Kmart Profit Plunges 83% on Weak Sales

Kmart Corp. on Thursday reported an 83% drop in profit for the latest quarter, but the retailer still met analysts’ lowered expectations and said it will spend $2 billion to improve store operations and lift earnings.

Kmart, the nation’s No. 2 discount retailer behind Wal-Mart Stores Inc., said its fiscal second-quarter operating profit plunged to $23 million, or 5 cents a share, from $138 million, or 26 cents, a year ago because of soft sales in apparel and other seasonal merchandise. Revenue rose 2.5% to $9 billion.

Kmart has also seen its sales and earnings hit by serious competition from other discounters, such as Wal-Mart Stores Inc. and Target Corp.

In July, Kmart said its second-quarter earnings would fall below Wall Street’s expectations, and announced a restructuring designed to boost profit. At the time, the company said it would take a $740-million charge to cover costs associated with 72 store closures and nationwide clearance sales. The latest earnings figures exclude the charges.

Chairman Charles Conaway told analysts in New York that the retailer will invest nearly $2 billion in infrastructure between now and August 2002 to improve its technology processes and management systems.

The effort is designed to improve customer relations on a day-to-day basis, better define its market position and improve its supply chain management, Conaway said.

Short-term changes for Kmart stores include new scanners and cash registers to improve efficiency at checkout counters, as well as a customer service center that is open around the clock, seven days a week.

District managers will now hold responsibility for eight stores rather than 13 to improve accountability for store performance, the company said.

Conaway, a former executive with drugstore operator CVS Corp., took over the helm of Kmart in June. Since his appointment, he has announced plans to close 72 under-performing stores and reduce inventories through nationwide sales in an effort to boost productivity.

Shares of Kmart rose 6 cents to close at $7.25 on the New York Stock Exchange.

At a Glance

Other earnings, excluding one-time gains or charges unless noted:

* AnnTaylor Stores Corp. said fiscal second-quarter profit was flat at $13.4 million, or 45 cents a share, matching forecasts, as it discounted summer items. The apparel retailer said sales rose 15% to $306.3 million, and that sales at stores open at least a year rose 3.1%. The company said last week that its profit would top analysts’ average estimate by 1 cent, prompting analysts to increase their forecasts to 45 cents from 44.

* Lands’ End Inc. reported an unexpected loss of $1.88 million, or 6 cents a share, in its fiscal second quarter, citing sluggish sales, increased costs and advertising expenses. The retailer had earnings of $4.45 million, or 14 cents, a year ago. Sales edged up to $255.5 million from $254.6 million. Analysts were expecting a profit of 7 cents on average, according to First Call/Thomson Financial. That forecast was revised from 17 cents in July after the company said for a third time in the quarter that it would miss profit expectations.