Kmart seeks to cut 28,500 jobs Early retirement is offered amid disappointing earnings

November 14, 1997|By BLOOMBERG NEWS

DETROIT -- Kmart Corp. offered early retirement to 28,500 workers yesterday, as it posted disappointing results for the third quarter. The employees represent 11 percent of Kmart's work force. The bulk of the workers targeted by the program are employed at Kmart's 2,121 stores.

Kmart said it needs the cutbacks to bolster profits. The program would save the company about $100 million before taxes if 80 percent of the eligible employees accept it, analysts said.

Kmart will record a noncash charge against fourth-quarter earnings to cover costs of the reduction. The size of the charge depends on how many workers leave.

The nation's third largest retailer said lower apparel volumes and markdowns pressured results during the quarter. But it denied that the weakness led to the departure of No. 2 executive Warren Flick, who said Wednesday that he was retiring.

The company said it earned $18 million, or 4 cents a share, during the third quarter compared with $9 million, or 2 cents a share, during the corresponding period last year. Sales rose 1 percent to $7.3 billion. Chairman Floyd Hall, recruited by Kmart in 1995 to revitalize the troubled company, said the results marked the sixth straight quarter of higher earnings. But they fell short of analysts' consensus estimate of 5 cents a share. Kmart's shares fell 69 cents, to $12.81 in consolidated afternoon trading on the New York Stock Exchange.

"There has been some marginal improvement at Kmart, but it's been two steps forward, one step back for the last two years," said Richard Church of Smith Barney.

Flick, the former head of Sears, Roebuck and Co.'s Mexican division, joined the company in January 1996. At the time, his appointment was viewed as a vote of confidence in Hall's turnaround strategy.

Since then, Kmart has taken dramatic steps to improve performance. The company sold its Builders Square hardware stores and its auto service centers and brought in celebrity merchandise lines including Martha Stewart domestics and Sesame Street children's clothing.

Flick failed to breathe new life into Kmart's lackluster clothing business. In the third quarter, men's and women's apparel were the only lines of 19 merchandise categories that did not have higher gross margins, analysts said.

The most recent problem began unfolding in the spring when goods ordered by then-apparel chief Stephen Ross and his team flopped with Kmart's core conservative shoppers. The misstep forced Kmart to take steep markdowns on the goods. Ross resigned in June after 14 months in the position.

Yesterday, Kmart named Andrew Giancamilli, a former president Perry Drug Stores, to replace Flick. Giancamilli has overseen Kmart's consumables lines, including high-turnover goods such as toothpaste and paper towels, and was on a team that created the company's Big Kmart concept with its core consumables department.

Pub Date: 11/14/97

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