Kmart Posts Quarterly Loss
Discount retail chain Kmart Corp. reported a quarterly loss on lower sales on Tuesday, losing ground to rival Wal-Mart Stores Inc. in the battle to attract bargain-minded shoppers squeezed by the shrinking U.S. economy.
Kmart blamed the decline in part on reduced advertising as the company tried to cut expenses.
Costs from the company’s overhaul of its method of shipping goods to its stores, including the shuttering of two distribution centers, also contributed to the loss.
Troy, Mich.-based Kmart, the nation’s No. 2 discount chain behind Wal-Mart, said its net loss for the fiscal third quarter ended Oct. 31 widened to $224 million, or 45 cents a share, from $67 million, or 14 cents, a year earlier.
Excluding special charges of $94 million after taxes for its supply-chain initiatives, Kmart reported a loss of $127 million, or 25 cents a diluted share.
Wall Street analysts polled by research firm Thomson Financial/First Call had expected a loss of 12 cents to 33 cents a share, with an average estimate of 27 cents.
A.G. Edwards retail analyst Robert Buchanan, who rates Kmart a “sell,” said, “We believe Kmart’s sales will remain weak and its margins under pressure.”
Rating agency Standard & Poor’s cut Kmart’s senior debt ratings to its second-highest junk grade.
Shares of Kmart ended down 47 cents, or 6.86%, at $6.38 on the New York Stock Exchange.
Earlier this month, Kmart said net sales for the third quarter fell 2.2% from a year ago to $8.02 billion. Sales at stores open at least a year--same-store sales, a key measure of retail growth--were down 1.5%.
During the same period, Wal-Mart posted a 15% rise in overall sales and a 6.7% gain in same-store sales.
Another retail rival, Target Corp., reported a 12.6% increase in sales at its Target discount stores, with same-store sales up 1.5%.
Kmart told analysts that its sales decline was due in part to cutting the number of pages in its weekly advertising circular, as well as its BlueLight Always campaign, which features permanently lowered prices on some items.
In an attempt to woo customers and better compete with Wal-Mart and Target, Kmart has lowered prices on as many as 30,000 everyday items, such as soap and toothpaste, since last fall.
But according to a survey by Sanford C. Bernstein retail analyst Emme Kozloff, Kmart’s prices on food and other consumable items, such as laundry detergent, are still on average about 11% higher than those at Wal-Mart.
Other earnings, excluding one-time gains or charges unless noted:
* Sports Authority Inc. of Ft. Lauderdale, Fla., said sales in the third quarter fell 8.2% to $304.8 million, while same-store sales fell 4.5%. The third-quarter loss narrowed to $4.52 million, or 14 cents a share, from $4.65 million, or 14 cents, a year earlier.
* Men’s Wearhouse Inc. posted a 76% drop in third-quarter profit and warned of significantly lower results for the rest of the year as a sharp decline in consumer spending dampened men’s apparel sales. The Houston-based company posted third-quarter net income of $3.98 million, or 10 cents a share, down from profit of $17 million, or 40 cents, last year. Sales for the third quarter fell 6.1% to $285.6 million, while same-store sales in the U.S. fell 14.4%.
* Cole National Corp., the Cleveland-based owner of Pearle Vision and Things Remembered stores, said its third-quarter loss widened to $2.26 million, or 14 cents a share, from $605,000, or 4 cents, a year earlier. Sales in the quarter ended Nov. 3 rose 2.1% to $261.5 million.
