[an error occurred while processing this directive] [an error occurred while processing this directive] press release

August 23, 2001


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.

Back to Investor Relations