Loss Narrows as Kmart Lowers Costs

Kmart Holding Corp., the third-largest U.S. discount retailer, said its first-quarter loss narrowed to $862 million because of lower costs as it exited bankruptcy protection last month. Kmart’s shares rose 22%.

The loss of $1.65 a share compares with a loss of $1.44 billion, or $2.87, a year earlier, when there were expenses to close 283 stores, Troy, Mich.-based Kmart said. Sales in the period ended April 30 fell 14% to $6.18 billion.

Reorganization costs of $769 million, including expenses for shutting stores and a legal settlement, added to the quarter’s loss. Sales at stores open at least a year fell 3.2%, the smallest drop in at least a year. Costs and sales decreases may be leveling off now that the worst-performing stores have been closed, analysts said.

“The decline is being contained,” said Ulysses Yannas, an analyst with Buckman, Buckman & Reid.

Kmart shares rose $4.05 to $22.55 on Nasdaq. The stock has gained 50% since the company exited bankruptcy protection.

Kmart had expenses of $385 million for a settlement with Fleming Cos., its former grocery distributor, and $158 million for store closings in the quarter.

Sales fell 14% to $6.18 billion from $7.18 billion in the year-earlier quarter, when costs for store closings were $542 million.

Payroll expenses fell because of the store closings and job cuts at its headquarters. Kmart shed $7.8 billion in debt, shut 599 stores and eliminated about 57,000 positions during the reorganization.

The retailer now has about 1,500 stores, about half of largest rival Wal-Mart Stores Inc.’s almost 2,900 discount ones. The second-biggest U.S. discount retailer, Target Corp., has 1,167.

Kmart’s Chapter 11 filing in January 2002 was the largest retail bankruptcy filing in U.S. history.

The company didn’t provide a forecast for the second quarter or full year in its statement and didn’t hold a conference call for analysts and investors. Kmart previously has said it expected to be profitable next year with sales of $25.6 billion.

Kmart has said it will rely on its brands such as Joe Boxer jeans and Martha Stewart Everyday towels and gardening tools to attract customers. The company plans to keep selling items by Stewart, who pleaded not guilty this month to criminal charges related to her sale of ImClone Systems Inc. stock.

“We have not experienced any significant adverse impact from this matter on the sales of Martha Stewart brand product lines,” Kmart said Monday in a regulatory filing.