November 9, 2000
Contacts
Juli Musch
Divisional
Vice President, Investor Relations
(248) 643-1040
Shawn M. Kahle
Vice President, Corporate Affairs
(248) 637-4201
FOR IMMEDIATE RELEASE
KMART CORPORATION REPORTS THIRD QUARTER RESULTS
TROY, Mich., November 9, 2000 - Kmart Corporation (NYSE: KM) today reported a net loss of $67 million, or ($0.14) basic loss per share, for the 13 weeks ended October 25, 2000, compared with net income of $27 million, or $0.05 basic earnings per share for the 13 weeks ended October 27, 1999.
"Our overall performance fell short in the third quarter primarily due to soft sales as our liquidation of inventory cannibalized our regular sales. It is clear, however, that we are building momentum as our total units increased 2.7%, even though the average retail selling price declined 1.2%," said Chuck Conaway, Chairman and CEO. "We are committed to dramatically improving our working capital productivity to achieve our world-class execution strategic imperative."
Net sales in the third quarter of 2000 were $8.199 billion, an increase of 3.0% from $7.962 billion for the third quarter of 1999. Same-store sales for the quarter increased 1.4%. The gross margin rate for the quarter was 20.5% of sales as compared with 21.5% last year. Selling, general and administrative (SG&A) expenses for the quarter were $1.697 billion compared with $1.579 billion for 1999, resulting in a SG&A to sales ratio of 20.7% for 2000 versus 19.8% for 1999.
Under FAS 128, preferred securities are not included in the calculation of diluted earnings per share for the third quarter of either 2000 or 1999 due to their anti-dilutive effect. However, consistent with disclosure required by the Securities and Exchange Commission, if such securities were included in the calculation, diluted earnings (loss) per share would have been ($0.10) and $0.07 for the third quarters of 2000 and 1999, respectively. During the third quarter of 2000, Kmart acquired 115 thousand shares of convertible preferred stock through open market purchases totaling $3.6 million.
Cautionary Statement Regarding Forward-looking Information
Statements, other than those based on historical facts, which address activities, events, or developments that the company expects or anticipates may occur in the future are forward-looking statements which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Actual events and results may materially differ from anticipated results described in any forward-looking statements. The company's ability to achieve such results is subject to certain risks and uncertainties, including, but not limited to, economic and weather conditions which affect buying patterns of the company's customers, changes in consumer spending and the company's ability to anticipate buying patterns and implement appropriate inventory strategies, continued availability of capital and financing, competitive factors, and other factors affecting business beyond the company's control. Consequently, all of the forward-looking statements are qualified by the cautionary statements and there can be no assurance that the results or developments anticipated by the company will be realized or that they will have the expected effects on the company or its business operations.
Kmart Corporation serves America with 2,163 Kmart retail outlets. Kmart Corporation common stock is listed on the New York, Pacific, and Chicago Stock Exchanges.
KMART CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share data)
|
13 Weeks
Ended
October 25, 2000
|
13 Weeks
Ended
October 27, 1999
|
| Sales |
$ 8,199 |
$ 7,962 |
| Cost of sales, buying and occupancy |
6,518
|
6,248
|
| Gross margin |
1,681 |
1,714 |
Selling, general and administrative expenses
|
1,697
|
1,579
|
| Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust |
(16) |
135 |
| Interest expense, net |
71 |
76 |
| Income tax provision (benefit) |
(31) |
19 |
|
| Dividends on convertible preferred securities of subsidiary trust, net of income taxes |
11
|
13
|
| Net income (loss) |
$ (67) |
$ 27 |
| |
|
|
| Basic/Diluted earnings per common share: |
|
| Net income (loss)
|
$ (0.14)
|
$ 0.05
|
|
|
|
| Basic weighted average shares (millions) |
482.1 |
492.1 |
| Diluted weighted average shares (millions) |
542.3 |
562.2 |
KMART CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share data)
|
39 Weeks
Ended
October 25, 2000
|
39 Weeks
Ended
October 27, 1999
|
| Sales |
$ 25,392 |
$ 24,820 |
| Cost of sales, buying and occupancy |
20,530 |
19,472 |
| Gross margin |
4,862 |
5,348 |
| Selling, general and administrative expenses |
5,379
|
4,756
|
| Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust |
(517) |
592 |
| Interest expense, net |
205 |
206 |
| Income tax provision (benefit) |
(263) |
127 |
| Dividends on convertible preferred securities of subsidiary trust, net of income taxes |
34 |
38 |
| Continuing net income (loss) |
(493) |
221 |
|
|
|
| Discontinued operations, net of tax |
- |
(230) |
| Net loss |
$ (493) |
$ (9) |
|
|
|
| Basic/Diluted earnings per common share: |
|
|
|
|
|
| Net income (loss) from continuing operations |
$ (1.00) |
$ 0.45 |
| Discontinued operations |
- |
(0.46) |
| Net loss |
$ (1.00) |
$ (0.01) |
|
|
|
| Basic weighted average shares (millions) |
481.9 |
493.8 |
| Diluted weighted average shares (millions) |
544.0 |
566.5 |
KMART CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions)
|
October 25,
2000
|
October 27,
1999
|
|
ASSETS
|
|
Current Assets:
|
|
Cash and cash equivalents |
$ 285 |
$ 345 |
|
Merchandise inventories |
7,878 |
8,486 |
|
Other current assets |
1,066
|
865
|
|
Total current assets |
9,229 |
9,696 |
|
|
|
|
|
Property and equipment, net |
6,481 |
6,313 |
|
Other assets and deferred charges |
431
|
489
|
| TOTAL ASSETS |
$ 16,141 |
$ 16,498 |
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current Liabilities:
|
|
Long-term debt due within one year |
$ 495 |
$ 74 |
|
Trade accounts payable |
2,770 |
3,119 |
|
Accrued payroll and other liabilities |
1,401 |
1,347 |
|
Taxes other than income taxes |
267
|
252
|
|
Total current liabilities |
4,933 |
4,792 |
| |
|
|
|
Long-term debt and notes payable |
2,635 |
2,730 |
|
Capital lease obligations |
956 |
1,031 |
|
Other long-term liabilities |
911 |
1,057 |
|
Convertible preferred securities |
886 |
985 |
|
Common stock |
485 |
487 |
|
Capital in excess of par value |
1,565 |
1,607 |
|
Retained earnings |
3,770
|
3,809
|
|
TOTAL LIABILITIES AND EQUITY |
$ 16,141 |
$ 16,498 |
| |
|
|
KMART CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| (Dollars in millions) |
39 Weeks
Ended
October 25, 2000 |
39 Weeks
Ended
October 27, 1999 |
|
|
|
|
|
|
| CASH FLOW FROM OPERATING ACTIVITIES |
|
|
| |
Net income (loss) from continuing operations |
$ (493) |
$ 221 |
| |
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
|
|
|
| |
|
One-time charge for strategic actions
|
728 |
- |
| |
|
Depreciation and amortization
|
584 |
568 |
| |
|
Equity loss in BlueLight.com
|
37 |
- |
| |
|
Cash used for store restructuring and other charges
|
(46) |
(58) |
| |
|
Increase in inventories
|
(1,142) |
(1,950) |
| |
|
Increase in accounts payable
|
566 |
1,097 |
| |
|
Increase in accounts receivable
|
(174) |
(181) |
| |
|
Deferred income taxes and taxes payable
|
(357) |
61 |
| |
|
Decrease in other long-term liabilities
|
(89) |
(27) |
| |
|
Changes in other assets and liabilities
|
6
|
(21)
|
| |
Net cash used for continuing operations
|
(380) |
(290) |
| |
Net cash used for discontinued operations
|
(75)
|
(48)
|
| Net cash used for operating activities |
(455)
|
(338)
|
| |
|
|
|
|
| CASH FLOW FROM INVESTING ACTIVITIES |
|
|
| |
Capital expenditures |
(697) |
(997) |
| |
Acquisition of Caldor leases |
- |
(86) |
| |
Investment in BlueLight.com |
(55)
|
-
|
| Net cash used for investing activities |
(752)
|
(1,083)
|
| |
|
|
|
|
| CASH FLOW FROM FINANCING ACTIVITIES |
|
|
| |
Proceeds from issuance of debt |
1,366 |
1,250 |
| |
Purchase of convertible preferred securities |
(84) |
- |
| |
Purchase of common shares |
(56) |
(117) |
| |
Issuance of common shares |
41 |
44 |
| |
Payments on long-term debt |
(61) |
(61) |
| |
Payments on capital lease obligations |
(58)
|
(60)
|
| Net cash provided by financing activities |
1,148
|
1,056
|
| |
|
|
|
|
| Net decrease in cash and cash equivalents |
(59) |
(365) |
| Cash and cash equivalents, beginning of year |
344 |
710 |
| |
|
|
|
|
| Cash and cash equivalents, end of period |
$ 285
|
$ 345
|
EXHIBIT
Charge for Strategic Initiatives
During the second quarter, as previously announced, Kmart implemented a series of strategic actions designed to enhance the productivity of its store base, inventory and information systems. These initiatives included closing stores, accelerating certain inventory reductions and redefining its information technology strategy. As a result of these initiatives, Kmart recorded a pre-tax charge, in the second quarter, of $740 million. During the third quarter, Kmart reduced the charge by $12 million (pre-tax) due to reducing the number of scheduled store closings from 72 to 69.
The following table presents the Statement of Operations for the 39 weeks ended October 25, 2000 before and after the charge for strategic actions:
|
39 Weeks Ended October 25, 2000 |
| ($ in millions) |
As Reported |
Charge For
Strategic
Actions |
Excluding
Charge For
Strategic
Actions |
| |
|
|
|
| Sales |
$ 25,392 |
$ - |
$ 25,392 |
| Cost of sales, buying and occupancy |
20,530
|
365
|
20,165
|
| Gross margin |
4,862 |
(365) |
5,227 |
| Selling, general and administrative expense |
5,379
|
363
|
5,016
|
| Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust |
(517) |
(728) |
211 |
| Interest expense, net |
205 |
- |
205 |
| Income taxes |
(263) |
(265) |
2 |
| Preferred dividends of subsidiary, net of income taxes |
34
|
-
|
34
|
| Net income (loss) |
$ (493) |
$ (463) |
$ (30) |
| |
|
|
|
| Basic and diluted earnings per share |
$ (1.00)
|
$ (0.96)
|
$ (0.04)
|
EXHIBIT, CONTINUED
Inventory
As of the end of the third quarter, Kmart reduced its inventory position from third quarter last year by $608 million as follows:
| ($ in millions) |
|
| Inventory at October 27, 1999 |
$ 8,486 |
| Inventory at October 25, 2000 |
7,878 |
|
|
| Decrease in inventory |
608 |
| Reduction due to strategic actions |
(413) |
|
|
| Reduction through operations |
$ 195 |
|
|
|
|
