Kmart Loss Narrower Than Analysts Expected

Kmart Corp. on Thursday reported a narrower than expected fiscal first-quarter loss, reversing a year-earlier profit, as spending to improve store operations pressured results.

The discount retailer said its loss was $10 million, or 2 cents a share, compared with profit of $22 million, or 6 cents, in the year-earlier quarter.

The loss, which excludes a charge for employee severance and a voluntary early retirement program, was much smaller than the 7-cent consensus estimate of analysts polled by Thomson Financial.

Sales edged up 1.7% to $8.34 billion, and sales at stores open at least a year also rose 1.7%. The company pointed to strong sales of food and health and beauty products, but said apparel sales were soft.

Looking ahead, Kmart repeated its forecast for same-store sales growth in the low single digits on a percentage basis for the full fiscal year.

Shares of Kmart rose 45 cents to $10.58 on the New York Stock Exchange.

Kmart, which is battling fierce competition from its larger rival Wal-Mart Stores Inc. and other discount retailers such as Target Corp., is in the midst of a massive effort to increase customer traffic by improving customer service and store operations. The retailer is spending $2 billion on infrastructure projects, including improved checkout systems and remodeled stores.

The company told analysts during a conference call that its efforts are having a measurable effect on business.

“We’ve experienced a steady, consistent, increase in [customer] traffic over the last three months,” said Chief Executive Chuck Conaway.

Gross margin for the first quarter was 20.7% of sales, compared with 20.8% a year earlier, the company said.

The company plans to cut advertising and other costs, fix its supply chain, enhance marketing and improve its 250 least-performing stores, he said.

Kmart also said it’s comfortable with analysts’ earnings estimates of 46 cents for the year.