May 24, 2002 4 min read

DETROIT (AP) – Kmart Corp. on Thursday reported a $1.02 billion net loss during the five weeks ended May 1 and restated its losses for the remainder of the period since the company filed for Chapter 11 bankruptcy protection. The new figures filed with the U.S. Securities and Exchange Commission show the discount retailer has lost $1.47 billion from February through April, after losing $2.42 billion during its entire 2001 fiscal year, which ended Jan. 30.

For the five-week period ended May 1, Troy-based Kmart reported sales of $3.2 billion. Sales at stores open at least a year, known as same-store sales, were $2.08 billion during the five-week period, down nearly 16.4 percent from the same period a year ago. By comparison, same-store sales at discount rival Wal-Mart Stores Inc. rose 3.3 percent.

“That’s not good for a store that seeks to emerge from bankruptcy,” said Jerry Reisman, a partner in Reisman, Peirez & Reisman of Garden City, N.Y.

“That’s a very large percentage for a company that needs increased revenue to gain the confidence of its suppliers.”

Same-store sales are the best indictor of a retailer’s performance.

Chief Financial Officer Al Koch attributed the decline to a lack of Easter-related purchases in April – Easter was March 31 this year but April 15, 2001. Colder weather also gave spring sales a sluggish start, Koch said.

But the company’s same-store sales have been down at least 8.4 percent in each of the last three months, raising concerns that shoppers are defecting from Kmart during its troubled times.

“What we’re seeing here is customers are afraid they’re not going to see their Kmart any more,” said Eric M. Beder, an analyst with Ladenburg, Thalmann & Co. Inc. “There are better alternatives that don’t have this problem and don’t have the stigma of bankruptcy.”

Kmart is planning a “Welcome Back Sale” in early June to draw shoppers, Koch said.

“It’s not unusual for store traffic to decline when retailers file bankruptcy,” he said. “We are writing to our customers from our customer database that we know shop with us, and were offering them some promotional discounts to bring them into the stores.”

Whether that helps, analysts said, depends on what greets shoppers when they return.

“Shoppers have had difficulty finding the product they want, … sales help has been abysmal,” said Reisman, who added that selling products at a loss through promotions may hurt more than help. “Promotions and coupons may be a quick fix, but it could ultimately be a quick step toward a certain death.”

The changes to Kmart’s previous operating statements are because of a change in the way it reports vendor discounts.

After an accounting review, the company said last week when it released its annual report that it will now record the rebates and allowances only after it has a formal agreement from the vendor. Previously, Kmart recorded the discounts in anticipation of receiving them.

Because of the change, Kmart reported a loss of $269 million for the four weeks ended Feb. 27, revised from $174 million, and a $175 million loss for the four weeks ended March 27, revised from $135 million.

Meanwhile, the SEC and the FBI are investigating the company’s accounting practices.

“As long as they have this accounting thing over their heads, it’s impossible to come out (of bankruptcy),” Beder said. “In terms of giving investors and lenders confidence, you have to get that out of the way – it slows down the process.”

Kmart, which has struggled to compete with Wal-Mart and Target Corp., filed for bankruptcy Jan. 22 after disappointing holiday sales and a stock dive. Kmart’s plan to close 283 stores and cut 22,000 jobs will be completed by the end of June, the company has said.

Kmart shares closed Thursday at $1.16, up 2 cents in trading on the New York Stock Exchange.

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