Kmart to buy $1 billion of its stock back

No. 2 firm is expanding, touting private labels


May 19, 1999|By BLOOMBERG NEWS

TROY, Mich. -- Kmart Corp., the No. 2 U.S. discount retailer, said yesterday that it plans to buy back as much as $1 billion worth of company stock to boost the price of the shares.

At current prices, the buyback would amount to about 12 percent of shares outstanding. Kmart said it will buy the shares over the next few years with cash generated from operations.

Kmart is enlarging its stores and focusing on private-label goods such as Jaclyn Smith fashions and Martha Stewart lawn-and-garden furniture. It's trying to compete with bigger, low-price rival Wal-Mart Stores Inc. and the more fashion-oriented Target, owned by Dayton Hudson Corp. Kmart's stock price fell 5 percent in the last year, though, while other retailers have climbed.

"Kmart's about to emerge from the turnaround phase and enter the real growth phase of its new existence," said Kurt Barnard, a consultant and president of Barnard's Retail Trend Report. "That's symbolized by the buyback, which will add a lot of muscle to the stock."

Shares of Kmart rose 81.25 cents in trading yesterday to close at $17.1875. While Kmart has languished -- the shares are only 8 percent higher over the past five years -- Wal-Mart's stock price rose about 71 percent in the past year and Dayton Hudson rose 49 percent.

"We're frustrated that our stock price is undervalued by many in the financial community," Chief Executive Officer Floyd Hall said. "If the market isn't interested in buying, you can be certain we are."

Other major retailers have also announced plans in recent months to buy back $1 billion or more in stock, including Wal-Mart and Sears, Roebuck & Co.

Under Hall, who joined in 1995, Kmart has closed stores and renovated and expanded others. The company cut thousands of jobs and sold off unprofitable units such as the Builders Square building-supplies chain.

Yesterday, at Kmart's annual shareholders meeting, Hall said the company plans to expand its Martha Stewart line with dinnerware, flatware, cookware, glassware and bake ware next year. Stewart's lines are expected to account for about 5 percent of Kmart's sales at the end of 2000.

Kmart also is looking for acquisitions and ways to sell over the Internet, Hall said, and will build or acquire 30 to 50 stores a year.

Pub Date: 5/19/99

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