Kmart loses $1.19 billion for quarter

March 01, 1994|By New York Times News Service

The Kmart Corp. decided to clean house in the fourth quarter, writing off losses on two specialty store chains it sold and taking a big charge for renovations and other improvements in an effort to make its core discount-store business competitive.

As a result, it reported a loss yesterday of $1.19 billion, or $2.61 a share.

But analysts said that even without the string of one-time charges, Kmart's fourth-quarter results were disappointing. The retailer's sales growth was good but failed to translate into better earnings, in part because of heavier-than-expected markdowns.

The company said, however, that its efforts to control inventory were paying off.

Corporate inventory at the end of the 1993 fiscal year was $720 million less than a year earlier, which should help Kmart avoid excessive markdowns.

In addition, a greater proportion of its sales came from hard goods, such as small appliances and kitchen products and other nonapparel items, and basic apparel staples, like T-shirts, that have lower profit margins.

Kmart's gross profit margins dropped to 24.9 percent of sales, compared with 26.5 percent in 1992.

"Their challenge is to . . . continue to improve their margins," said Walter F. Loeb, president of Loeb Associates Inc., a retail consulting firm.

So even without one-time charges, the company would have reported a modest $247 million profit, or 53 cents a share, in the quarter that ended Jan. 26, compared with the corresponding period a year earlier when it earned $501 million, or $1.07 a share, excluding the PACE Warehouse Club and Payless Drug Store businesses that the company has sold.

The operating losses and sale of those businesses cost the company

$584 million after taxes last year.

Kmart also announced yesterday that it would take a $140 million pretax charge for closing 187 of its 1,216 Walden Books stores.

It said it would take an additional $78 million charge related to changing accounting policies in combining Walden Books with its Borders bookstores.

Kmart's shares fell to a new 52-week low of $18.50 early yesterday before closing at $19, unchanged from Friday.

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