Kmart Profit, Prospects Lift Shares

Shares of Kmart Holding Corp. surged 17% on Monday after the discount retailer reported a profit for the second quarter and said its chairman and majority owner, Edward Lampert, was now free to invest the company’s $2.6 billion in surplus cash.

There has long been speculation that Lampert planned to gradually dismantle Kmart as a retailer and turn it into an investment empire akin to Warren Buffett’s Berkshire Hathaway.

The fact that Lampert is being given the authority to make investment decisions, revealed in a quarterly report to the Securities and Exchange Commission, boosts that theory and helped Kmart stock gain $11.15 a share, to $76.05, on Nasdaq.

Even as Kmart continues to lose market share to Wal-Mart Stores Inc. and Target Corp., investors are betting that “maybe he can turn this into something different,” said Marisa Lenhard, a retail analyst at Southfield, Mich.-based Sigma Investment Counselors.

Troy, Mich.-based Kmart earned $155 million, or $1.54 a share, in the three months ended July 28. That compared with a loss of $5 million in the same quarter last year.

It marked the retailer’s third consecutive quarterly profit since it emerged from bankruptcy in May 2003.

Lampert’s investment company, ESL Investments Inc. of Greenwich, Conn., owns 52.6% of Kmart’s stock, according to the company’s most recent proxy statement.

Second-quarter sales fell 15.3% to $4.8 billion from $5.6 billion in the year-ago period, and sales at Kmart stores open at least a year fell 14.9%.

Last week, Kmart said it was cutting about 200 jobs at its headquarters as part of ongoing streamlining efforts. The company also lowered the maximum number of stores it planned to sell to Home Depot to 19 from 24.

Kmart also has announced plans to sell as many as 54 stores to Sears for as much as $621 million.