TROY, Mich., December 23, 2002 -- Kmart Corporation (Pink Sheets: KMRTQ) announced today the financial results for its third quarter of fiscal 2002 and the filing of its Quarterly Report on Form 10-Q and monthly operating reports for October and November 2002.

For the 13 weeks ended October 30, 2002, Kmart reported a net loss of $383 million, or $0.76 per share, versus a restated net loss of $249 million, or $0.50 per share, for the 13 weeks ended October 31, 2001. Excluding non-comparable items, discontinued operations and reorganization items, the Company’s net loss was $390 million, or $0.78 per share, in the third quarter of 2002, compared with a net loss of $152 million, or $0.31 per share, in the third quarter of 2001.

The reported results reflect the restatement of the 26-week period ended July 31, 2002, as well as prior fiscal years. Kmart announced on December 9, 2002, that it would be restating its financial results for these prior periods to reflect certain adjustments identified as a result of the Company’s ongoing review of its accounting practices and procedures. (These adjustments and the restatement of the prior periods are discussed below).

Net sales for the 2002 third quarter were $6.73 billion, compared with $8.02 billion in the same quarter a year ago. As previously reported, Kmart closed 283 underperforming stores in the second quarter of 2002. On a same-store basis, sales declined 7.6 percent from the third quarter of 2001. Comparable store sales for the four-week period ended October 30, 2002, were 3.9 percent lower than the same period a year ago.

The Company passed the peak borrowing period for its seasonal inventory build in early December and has now fully repaid all of its DIP borrowings. As of December 19, 2002, Kmart had no borrowings outstanding and had utilized $326 million of its Debtor In Possession (DIP) credit facility for letters of credit. Its total DIP availability as of that date was $1.57 billion.

James B. Adamson, Chairman and Chief Executive Officer of Kmart, said, “We continue to make good progress in many areas. Our reorganization team is hard at work finalizing a comprehensive business plan, analyzing our store base and taking other actions necessary to fulfill our goal of filing a proposed plan of reorganization with the court and emerging from Chapter 11 court protection as early as practicable in 2003.”

November Results and Holiday Outlook

In its monthly operating report for the four-week period ended November 27, 2002, Kmart reported a net loss of $40 million on net sales of $2.47 billion. Comparable store sales during this period were 17.2 percent lower than the same period a year ago. In contrast to many other retailers, Kmart’s fiscal period ends on the last Wednesday of the month. Accordingly, the reporting period for November 2002 does not include the sales results of Thanksgiving weekend, as it did in 2001, which resulted in an unfavorable comparison.

Kmart’s 2002 Thanksgiving weekend sales will be included in the December monthly results. As a result, the Company expects its comparable sales trend for December to improve from November. However, the Company’s overall results for the fourth quarter of 2002 may be adversely impacted by the fact that there are significantly fewer shopping days between Thanksgiving and Christmas this year as compared with 2001. In addition, the Company noted that the U.S. retail environment has generally been described as weak this holiday season.

Julian Day, Kmart President and Chief Operating Officer, said, “The Company’s performance over Thanksgiving weekend was encouraging. The post-Thanksgiving period also started strong, but sales in the last two weeks have been softer than we had anticipated.”

Day continued, “In addition to concentrating on our same store sales performance, we remain very focused on improving our gross margin management process, working on our cost base and increasing our inventory turns. Our challenge as a promotional retailer is to use aggressive event and pricing strategies aimed at driving store traffic and winning our customers back, while also providing a merchandise assortment that allows us to generate an acceptable margin rate. We are encouraged by consumer reaction to our exclusive merchandise offerings – including the new JOE BOXER and Martha Stewart Everyday Holiday collections – that were available to our customers this holiday season.”

Analysis of Operations Excluding Non-comparable Items

The following unaudited table reconciles net loss as reported to net loss adjusted for non-comparable items, discontinued operations and reorganization items for the 13 weeks and 39 weeks ended October 30, 2002 and October 31, 2001, respectively:

Third Quarter Analysis

The following analysis of third quarter results excludes non-comparable items, discontinued operations, and reorganization items:

Selling, General and Administrative expenses (SG&A) for the third quarter of 2002 decreased by $233 million from the year-ago quarter. SG&A as a percent of sales was 22.5 percent in the third quarter of 2002, compared with 21.7 percent in the third quarter of 2001. The decrease in SG&A from the previous year is due primarily to lower payroll and benefits resulting from the closure of 283 stores in the second quarter of 2002, a reduction in electronic media and direct mail advertising, the employee reductions at headquarters in the third quarter of 2002, and lower depreciation expense due to an impairment charge recorded in the fourth quarter of fiscal 2001 and lower current year capital spending.

Gross margin as a percentage of sales decreased to 17.0 percent for the 13 weeks ended October 30, 2002, from 20.2 percent in the third quarter of 2001. This decrease is primarily related to an increase in promotional markdowns designed to bring customers back into Kmart’s stores, an increase in clearance markdowns to improve sell-through on seasonal apparel, and a decrease in vendor allowances. This decrease was partially offset by increased margin as a result of the reduction in the BlueLight Always program.

Nine Month Results

For the 39 weeks ended October 30, 2002, Kmart reported a net loss of $2.12 billion, or $4.21 per share, versus a net loss, as restated, of $796 million, or $1.62 per share, for the 39 weeks ended October 31, 2001. Excluding non-comparable items, discontinued operations and reorganization items, the Company’s net loss was $1.06 billion, or $2.10 per share, in the first nine months of 2002, compared with a net loss of $611 million, or $1.24 per share, in the same period in 2001.

Net sales for the 39-week period ended October 30, 2002 were $21.89 billion, compared with $25.27 billion in 2001. On a same-store sales basis, sales declined 10.2 percent from the first nine months of 2001.

Restatement of Prior Periods

As discussed above (and as previously announced), as part of the review and preparation of its Form 10-Q for the 13 and 39 weeks ended October 30, 2002, the Company identified certain out-of-period adjustments. In addition, in its second quarter report on Form 10-Q, filed with the SEC on September 16, 2002, the Company had previously identified and described certain other out-of-period adjustments. Upon review of the aggregate impact of the new, as well as the previously disclosed and recorded adjustments, Kmart concluded that restating its financial statements for the prior periods was appropriate because the aggregate adjustment was material to its 2002 fiscal year results.

The tables below show the effects of the restatements on reported earnings for the prior periods presented. The restatement had the aggregate effect of decreasing the Company’s net loss for the previously reported 26-week period ended July 31, 2002 by $92 million.

The aforementioned adjustments relate primarily to:

a) An understatement of historical accruals for certain leases with varying rent payments and a related understatement of historical rent expense.

b) A software programming error in Kmart's accounts payable system that resulted in some paid invoices awaiting a store report of delivery not being appropriately treated in the Company’s financial statements. This error, restricted to a single vendor with unique billing arrangements, resulted in an understatement of “Cost of sales, buying and occupancy” since 1999.

c) Adjustments, as previously disclosed in Kmart’s 2002 second quarter report on Form 10-Q, for certain costs formerly capitalized into inventory. Inventory included amounts added for internal purposes to analyze gross margin on a comparable basis across all business units and to optimize purchasing decisions. These amounts are commonly referred to in the retail industry as “inventory loads,” and should have been eliminated for external reporting purposes to the extent the related inventory remained unsold at the end of the period.

d) The premature recording, as previously disclosed in Kmart’s 2002 second quarter report on Form 10-Q, of vendor allowance transactions in fiscal year 2000 and prior fiscal years.

In addition, given the restatement for the items noted above, Kmart is also adjusting previously reported financial results for miscellaneous immaterial items that were identified and previously recorded in the ordinary course of business. These items are now being recorded in the appropriate fiscal periods.

The summary of the effects of the restatement on the results of operation for the 13- and 39-week periods ended October 31, 2001 are presented in the tables below.

The net impact of the restatement on prior fiscal years was to reduce reported operating results by $28 million in fiscal 2001, $24 million in fiscal 2000, and $40 million in fiscal 1999. The restatement also had the effect of reducing the retained earnings on the Company’s balance sheet at January 30, 1999 by $138 million. More detailed information concerning these adjustments can be found in the Company's Quarterly Report on Form 10-Q.

The Company is in the process of preparing an amended Annual Report on Form 10-K/A for the 2001 fiscal year and amended Quarterly Reports on Form 10-Q/A for the first two quarters of the 2002 fiscal year and will file such reports as soon as practicable.

Other Matters

In its Quarterly Report on Form 10-Q for the third quarter, filed with the SEC today, the Company notes that in light of returns in the equity markets, the Company presently expects that it will likely be required to commence making contributions to its defined benefit pension plan in 2005. Kmart’s pension plan was frozen in January 1996. Given that the plan is frozen, the timing for the commencement of future funding requirements will depend, in large part, on the future investment performance of the plan’s assets. Further information about this matter is available in the Form 10-Q report.

KMART CORPORATION

KMART CORPORATION

KMART CORPORATION

Kmart Corporation is a mass merchandising company that serves America with more than 1,800 Kmart and Kmart SuperCenter retail outlets. Kmart in 2001 had sales of $36 billion. The Company’s common stock is currently quoted on the Pink Sheets Electronic Quotation Service www.pinksheets.com under the symbol KMRTQ.

Cautionary Statement Regarding Forward-Looking Information

Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties, including, but not limited to, Kmart's having filed for bankruptcy and factors relating to Kmart's operations and the business environment in which Kmart operates, which may cause the actual results of Kmart to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include those set forth in Kmart's Annual Report on Form 10-K for the fiscal year ended January 30, 2002, Kmart's Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2002, or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission (the “Company Filings”). The forward-looking statements speak only as of the date when made and Kmart does not undertake to update such statements.

Similarly, these and other factors, including the terms of any reorganization plan ultimately confirmed, can affect the value of our various pre-petition liabilities, common stock and/or other equity securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies.

A plan of reorganization could result in holders of Kmart common stock receiving no distribution on account of their interest and cancellation of their interests. As described in the Company’s Quarterly Report on Form 10-Q, holders of Kmart common stock should assume that they could receive little or no value as part of a plan of reorganization. In addition, under certain conditions specified in the Bankruptcy Code, a plan of reorganization may be confirmed notwithstanding its rejection by an impaired class of creditors or equity holders and notwithstanding the fact that equity holders do not receive or retain property on account of their equity interests under the plan. In light of the foregoing, the Company considers the value of the common stock to be highly speculative and cautions equity holders that the stock may ultimately be determined to have no value.

Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in Kmart common stock or any claims relating to pre-petition liabilities and/or other Kmart securities.