Rescue Expert Selected by Kmart
Kmart Corp. has tapped retailing turnaround expert James B. Adamson to help rescue the nation’s second-largest discount chain, heightening speculation that the ailing company may be headed to Bankruptcy Court.
Adamson, a Kmart director who steered the Advantica restaurant company and Revco drugstore chain through bankruptcy reorganizations, becomes the retailer’s chairman. Charles C. Conaway, who was hired in May 2000, remains chief executive, the company said Thursday. But his top lieutenant, Mark S. Schwartz, departed as president and chief operating officer.
Kmart also said it is reviewing business plans for this year and next and it is in talks with lenders for new financing. The company would not elaborate.
Kmart’s shares, which have been pummeled this year, were off 4 cents to $1.56 on the New York Stock Exchange. The stock led the most-active list for the second consecutive session.
Adamson’s selection as chairman means Kmart is “considering bankruptcy very seriously,” said Kurt Barnard, president of Barnard’s Weekly Retail Marketing Report.
Company spokesman Jack Ferry would not speculate on Kmart’s strategy.
“Clearly his broad experience in a number of business areas will serve us well as we review various alternatives to address Kmart’s needs,” he said.
In any case, Adamson’s elevation could reassure some Kmart suppliers, who were doing business with Revco when the drug store chain was revived after being “literally on death’s doorstep,” said Burt Flickinger, a consultant who has been meeting this week with companies that manufacture hard goods for Kmart.
Kmart had to take some sort of action to stop what has been a “freight train of negative news,” said Eric Beder, an analyst with Ladenburg Thalmann & Co. This week, for example, Standard & Poor’s and Moody’s Investors Service cut their Kmart ratings twice--to low junk-bond levels--and Fitch cut its ratings once.
To restore confidence, the company should clarify its business plan for the 2002 fiscal year and discuss financing prospects, said Angela Jameson, managing director of retail and consumer goods for Moody’s.
“There’s very little clarity on this point,” she said. “And that’s key to determining Kmart’s credit quality going forward.”
Moody’s latest move to lower Kmart’s ratings--after the board emerged from two days of meetings but made no announcement about its plans--shows that Moody’s already believes the risk of default “has increased very significantly,” Jameson added.
Analyst Beder predicted that Kmart will line up another round of financing rather than filing for bankruptcy protection. He said Kmart should be able to arrange about $3 billion in financing, since secured loans can be obtained for 60% of the value of a company’s inventory, about $6 billion.
He said the company could shore up investors’ confidence by shuttering 200 to 300 poorly performing stores. “I think the street would look upon that as a huge positive,” he said.
Kmart has been struggling to hold its own against brutal competition--industry behemoth Wal-Mart Stores Inc., which often boasts lower prices, and trendier discounter Target Corp.
Adamson, 53, was chairman of Advantica Restaurant Group Inc., operator of the Denny’s chain that emerged from bankruptcy protection in 1998, until he retired last month. He has been on Kmart’s board since 1996.
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Times staff writer Abigail Goldman contributed to this report.
