Kmart will miss 1Q mark
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May 4, 2000: 1:22 p.m. ET
No. 3 retailer, reeling from sluggish April sales, cuts profit forecast in half
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NEW YORK (CNNfn) - Kmart Corp. warned Thursday its fiscal first-quarter profit will be about half what analysts expected because of sluggish sales leading up to the Easter holiday.
The Troy, Mich.-based company, the nation's No. 3 retailer, said it now expects to earn 5 cents per share for the quarter ended April 30, well off the 11 cents per share it earned during the same period last year. Analysts polled by research firm First Call Corp. projected the company would earn 10 cents per share.
Kmart expects to report its first-quarter results May 11.
The news caused Kmart (KM: Research, Estimates) shares, which have been trading near 52-week lows, to slip 13/16 to 7-7/16 Thursday afternoon on the New York Stock Exchange
Company officials said the shortfall is directly attributed to weaker-than-expected sales leading up to the Easter holiday last month, resulting in total consolidated sales climbing only 0.8 percent to $2.77 billion for the four-week period ended April 26.
As a result, Kmart will be unable to offset normal operating expense increases, the company said.
"While we held the line on expenses during the first quarter, we simply were not as promotional as we needed to be," Kmart Chairman, President and CEO Floyd Hall said. "We are, however, already taking steps to regain sales momentum so that we can meet or exceed the company's financial plans for the year."
This marks the second time in three quarters Kmart has missed analysts' targets for its bottom line. The company missed the consensus analyst forecast for its fiscal third quarter by a penny as the cost of sales, buying and occupancy pushed gross margins down.
"I think the challenge Kmart really faces right now is whether it's going to be able to keep pace with Wal-Mart and Target, and can they improve the big investment in store value," said Jeff Stinson, an analyst with Midwest Research. "...To close the gap between your peers casts a lot of uncertainty on the numbers and expectations."
Kmart's Hall spent the last three years turning the nearly century-old company around, investing heavily in converting old stores into the new "Big Kmart" outlets with an expanded offering of merchandise in addition to an in-store grocery section dubbed "The Pantry."
The moves have been mostly successful, yet the company continues the struggle to change its image in order to catch up with the No. 1 U.S. retailer, Wal-Mart, and Target Corp.
Although bad weather hurt many retailers in April, particularly in apparel, Wal-Mart and Target managed to make advances in those sectors while Kmart's apparel sales lagged.
Despite the uncertainty over competition, Stinson tipped his hat to the company, which has added some strong brands such as Martha Stewart, Sesame Street and Route 66, that consumers snap up once they enter the store.
"...Half of its task is getting people in the stores on a more frequent basis," Stinson said.
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Kmart Corp.
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