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Kmart edges 4Q forecast
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March 13, 2001: 10:57 a.m. ET
Restructuring efforts, sales help discount chain top estimates by a penny
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NEW YORK (CNNfn) - Kmart Corp. reported Tuesday that fourth-quarter earnings fell sharply from a year earlier but still edged past Wall Street forecasts, helped by a series of restructuring moves.
The company also cautioned of further tough times, saying sales would likely be affected as it continues with its turnaround plan.
For the quarter ended Jan. 31, Troy, Mich.-based Kmart, the nation's No. 3 general merchandise retailer, reported earnings of $249 million, or 48 cents a share, down from $412 million, or 77 cents a share, a year earlier. Analysts on average expected earnings of 47 cents a share, according to earnings tracker First Call.
Fourth-quarter sales increased 4.8 percent to $11.6 billion from $11.1 billion. Sales at stores open at least one year, a closely watched measure of sales performance known as same-store sales, increased 2.1 percent in the quarter.
Kmart (KM: Research, Estimates) shares were down 10 cents at $9.05 in Tuesday morning trading.
 The company's latest fourth quarter had one more week than the year-ago quarter.
Last July, Kmart announced it would close 72 underperforming stores along with a series of other moves aimed at restoring the company's profitability and re-positioning it to compete with No. 1 retailer Wal-Mart Stores Inc. (WMT: Research, Estimates) as well as Kohl's Corp. (KSS: Research, Estimates) and Target Corp. (TGT: Research, Estimates), which have consistently posted relatively strong sales despite a general economic slowdown.
Between the store closings and clearance sales, the company reduced inventory by $689 million in the fourth quarter.
Kmart, which saw a brief resurgence in the late 1990s with the introduction of the Super Kmart store concept, had been struggling with slow checkout lines and cluttered stores. It's stock plunged to a 52-week low of $4.75 in December and now has rebounded to between $9-$10 a share.
"Kmart's earnings were lower than a year ago, and the reason why they were lower is because there is a lot of money being invested in infrastructure. But it's going to pay huge dividends in the future," said Kurt Barnard, president of Barnard's Retail Trend Report in Upper Montclair, N.J. "Kmart is finally very excellently positioned to turn around and create a very strong place in the sun."
During a conference call with analysts Tuesday, Kmart CEO Chuck Conaway said continued changes and declining sector-wide retail sales would curb sales growth.
"Although I'm extremely optimistic about the progress, we are making, we are really tempered by the additional work that is ahead of us and the economic outlook for 2001," Conaway told analysts on a conference call. "The changes we are going through are massive, and sales will obviously be affected as we rip up stores to reset assortments."
Disruption is also expected as Kmart shifts two-thirds of its food distribution to Fleming Cos. Inc.. In February, the retailer named Fleming as its sole food distributor in a 10-year deal valued at about $4.5 billion.
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"We finished the fiscal year with solid evidence that we are building momentum and making progress in the implementation of our three key strategic imperatives," Conaway said. "With our same-store sales increasing over the past four months, it is clear that the new Kmart is closing the gap with our competition, and in some cases, moving ahead."
For the full fiscal year, Kmart reported net income of $219 million, or 47 cents a share, down from $633 million, or $1.22 a share, last year.
Excluding a required change in accounting practices, Kmart earned 51 cents a share for the full year.
Kmart's results came shortly before the U.S. Commerce Department reported an unexpected decline in February retail sales, driven by growing consumer unease with the slowing economy. Last week most retailers individually reported flat or declining same-store sales in February. Kmart's sales increased 3.3 percent as it continued to offer deep discounts to reduce inventory.
From staff and wire reports 
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