Contacts: John McDonald, Senior Vice President & Treasurer
Juli Musch, Divisional Vice President
Investor Relations
(248) 463-1040
FOR IMMEDIATE RELEASE
KMART CORPORATION REPORTS SECOND QUARTER 2001 RESULTS
TROY, Mich., August 23, 2001 -- Kmart Corporation (NYSE: KM) announces today that for the 13-week quarter ended August 1, 2001, net sales were $8.917 billion, a decrease of 0.9% from $8.998 billion for the 13-week period ended July 26, 2000. As previously reported, same-store sales increased 1.0% in the second quarter of fiscal 2001. The company reported a net loss of $95 million, or $0.19 per share versus net loss of $448 million, or $0.93 per share, for the 13-week period ended July 26, 2000. Excluding the charge for BlueLight.com, the company's net loss was $22 million, or $0.04 per share for the second quarter of 2001.
“We are pleased with our results as we continue our strategies to transform Kmart," said Chuck Conaway, Chairman and CEO of Kmart Corporation. “As planned, we completed our conversion of our entire store base to the Fleming distribution network and reset over 90% of our store base during the quarter. We continue to reduce our reliance on advertising and, with the lowering of prices on 20,000 items as part of our BlueLight Always program, face deflationary pricing conditions."
Gross margin for the second quarter of 2001 was 20.8% of sales, compared to 20.5% last year excluding non-comparable items. The increase in gross margin is due to a solid performance in reducing merchandise shrinkage, which offsets the price reductions attributable to our BlueLight Always program. Selling, general and administrative expense, as a percentage of sales, was 20.0% in the second quarter of 2001 versus 19.2% in the same quarter in 2000 excluding non-comparable items. The increase is due primarily to the investment in store labor, which is partially offset by reductions in net advertising costs.
For the second quarter, Kmart opened one supercenter and closed one discount store. As of August 1, 2001, Kmart operated 2,113 stores compared to 2,165 stores last year.
Cautionary Statement Regarding Forward-looking Information
Statements herein related to future performance are forward-looking statements and are subject to risks and uncertainties that are set forth in the Company’s filings with the Securities and Exchange Commission, which are incorporated herein by reference. Actual results may materially differ from anticipated results described in such statements. Statements herein speak only as of the date of this release and the Company does not undertake to update such statements.
Kmart Corporation is a near-$40 billion company that serves America with more than 2,100 Kmart and Kmart Supercenter retail outlets and through its e-commerce shopping site www.bluelight.com. More information about Kmart is available at www.bluelight.com under the “About Kmart” section.
KMART CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data) (Unaudited)
13 Weeks Ended
26 Weeks Ended
August 1, 2001
July 26, 2000
August 1, 2001
July 26, 2000
Sales
$
8,917
$
8,998
$
17,255
$
17,193
Cost of sales, buying and occupancy
7,058
7,518
13,667
14,012
Gross margin
1,859
1,480
3,588
3,181
Selling, general and administrative expenses
1,787
2,101
3,430
3,682
Charges for BlueLight.com and other
92
—
115
—
Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust
(20)
(621)
43
(501)
Interest expense, net
88
65
171
134
Income tax benefit
(25)
(250)
(31)
(232)
Dividends on convertible preferred securities of subsidiary trust, net of income taxes of $6, $6, $12 and $12,
respectively
12
12
23
23
Net loss
$
(95)
$
(448)
$
(120)
$
(426)
Basic (loss) per common share:
$
(0.19)
$
(0.93)
$
(0.24)
$
(0.87)
Diluted (loss) per common share:
$
(0.19)
$
(0.93)
$
(0.24)
$
(0.87)
Basic weighted average shares (millions)
490.6
481.3
489.6
481.8
Diluted weighted average shares (millions)
563.7
541.8
560.1
544.4
KMART CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in millions) (Unaudited)
August 1, 2001
July 26, 2000
January 31, 2001
Current Assets:
Cash and cash equivalents
$
420
$
333
$
401
Merchandise inventories
6,869
6,586
6,412
Other current assets
885
753
811
Total current assets
8,174
7,672
7,624
Property and equipment, net
6,836
6,351
6,557
Other assets and deferred charges
339
397
449
Total Assets
$
15,349
$
14,420
$
14,630
Current Liabilities:
Long-term debt due within one year
$
116
$
38
$
68
Trade accounts payable
2,295
2,488
2,287
Accrued payroll and other liabilities
1,177
1,145
1,257
Taxes other than income taxes
261
268
187
Total current liabilities
3,849
3,939
3,799
Long-term debt and notes payable
2,980
1,742
2,084
Capital lease obligations
902
975
943
Other long-term liabilities
666
1,003
834
Company obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely 7¾% convertible
junior subordinated debentures of Kmart (redemption value
$898, $904 and $898, respectively)
887
891
887
Common stock, $1 par value, 1,500,000,000 shares authorized;
496,962,413, 480,098,675 and 486,509,736 shares issued,
respectively
497
480
487
Capital in excess of par value
1,670
1,551
1,578
Retained earnings
3,898
3,839
4,018
Total Liabilities and Shareholders' Equity
$
15,349
$
14,420
$
14,630
KMART CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions) (Unaudited)
August 1, 2001
July 26, 2000
CASH FLOW FROM OPERATING ACTIVITIES
Net loss from continuing operations
$
(120)
$
(426)
Adjustments to reconcile net loss from continuing operations
to net cash (used for) provided by operating activities:
Restructuring, impairments and employee severance
115
740
Depreciation and amortization
413
395
Equity loss in BlueLight.com
46
25
Cash used for store closings and other charges
(60)
(33)
(Increase) decrease in inventories
(452)
150
Increase in trade accounts payable
2
284
Deferred income taxes and taxes payable
16
(329)
Changes in other assets and liabilities
(69)
(137)
Net cash (used for) provided by continuing operations
(109)
669
Net cash used for discontinued operations
(45)
(60)
Net cash (used for) provided by operating activities
(154)
609
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures
(651)
(379)
Investment in BlueLight.com
(45)
(10)
Net cash used for investing activities
(696)
(389)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Borrowings from Credit Facilities
764
—
Private Placement Notes due 2008
427
—
Issuance of common shares
28
26
Purchase of convertible preferred securities of subsidiary trust
—
(80)
Purchase of common shares
—
(56)
Payments on debt
(273)
(45)
Payments on capital lease obligations
(41)
(39)
Payments of dividends on preferred securities of subsidiary trust
(36)
(37)
Net cash provided by (used for) financing activities
869
(231)
Net increase (decrease) in cash and cash equivalents
19
(11)
Cash and cash equivalents, beginning of year
401
344
Cash and cash equivalents, end of period
$
420
$
333
EXHIBIT
Analysis of operations excluding non-comparable items
Following is a table segregating operating income excluding non-comparable items from
operating income as reported in the Consolidated Statements of Operations:
13 Weeks
26 Weeks
August 1, 2001
July 26, 2000
August 1, 2001
July 26, 2000
($ Millions)
($ Millions)
Sales
$
8,917
$
8,998
$
17,255
$
17,193
Cost of sales, buying and occupancy
7,058
7,153
13,667
13,647
Gross margin
1,859
1,845
3,588
3,546
Selling, general and administrative
1,787
1,726
3,430
3,307
Operating income excluding noncomparable items
72
119
158
239
Charge for BlueLight.com
92
—
92
—
Charge for employee severance and VERP
—
—
23
—
Strategic actions charge
—
740
—
740
Operating income as reported
$
(20)
$
(621)
$
43
$
(501)
Charge for Bluelight.com
Executing our plan to restructure the operations of our e-commerce subsidiary, on July 31,
2001, we acquired the remaining 40% interest in BlueLight.com, LLC. As consideration, we
issued approximately 6.1 million shares of Kmart common stock and paid approximately $16
million in cash. In conjunction with this restructuring, we recorded a charge in the second
quarter of approximately $92 million ($73 million after tax) or $0.15 per share.
2000 Strategic Actions Charge
In the second quarter of 2000, we announced a series of strategic actions aimed at
strengthening financial performance by achieving improvements in return on invested
capital. These actions included deciding to close certain Kmart and Kmart Supercenter
stores, accelerating certain inventory reductions and redefining our information technology
strategy. As a result of these actions, we recorded a pre-tax charge of $740 million ($471
million after tax) during the second quarter of 2000. $365 million of the charge was included
in Cost of sales, buying and occupancy in the Consolidated Statement of Operations and
$375 million of the charge was included in Selling, general and administrative expenses in
the Consolidated Statement of Operations.
