Conway replacing Hall at helm of Kmart

New chief, 39, inherits a company struggling to show muscle again


June 01, 2000|By BLOOMBERG NEWS

TROY, Mich. - Kmart Corp. said yesterday that CVS Corp. President Charles Conaway will replace Floyd Hall, who is retiring early after five years as chairman and chief executive at the second-largest U.S. discount chain.

The appointment of Conaway, 39, is effective immediately. Hall, 61, is departing a year before his contract was set to expire in April.

Conaway was CVS' financial chief until a year ago, when he became president of the No. 2 drugstore chain and oversaw its stores, distribution and Internet expansion. Analysts expect him to continue Hall's efforts to boost Kmart's sales, cut costs and expand online. Kmart's stock has tumbled 59 percent the past two years as sales lagged behind those of rivals Wal-Mart Stores Inc. and Target Corp.

"His background seems well-suited," said analyst Ulysses Yannas of Buckman, Buckman & Reid, who has a "buy" rating on Kmart shares. "They have to improve the distribution, and he's got experience with 4,100 stores at CVS. They need to improve the information systems, and he's got experience with that, too."

Kmart shares rose 87.50 cents to $8.50 on the New York Stock Exchange. The Troy, Mich.-based company's stock has fallen from a high of $20.875 in June 1998 and has been trading at its lowest level in four years.

Investors said they hope that Conaway will re-evaluate Kmart's spending plans, build on Hall's success with store brands such as Martha Stewart products and refine Kmart's pricing strategy. Same-store sales fell in March and April after the company failed to hold enough promotions to draw shoppers.

"They could certainly be doing a better job of inventory control and promotional activity," said analyst Angela Auchey of Federated Investors, which held 3.98 million Kmart shares as of December. Conaway "is also going to have to prove himself as [a merchandiser]."

Conaway, a Michigan native, was CVS' chief financial officer for three years before being named president and chief operating officer in April 1999. He helped integrate large acquisitions, including the 1997 takeover of 2,600 Revco stores and the 1998 purchase of about 200 Arbor Drugs stores, analysts said.

"Conaway's appointment underscores that Kmart now places financial interests and stability ahead of all other tasks," said Kurt Barnard, president of Barnard's Retail Trend Report.

Conaway signed a five-year employment agreement with Kmart, which has 2,171 Kmart, Big Kmart and Super Kmart stores.

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