Kmart Posts $1.19-Billion Quarterly Loss : Retailing: Charges for modernization program and disposition of units contributed to the deficit, company says.

Kmart Corp., weighed down by hefty charges to leave its warehouse and drugstore businesses and upgrade the image of its core discount stores, said Monday that it lost $1.19 billion in the fourth quarter of 1993.

The loss contrasts with a profit of $535 million in the fourth quarter of 1992.

The nation’s second-largest retailer attributed the loss to $862 million in onetime charges for disposing of its Pace Membership Warehouse and PayLess Drugs units, as well as modernizing its Kmart stores in the United States and Canada.

Previously, Kmart said it would sell some of its Pace stores to No. 1 retailer Wal-Mart Inc. and sell PayLess to TCH Corp. of California. The PayLess sale is expected to be completed next month.

For the full year, Kmart lost $974 million, or $2.15 a share, on sales of $34.6 billion. In 1992, it earned $941 million, or $2.06 a share, on sales of $31 billion.

Excluding the onetime charges, Kmart said it lost $328 million in the year ended Jan. 26, contrasted with a profit of $882 million in 1992.

Kmart blamed the year’s operating loss on slimmer margins, stiff competition and a shift by consumers to less-profitable items.

“While there was pricing pressure in both hard lines and apparel merchandise throughout the year because of the competitiveness of the retail environment, the primary reasons for margin reduction in the fourth quarter and full year were related to Kmart’s inventory reduction program and increased markdowns at the Kmart Fashions division,” the company said.

Kmart’s four remaining specialty store units--Borders-Walden Group, Builders Square, Sports Authority and OfficeMax--reported mixed results for 1993.

Restructuring charges pushed Builders Square and Borders-Walden into the red for the year, while OfficeMax and Sports Authority reported record profits.

Kmart said its Builders Square home improvement unit lost $164 million in 1993, contrasted with a profit of $81 million in 1992, while the Borders-Walden bookstore chain lost $168 million last year, contrasted with a profit of $46 million.

Both subsidiaries are undergoing substantial reorganizations ahead of a planned public offering of Kmart’s specialty store stock later this year.

Office supply firm OfficeMax earned $20 million last year, while Sports Authority reported operating profit of $21 million. In 1992, OfficeMax earned $1 million, while Sports Authority earned $10 million.

In January, Kmart said it would sell, subject to shareholder approval, up to 30% of the equity value of the four subsidiaries to shareholders in an effort to raise cash for the refurbishment program.

Kmart said 191 of its discount stores were upgraded in 1993, bringing the total number of stores with the retailer’s new look to 1,321.

Kmart has nearly 5,000 retail outlets, including Kmart, Builders Square, Borders and Waldenbooks, Sports Authority and OfficeMax. It has stores in the United States, Puerto Rico, the U.S. Virgin Islands, Canada, the Czech Republic and Slovakia. It plans to open stores in Mexico and Singapore this year.

Kmart stock closed unchanged at $19 in New York Stock Exchange trading.