August 13, 1998
Robert M. Burton
Divisional Vice President, Investor Relations
(248) 643-1040
Shawn M. Kahle
Vice President, Corporate Affairs
(248) 637-4201
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KMART CORPORATION ANNOUNCES SECOND QUARTER 1998 NET INCOME, EARNINGS PER SHARE INCREASED 200 PERCENT TO $0.19 BEFORE VOLUNTARY EARLY RETIREMENT CHARGE
TROY, Mich., August 13, 1998-- Kmart Corporation (NYSE:KM) today reported net income of $80 million, or $0.16 basic earnings per share, for the second quarter of 1998, including a non-recurring charge of $19 million ($13 million aftertax, or $0.03 per share) relating to a Voluntary Early Retirement Program (VERP) in the Company's distribution centers. Before the charge, net income was $93 million for the quarter, an increase of 200 percent. Basic earnings per share before the VERP charge were $0.19 per share, compared with net income of $31 million, or $0.06 basic earnings per share for the second quarter of 1997.
Total consolidated sales in the 1998 second quarter were $8.116 billion, an increase of 3.4% from $7.846 billion for the second quarter of 1997. Total sales in U.S. Kmart stores increased 4.7%, while comparable store sales for the quarter increased 4.4%. The gross margin rate for the period was 21.9% of sales versus 21.0% last year. Selling, general and administrative (SG&A) expenses for the quarter were on plan at $1.561 billion compared with $1.497 billion for the 1997 period, resulting in a SG&A to sales ratio of 19.2% versus 19.1%. Increased SG&A reflects expenses for the Year 2000 project and closed stores.
"With our ninth consecutive quarter of increased earnings per share, the turnaround at Kmart continues on track," said Floyd Hall, Chairman, President and CEO. "Sales increases in our pharmacy, home fashions, health and beauty care, consumables, and apparel areas, together with a substantial lift in gross margin rate, enabled Kmart to more than triple earnings per share in the quarter before the non-recurring charge."
VOLUNTARY EARLY RETIREMENT PROGRAM (VERP)
As previously reported, Kmart offered a VERP in the fourth quarter of 1997 to employees in the stores and corporate headquarters. That program was extended to 1,050 employees of the Company's distribution centers during the second quarter of 1998. Of those eligible for the 1998 program, approximately 40 percent accepted the offer. The resulting $19 million pretax charge will be funded from existing pension assets and will have no effect on the liquidity of the Company. Kmart expects to recoup this charge through lower operating expenses beginning in the third quarter of 1998.
Net income for the first half of 1998 was $127 million, or $0.26 basic earnings per share, as compared with net income of $45 million, or $0.09 per share in the first half of 1997. Basic earnings per share before the VERP charge were $0.29 for the first half of 1998.
Under FAS 128, preferred securities are not included in the calculation of diluted earnings per share for the second quarter of either 1997 or 1998 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 per share would have been $0.16 and $0.08 for the second quarters of 1998 and 1997, and $0.27 and $0.12 for the first six months of 1998 and 1997, respectively.
Kmart Corporation serves America with 2,114 Kmart retail outlets. Kmart Corporation common stock is listed on the New York, Pacific, and Chicago Stock Exchanges.
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KMART CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
|
| (Amounts in millions, except per share data) |
13 Weeks
Ended
7-29-98 |
13 Weeks
Ended
7-30-97 |
| Sales |
$ 8,116 |
$ 7,846 |
| Cost of sales, buying and occupancy |
6,336 |
6,197 |
| Gross margin |
1,780 |
1,649 |
| Selling, general and administrative expenses |
1,561 |
1,497 |
| Voluntary early retirement program |
19 |
- |
| Income before interest, income taxes and dividends on convertible preferred securities |
200 |
152 |
| Interest expense, net |
70 |
92 |
| Income tax provision |
38 |
17 |
| Dividends on convertible preferred securities, net of income taxes |
12 |
12 |
| Net income |
$ 80 |
$ 31 |
| |
| Basic / diluted income per common share |
$ 0.16 |
$ 0.06 |
| |
| Basic weighted average shares outstanding |
492.9 |
487.1 |
| Diluted weighted average shares outstanding |
570.6 |
487.1 |
KMART CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
|
| (Amounts in millions, except per share data) |
26 Weeks
Ended
7-29-98 |
26 Weeks
Ended
7-30-97 |
| Sales |
$ 15,631 |
$ 15,109 |
| Cost of sales, buying and occupancy |
12,244 |
11,834 |
| Gross margin |
3,387 |
3,275 |
| Selling, general and administrative expenses |
3,010 |
2,988 |
| Voluntary early retirement program |
19 |
- |
| Income before interest, income taxes and dividends on convertible preferred securities |
358 |
287 |
| Interest expense, net |
144 |
190 |
| Income tax provision |
62 |
28 |
| Dividends on convertible preferred securities, net of income taxes |
25 |
24 |
| Net income |
$ 127 |
$ 45 |
| |
| Basic / diluted income per common share |
$ 0.26 |
$ 0.09 |
| |
| Basic weighted average shares outstanding |
491.3 |
486.2 |
| Diluted weighted average shares outstanding |
491.3 |
486.2 |
KMART CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| |
26 Weeks Ended |
| (Amounts in millions) |
7-29-98 |
7-30-97 |
| Cash Flows From Operating Activities: |
| Net income from retail operations |
$ 127 |
$ 45 |
| Adjustments to reconcile net income to net cash provided by operating activities: |
|
| Voluntary early retirement charge |
19 |
- |
| Depreciation and amortization |
332 |
337 |
| Increase in accounts receivable |
(65) |
(12) |
| Increase in operating supplies and prepaids |
(41) |
(53) |
| Increase in inventories |
(441) |
(465) |
| Increase in accounts payable |
411 |
24 |
| Deferred income taxes and taxes payable |
160 |
16 |
| Changes in certain assets, liabilities and other items |
(40) |
127 |
| Net cash provided by operating activities |
462 |
19 |
| |
| Cash Flows From Investing Activities: |
|
| Proceeds from divestitures |
87 |
129 |
| Proceeds from real estate financing and other |
22 |
43 |
| Capital contributions from minority interests |
- |
(55) |
| Other, net |
(6) |
(88) |
| Capital expenditures |
(406) |
(178) |
| Net cash used for investing activities |
(303) |
(149) |
| |
| Cash Flows From Financing Activities: |
|
| Changes in common stock and treasury stock |
58 |
25 |
| Proceeds from long-term debt and notes payable |
- |
739 |
| Reductions in capital lease obligations |
(43) |
(57) |
| Reductions in long-term debt and notes payable |
(116) |
(730) |
| Net cash used for financing activities |
(101) |
(23) |
| |
| Net change in cash and equivalents: |
58 |
(153) |
| Cash and equivalents at beginning of year |
498 |
406 |
| Cash and equivalents at end of period |
$ 556 |
$ 253 |
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KMART CORPORATION
CONSOLIDATED BALANCE SHEETS
|
| (Amounts in millions) |
7-29-98 |
7-30-97 |
1-28-98 |
| ASSETS |
|
| Current Assets: |
|
| Cash and equivalents |
$ 556 |
$ 253 |
$ 498 |
| Merchandise inventories |
6,808 |
6,819 |
6,367 |
| Other current assets |
673 |
889 |
611 |
| Total current assets |
8,037 |
7,961 |
7,476 |
| |
| Property and equipment, net |
5,642 |
5,538 |
5,472 |
| Property held for resale |
119 |
200 |
271 |
| Other assets and deferred charges |
328 |
595 |
339 |
| TOTAL ASSETS |
$ 14,126 |
$ 14,294 |
$ 13,558 |
LIABILITIES AND EQUITY |
|
| Current Liabilities: |
|
| Long-term debt due within one year |
$ 51 |
$ 109 |
$ 78 |
| Trade accounts payable |
2,334 |
2,033 |
1,923 |
| Accrued payrolls and other liabilities |
1,199 |
1,196 |
1,064 |
| Taxes other than income taxes |
241 |
244 |
209 |
| Total current liabilities |
3,825 |
3,582 |
3,274 |
| |
| Long-term debt and notes payable |
1,636 |
2,191 |
1,725 |
| Capital lease obligations |
1,136 |
1,389 |
1,179 |
| Other long-term liabilities |
927 |
922 |
965 |
| Convertible preferred securities, net |
983 |
980 |
981 |
| Common stock |
493 |
489 |
489 |
| Capital in excess of par value |
1,659 |
1,594 |
1,605 |
| Retained earnings |
3,467 |
3,147 |
3,340 |
| TOTAL LIABILITIES AND EQUITY |
$ 14,126 |
$ 14,294 |
$ 13,558 |
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