Kmart Earnings Up as Sales Fall

Kmart Holding Corp., the third-largest U.S. discount retailer, posted its second consecutive quarterly profit Monday after closing stores and cutting jobs during bankruptcy protection. Shares of Kmart rose 9.8%.

Fiscal first-quarter net income was $93 million, or 94 cents a share, the Troy, Mich.-based retailer said. Kmart had a loss of $862 million, or $1.65, a year earlier as the company reorganized its finances. Sales dropped 25% to $4.62 billion in the quarter ended April 28.

Kmart, which shut 599 locations and fired about 57,000 workers before exiting bankruptcy protection last May, is spending less on advertising and trimming inventory instead of trying to match Wal-Mart Stores Inc.’s low prices and full range of products. Fewer markdowns in the quarter helped Chief Executive Julian Day improve gross margin.

Shares of Kmart rose $4.32 to $48.62 on Nasdaq, their biggest gain since April 2. They have more than doubled this year.

Sales, which have fallen for about three years, dropped partly because the company closed 316 stores during the year-ago quarter. Sales for stores open at least a year fell 13%, hurt by a reduction in mid-week sales circulars.

Same-store sales at Wal-Mart and Target Corp., the No. 1 and No. 2 U.S. discounters, rose 6.4% and 6.6% respectively during the first quarter.

Kmart has more than 1,500 locations in 49 states; Wal-Mart operates more than 2,900 discount stores. Target’s discount chain has about 1,240 stores.

Kmart last month extended its contract to sell housewares bearing the name of convicted felon Martha Stewart through 2010.