Kmart’s Loss Widens on Discounts, Closures

Discount retailer Kmart Corp. on Monday reported a wider quarterly loss after store closings cut into sales and it took steep discounts in hopes of winning back customers it lost after filing for bankruptcy protection.

Company executives said the results met internal forecasts, and they stood by a goal of emerging from Chapter 11 bankruptcy protection by summer.

Kmart’s bankers, suppliers and investors are watching results from this holiday season closely as they try to gauge the retailer’s survival prospects in a fiercely competitive sector dominated by Wal-Mart Stores Inc. and Target Corp.

Analysts expect Troy, Mich.-based Kmart to announce hundreds more store closings early next year after it shut 283 this year. It now runs more than 1,800 stores.

Julian Day, president and chief operating officer, said Kmart was analyzing its store base and would decide on further store closings “once we’re able to take stock of holiday performance,” most likely in January.

The big question, analysts said, was whether vendors would extend more credit next year if holiday sales slump.

Larry Gottlieb, chairman of the bankruptcy group at law firm Kronish Lieb Weiner & Hellman, said unless Kmart posted a “total, unmitigated disaster” in December sales, vendors probably would stand by the retailer.

“I think you’ll find creditors -- vendors in particular -- bending over backward to try to help Kmart survive,” he said. “Their choices are, keep on shipping and hope for the best or force Kmart to liquidate now. There aren’t a lot of vendors who are going to force them to liquidate because they will not be able to replace that business.”

Kmart reported a loss of $383 million, or 76 cents a share, in its fiscal third quarter ended Oct. 30, compared with a restated loss of $249 million, or 50 cents, in the same period last year.

Kmart said this month that it was restating financial results from 1999 to 2002 because of errors in how it recorded leases and payments to vendors. As a result, it delayed filing its third-quarter report with regulators.

Day said the retailer would work on bolstering gross margins after heavy markdowns squeezed them in the latest quarter. The gross margin fell to 17% from 20.2%, largely because of clearance sales and discounts aimed at bringing customers back into stores.