Shares of Kmart Plummet to Lowest Level in Two Decades
Wall Street this year has sent plenty of stocks to two- or three-year lows. But the market’s punishment of Kmart Corp. turned particularly harsh on Monday.
The stock fell to its lowest level in at least two decades, amid deep skepticism about the second-largest U.S. discount chain’s ability to revive sales and profit.
Kmart shares (ticker symbol: KM) fell 38 cents to close at $5.38 in New York Stock Exchange trading, tumbling below the $5.75 trough of 1996, when investors feared the company would be forced into bankruptcy.
The stock’s low Monday was $5.06--below the $5.13 that was its lowest in 1981.
New Chief Executive Chuck Conaway plans to spend $2 billion to revamp technology and distribution and help Kmart catch up with rivals Wal-Mart Stores and Target.
But analysts expect it will be at least a year before the improvements, including new check-out scanners and enlarged warehouses, take hold.
“Investors got to that fork in the road,” said Emme Kozloff, a Sanford C. Bernstein analyst. “The timing of the sector was against Conaway, on top of the fact that it’s a massive turnaround job.”
Other retail stocks have slumped this year as the industry’s sales gains have slowed. Standard & Poor’s retail stores composite stock index is down 18% this year. But Kmart’s plunge has been far more severe: It is down 47% year to date.
“They have become the firm that catches pneumonia when everybody else just catches a cold,” said Sean Egan, managing director of Egan-Jones Ratings Co., which has a junk rating on Kmart’s senior unsecured debt. “They haven’t fixed the basic problems, and they haven’t found a way to co-exist with the Wal-Marts of the world.”
For its part, the company says it is “focused very intensely” on keeping products in stock, meeting customer expectations and updating its technology, according to spokeswoman Shawn Kahled.
“There is no silver bullet to make that happen, and it is going to take time to achieve what we believe can be achieved,” she said. “If we improve the performance and execution, then that will be recognized in the stock price.”
Many analysts say the situation isn’t anywhere near as dire as in 1996, when some investors worried that Troy, Mich.-based Kmart wouldn’t be able to repay its debt and would be forced to file for Chapter 11 bankruptcy protection.
The company managed to turn itself around financially. Chairman Floyd Hall, who was hired in mid-1995, helped revive sales and profit by reformatting the chain’s outdated stores and emphasizing new private-label product lines such as Martha Stewart linens.
What management hadn’t sufficiently addressed, though, was the firm’s outmoded technology, compromising the ability to properly manage inventory, Conaway said last month.
While investors await a systems upgrade, earnings remain in a slump. Profit fell short of analysts’ forecasts in Kmart’s fiscal first and second quarters, and analysts already are trimming their third-quarter forecasts. In the past 30 days, the average third-quarter estimate dropped to a penny a share from 2 cents, according to First Call/Thomson Financial.
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Deja Vu for Kmart Owners
Shares of Kmart (ticker: KM), which had plunged below $6 in 1996 on worries the retailer would end up in bankruptcy, have crumbled again this year amid doubts about its future.
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Quarterly closes and latest for Kmart stock on NYSE
Monday: $5.38, down 38 cents
Source: Bloomberg News
