Teetering Kmart hires turnaround specialist

Discounter may face thousands of layoffs, major store closings

Loan default possible

January 18, 2002|By BLOOMBERG NEWS

TROY, Mich. - Kmart Corp. named James B. Adamson, a retailing turnaround veteran, as chairman yesterday to help oversee a restructuring that some analysts say may include a bankruptcy filing.

Charles C. Conaway, hired in May 2000, ceded his title as chairman and will stay as chief executive, the third-largest U.S. discount chain said in a statement. Conaway's top lieutenant, Mark S. Schwartz, left the company.

Analysts say Kmart may close hundreds of its 2,100 stores and fire thousands of its 250,000 workers in an attempt to return to profitability.

Adamson, 53, was pivotal in convincing suppliers to support the Revco drugstore chain when it was in bankruptcy proceedings, analysts said, and most recently led Advantica Restaurant Group Inc., operator of the Denny's chain, through its reorganization.

As chairman, Adamson will oversee any Kmart restructuring under Conaway, who lacks experience in managing a company through bankruptcy and so far has failed to revive Kmart, analysts said.

"Jim Adamson is one of the consummate turnaround people in modern retailing," said Burt Flickinger, managing partner of Reach Marketing.

Shares of Troy, Mich.-based Kmart rose 19 cents to $1.79 yesterday on the New York Stock Exchange.

Adamson and Conaway declined to comment.

Jack Ferry, a Kmart spokesman, said Conaway's plan to turn around Kmart was expected to take at least two years to complete.

"The Kmart board continues to have confidence in Conaway's ability to successfully lead the company as its CEO," he said.

Ferry said the company wasn't commenting further on the nature of Schwartz's departure.

Conaway promised investors that he would revive Kmart's sales and profit by August of this year. He pledged to match Wal-Mart Stores Inc.'s low prices, cut checkout waits by 20 percent and spend almost $2 billion to upgrade computer and distribution systems.

He tapped Schwartz's experience expanding the Wal-Mart chain of warehouse-size stores with grocery departments as he added more food to Kmart's stores.

Instead of reviving Kmart, the retailer is losing money for a second straight year. Adding snacks and groceries to Kmart's stores hasn't been enough to attract consumers, who keep flocking to Wal-Mart for lower prices, analysts said. Cuts in advertising spending, particularly during the holiday season, further undermined Conaway's efforts to reach shoppers, they said.

Kmart's same-store sales were unchanged or declined the past four months, draining Kmart of cash. Analysts say the company may violate loan agreements with its bank lenders this quarter, forcing Kmart to negotiate new terms and loans, or seek bankruptcy protection.

Kmart accumulated $344 million in losses in the first nine months of this year, and had borrowed $1.46 billion of its $1.6 billion in credit lines as of the third quarter, which ended Oct. 31, according to a regulatory filing. The company had $366 million in cash and cash equivalents, the quarterly filing said.

Its debt rating was recently slashed, making it more expensive to borrow. Moody's Investors Service and Standard & Poor's Corp. each have cut Kmart's credit ratings three times since November. The retailer's bonds are rated junk.

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