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Kmart posts 1Q loss
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May 17, 2001: 2:21 p.m. ET
But No. 3 U.S. retailer's shortfall narrower than expected on higher sales
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NEW YORK (CNNfn) - Kmart Corp. reported a fiscal first-quarter loss Thursday that was narrower than Wall Street expected as the nation's No. 3 retailer continued with restructuring and cost-cutting measures.
The company also posted higher sales as consumers shopped for more discounted items in a slowing economy.
For the quarter ended May 2, Troy, Mich.-based Kmart (KM: up $0.54 to $10.67, Research, Estimates) reported a loss excluding one-time charges of $10 million, or 2 cents a share, compared with income of $22 million, or 6 cents a share, a year earlier. Analysts polled by earnings tracker First Call anticipated a loss of 7 cents a share.
Including charges related to severance packages and a voluntary early retirement program, Kmart had a net loss of $25 million, or 5 cents a share.
Quarterly revenue increased 1.7 percent to $8.3 billion from $8.2 billion.
"These results are in line with our plan to fix our business by taking decisive, aggressive and focused steps to transform our company," CEO Chuck Conaway said. "We continue to strive to provide world-class execution, deliver superior customer service, and differentiate ourselves from our competitors."
The company told analysts on an upbeat conference call that its efforts so far are having a measurable effect on its business.
"We've experienced a steady, consistent, increase in (customer) traffic over the last three months," Conaway said on the call.
The company said its in-stock levels have improved from 79 percent last October to 88 percent by the end of the first quarter. It's own internal measure of customer service increased to 57 percent from 40 percent last fall, Conaway said.
Gross margins also moved higher in the quarter, meaning the company made more profit on each sale. However, margins came under a slight pressure from efforts to be more competitive on pricing, the company said on the conference call.
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Though first-quarter earnings were sharply lower than a year ago, Kmart has seen its stock rebound in the last year as Conaway continues his sweeping reorganization and restructuring plan.
After Conaway, the former CEO of No. 2 drugstore chain CVS Corp., took the helm last July he shuttered 72 underperforming stores and cleaned up remaining stores, directing managers to clear aisles and make sure shelves are neat and well-stocked. He also further cut costs and improved efficiency by reducing surplus inventory and is bringing faster checkout technology to the stores, freeing up employees for more customer service.
On May 10, the company reported a 1.1 percent rise in April in sales at stores open at least a year, a key figure known as same-store sales. In the current economic slowdown, those are decent numbers for a company in the midst of a turnaround, one analyst has said.
"Chuck and his team have been able to put their turnaround plans in place and take steps to change those issues that have held back the company over last 20 years," Midwest Research analyst Jeff Stinson said. "The challenge is kind of managing the business day to day while trying to effect all these changes. That's why we saw the loss of two cents during the quarter."
Despite Kmart's positive news, Standard & Poor's revised its outlook on the company to negative from stable following the release of first-quarter results.
"Although initiatives to improve the in-stock position and customer service are beginning to take hold," the ratings firm said, "soft consumer spending, tough competition and the costs of the turnaround are pressuring earnings."
Kmart earlier reported net sales in the 13-week period of $8.34 billion, up 1.7 percent from $8.2 billion a year ago. Sales at stores open at least a year rose 1.7 percent in the quarter. The company pointed to strong sales of food and health and beauty products, but said apparel sales were soft.
Kmart repeated its forecast for same-store sales growth in the low single digits on a percentage basis for the full fiscal year.
The company said it is cutting capital spending for the year to $1.4 billion from its original forecast of $1.7 billion. 
-- from staff and wire reports
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