Struggling Kmart Hires Exec From CVS Drugstores

Kmart Corp., the discount retailer struggling to revive its sagging sales and stock price, reached outside the company Wednesday to hire the 39-year-old president of the CVS drugstore chain to replace its chief executive.

Charles Conaway, formerly president and chief operating officer of CVS Corp., is taking over as chairman and CEO of the No. 3 U.S. retailer immediately, after signing a five-year contract. He succeeds Floyd Hall, who is stepping down.

After the news, Kmart shares, which sank to a four-year low in May, rose 88 cents to close at $8.50 on the New York Stock Exchange.

Most Wall Street analysts welcomed Conaway’s selection by the Troy, Mich.-based retailer, which passed over several senior Kmart executives. “Kmart has been in need of some new blood, and I think this is a step in the right direction,” PaineWebber analyst Jeffrey Edelman said.

Neither Hall, 61, nor Conaway was available for comment.

Kmart said last month that it had begun a formal search for a new chief executive to succeed Hall, whose contract was to expire in April 2001.

At Woonsocket, R.I.-based CVS, the No. 1 U.S. drugstore chain, Conaway was responsible for merchandising, advertising, store operations, logistics and e-commerce. He also served as chief financial officer.

The executive, who grew up in Lapeer, Mich., also served as chief financial officer of the retailer Melville, which he helped restructure, and as a director of Linens ‘n Things Inc., Streamline.com and Health Connections, Kmart said.

At least one analyst said Conaway’s background was a question mark. Merrill Lynch’s Daniel Barry noted that Conaway had been on the operational side of the retail business for only two years.

One certainty is the challenge the new CEO faces to complete a turnaround that Hall had tried to engineer at Kmart. The company has upgraded some of its 2,171 stores, added strong brands such as Martha Stewart Everyday and plans an initial public offering of its BlueLight.com Internet firm. Even so, it continues to battle stiff competition from Wal-Mart Stores Inc., Target Corp. and Sears, Roebuck & Co.

Analysts said the company has a lot of work to do in improving its often-messy stores and poor customer service. Kmart reported a nearly 61% drop in first-quarter earnings, to $22 million, its first quarterly earnings decline in more than three years. Easter sales fell short of expectations.

Kmart generated revenue of $35.9 billion last year, about double CVS revenue of more than $18 billion. The drugstore company operates 4,100 outlets in the United States.

In a statement, Hall said he had enjoyed his five-year tenure at Kmart and noted that the company has a 36.5% compounded annual earnings growth rate. He said Kmart had refurbished more than 1,900 stores and introduced brands that include Sesame Street and Route 66.

Hall was recruited by Kmart in June 1995 after the company’s board ousted Joseph Antonini as chairman, president and chief executive. In December 1997, Kmart said it had launched a search for a new senior executive and potential successor to Hall. A year later it hired Michael Bozic as vice chairman, a post he still holds.

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Kmart’s Lousy Decade

Shares of Kmart have been sliding over the last year, resuming the decline they suffered for much of the 1990s, except for a short-lived rebound in 1998. Quarterly closes and latest

on the New York Stock Exchange:

Thursday:

$8.50,

up 88 cents

Source: Bridge News