kentucky, Maryland, Minnesota, New Hampshire, New York, North Carolina, Rhode Island, Texas, Washington, West Virginia and Wisconsin — will lose one each.

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