Kmart Posts a Loss as Price War Takes Its Toll
Kmart Corp. on Thursday reported a loss for the second quarter and warned that it faces pressure on prices, sending its stock down more than 9%.
The No. 2 discount chain, in a cutthroat price war with Wal-Mart Stores Inc. and Target Corp., reported an operating loss of $22 million, or 4 cents a share, matching the average estimate of analysts polled by Thomson Financial/First Call, contrasted with profit of $23 million, or 5 cents, a year ago.
Sales fell 0.9% to $8.92 billion, while sales at stores open at least a year rose 1%, the Troy, Mich.-based retailer said.
Kmart’s net loss, including a restructuring charge of about $73 million to purchase the remaining 40% of its online arm BlueLight.com, was $95 million, or 19 cents a share.
That compared with a year-earlier net loss of $448 million, or 93 cents a share, including a $471-million after-tax charge for store closings, inventory cutbacks and technology investment.
Kmart, which has lowered prices on about 20,000 common household products to draw customers, faced “deflationary pricing conditions,” Chairman and Chief Executive Chuck Conaway said.
In a conference call with analysts, Conaway said Kmart will have lowered prices on about 50,000 items by the beginning of September.
The expectation for more price cuts and their potential toll on profit margins spooked investors. Kmart shares fell $1.13, or 9.3%, to close at $10.97 on the New York Stock Exchange.
Kmart’s lower prices are part of Conaway’s plan to improve the retailer, which suffered flagging sales and profits in recent years as shoppers turned to other discounters.
The company is spending heavily to improve customer service and store operations. The retailer also is slashing its advertising budget.
“This company is still a turnaround story. It won’t be until [the fourth quarter] when people focus heavily on the numbers,” said Eric Beder, retail analyst at Ladenburg, Thalmann & Co.
On Tuesday, Target, the No. 3 discount chain, said it will sue Kmart, saying it used false comparative prices in its advertising campaign.
