Kmart Posts Sluggish Results, Offers Buyout

Kmart Corp. on Thursday posted disappointing results for the third quarter, pressured by sluggish apparel sales, and offered early retirement to 11% of its work force to cut costs.

Kmart, the nation’s third-largest retailer, said lower apparel volumes and markdowns pressured results during the quarter. But it denied the weakness led to the departure of No. 2 executive Warren Flick, who announced Wednesday he is retiring.

The company said it earned $18 million, or 4 cents a share, in the quarter, compared with $9 million, or 2 cents, in the same period last year. Sales rose 1% to $7.3 billion.

Chairman Floyd Hall, who was 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. Shares of Troy, Mich.-based Kmart fell 69 cents, to $12.88, 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 Inc.

Kmart said it would offer 28,500 workers early retirement in an effort to bolster profit. The bulk of the workers targeted by the program are employed at Kmart’s 2,121 stores.

The program would save the company about $100 million before taxes if 80% 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.

Flick said he is leaving because he received news recently of a medical condition that, although not life-threatening, is serious enough to cause him to leave his job, analysts said. Kmart said on Wednesday that Flick suffers from deterioration of discs in his neck.

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United Parcel Service of America Inc. reported a $10-million loss during the quarter that included the 15-day Teamsters strike. It was the first quarterly loss for the privately held Atlanta-based package delivery company since 1992. In the year-earlier third quarter, the company had net income of $340 million. Revenue fell to $4.81 billion, from $5.59 billion.

UPS officials said the company continues to feel the effects of the drivers’ strike in August, but they said recent operating results and cost-containment measures are reasons for optimism. The strike, which ended with a new five-year contract for the company’s 185,000 Teamsters, was the first nationwide work stoppage in UPS’ 90-year history. It reduced the company’s daily volume to less than 10% of normal.

At a Glance:

Lands’ End Inc. said its fiscal third-quarter profit rose 17% as higher prices and fewer markdowns offset the impact of the UPS strike, which cost it at least $1.3 million in extra mailing and advertising costs. The mail-order retailer’s earnings rose to $8.16 million, or 26 cents a share, in the quarter ended Oct. 31, up from $7 million, or 22 cents, before a charge in the year-earlier quarter. That beat the 21-cent average estimate of analysts.

Woolworth Corp. reported operating earnings of $55 million, or 41 cents a share, for the third quarter, down from $77 million, or 58 cents, a year earlier. Sales declined to $1.6 billion from $1.8 billion and same-store sales fell 7.6%. The New York-based discount retailer also said it will increase to 130 from 100 the number of stores it will convert to Foot Locker and large Champs athletic formats.