TROY, MICHIGAN, December 5, 2003 -- Kmart Holding Corporation (NASDAQ: KMRT) announced today the Company’s financial results for the third quarter of fiscal 2003.

For the 13 weeks ended October 29, 2003, Kmart Holding Corporation (Kmart) reported a net loss of $23 million, or ($0.26) per share. Kmart Corporation reported a net loss of $383 million for the 13 weeks ended October 30, 2002¹.

Loss before interest, reorganization items, income taxes and discontinued operations was $10 million for the third quarter of 2003, versus a loss of $328 million in the same period a year ago.

Net sales for the 13 weeks ended October 29, 2003, were $5.092 billion, a decrease of 21.2 percent from $6.459 billion a year ago. On a same-store basis, sales declined 8.6 percent for the third quarter of 2003, compared to the third quarter of 2002. The decrease in same-store sales is due primarily to the year-over-year comparison with several Company-wide promotional events that were taking place a year ago, and the reduction in the frequency of mid-week advertising circulars in the current year. The decrease in total sales is attributable to the decrease in same-store sales and the closure of 316 stores during the first quarter of fiscal 2003.

Julian C. Day, President and Chief Executive Officer of Kmart, said: “We continue to actively manage our business in a disciplined fashion steadily increasing our margin realization, reducing operating costs, enhancing the productivity of our assets and improving the overall store experience for our customers. Our focus on profitable sales and a consequent reduction in losses from clearance sales and promotional events resulted in a decrease in same-store sales in the third quarter. The actions we have taken to drive profitability contributed to a mid-teens decline in November same-store sales, but allowed us to operate the Company profitably in November 2003.” Last year the Company reported a loss for November (neither period included the Thanksgiving Holiday weekend).

As of October 29, 2003, Kmart had approximately $0.9 billion in cash and cash equivalents, and borrowing availability of approximately $1.6 billion on its $2 billion credit facility inclusive of outstanding letters of credit. In light of its favorable liquidity position, the Company has since voluntarily reduced the size of its credit facility to $1.5 billion to reduce the overall cost of the facility.

Day added, “The strength of our liquidity position is especially noteworthy, as we have progressed through the peak buying period for the holiday season with no direct borrowings drawn from our credit facility. In fact, at our point of lowest liquidity, the Company had over $800 million in cash and cash equivalents.”

Gross margin increased $61 million to $1.167 billion, for the 13 weeks ended October 29, 2003, from $1.106 billion for the 13 weeks ended October 30, 2002. Gross margin, as a percentage of sales, increased to 22.9 percent for the 13 weeks ended October 29, 2003, from 17.1 percent for the comparable period in the prior year. The overall improvement in gross margin rate is primarily attributable to lower distribution costs as a result of the Company's in-sourcing of pantry, food and consumable products, lower depreciation expense resulting from impairment charges taken while operating in bankruptcy and as a result of the write-off of long-lived assets in conjunction with the application of Fresh-Start accounting. A lower rate of inventory shrinkage, supplier cost reductions and an improved sales mix stemming from a significant decrease in promotional sales events and mid-week circulars also contributed to the margin improvement. Gross margin also benefited from the reclassification of co-op advertising recoveries recorded in Cost of sales, buying and occupancy in 2003, as required under generally accepted accounting principles. These improvements in the gross margin rate were partially offset by the impact of clearance markdowns. 

Selling, general and administrative expenses (SG&A), which includes advertising costs (net of co-op recoveries of $108 million in 2002), decreased $270 million to $1.178 billion for the 13 weeks ended October 29, 2003 compared to $1.448 billion for the 13 weeks ended October 30, 2002. The decrease in SG&A is primarily due to the reduction of the Company's store base after closing 316 stores during the first quarter of fiscal 2003, as well as a decrease in payroll and other related expenses from corporate headquarters' cost reduction initiatives. In addition, lower depreciation expense resulting from impairment charges taken while operating in bankruptcy and the write-off of long-lived assets in conjunction with Fresh-Start accounting combined with a decrease in advertising expense contributed to the improvement in SG&A expenses. Collectively, these reductions were partially offset by the impact of the reclassification of co-op recoveries, as discussed above. SG&A, as a percentage of sales, increased to 23.1 percent for the 13 weeks ended October 29, 2003, from 22.4 percent for the comparable period in the prior year. As a percent of sales, the increase is due primarily to the reclassification of co-op advertising recoveries as discussed above.

Disclosure of Financial Information in Accordance with Regulation FD

Year-to-date Adjusted EBITDA

Year-to-date Adjusted EBITDA (Year-to-date earnings before interest, taxes, depreciation, amortization, reorganization costs, fresh start valuation charges, restructuring, impairment and other charges and other bankruptcy-related items) was $166 million. Disclosure of Year-to-date Adjusted EBITDA is being made for purposes of communicating to employees year-to-date performance results as compared to the performance goals outlined in the Company's incentive compensation program, and accordingly, to comply with the disclosure requirements under Regulation FD.

Year-to-date Adjusted EBITDA is a non-GAAP financial measure. Year-to-date Adjusted EBITDA is not the same as EBITDA defined in Kmart's credit facility. Year-to-date Adjusted EBITDA is a Company-defined metric used solely by Kmart's management for the administration of the Company's incentive compensation program for eligible employees. Year-to-date Adjusted EBITDA is not a measure or indicator of the overall financial condition or performance of Kmart and should not be used by investors as a basis for formulating investment decisions. Set forth below and as required under Regulation G, is a reconciliation of the Condensed Consolidated Statements of Operations to Year-to-date Adjusted EBITDA:

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
(Unaudited)