Kmart 1Q: on track and in the black

Discount Store News, May 19, 1997 by Laura Liebeck

TROY, MICH. -- For the first time in years, Kmart executives are going into their annual shareholders meeting with good news to report.

The retailer was expecting to post on May 15 comparable store sales of 5.5% for the first quarter vs. a loss of 8 cents per share a year ago. In addition, Kmart closed on an amendment to its $2.5 billion revolving bank credit facility earlier this month, extending the maturity of the existing facility by one year, or to June 2000, said Kmart chairman, president and ceo Floyd Hall during a recent Salomon Brothers Retailing Conference.

All of this is on top of the retailer's yearend 1996 results: net income from continuing operations of 8231 million versus a loss of $230 million last year and a dramatic cut in the retailer's net loss, to $220 million from $571 million in 1995; sales per sq. ft. of $201 compared to $195 a year ago; a decline in selling, general and administrative expenses, and continuing income per share of common stock of 48 cents compared to a loss of 51 cents in 1995.

Other good news in recent weeks has included:

* The unveiling of Big Kmart, a new store name to match inside-the-store changes, which are largely focused on the retailer's high frequency format and Pantry department. (During April, Kmart rolled out 110 Big K stores.)

* The new Martha Stewart paint line, Everyday Colors, which officially rolled out May 11, although it has been appearing on shelves at selected stores for several weeks. This program increases Kmart's commitment to and exposure of the Martha Stewart line of products.

On the downside, Kmart's net income still lingered in the red for 1996, and the retailer's most recent four-week period, the month of April, saw a sales decline of 2.2%, to $2.27 billion. A year ago, Kmart's sales were $2.32 billion for the four-week April sales period. In addition, Ron Floto, president of Super Kmart Centers, resigned, leaving Hall temporarily in charge of the supercenter division.

"Kmart's sales for the quarter were on plan, although April sales were at the low end of expectations," said Hall, noting a "broad decline in traffic beginning in the second week of [of the month]," largely due to weather-sensitive lines such as horticulture and apparel. Hall also noted, however, that the Martha Stewart Everyday domestics line has been performing well, fueling a strong performance in the retailer's domestics business.

Kmart's annual shareholders meeting is scheduled for May 20 at 10 a.m. at Fisher Theatre in downtown Detroit. According to the retailer's proxy statement five proposals will be voted upon at the meeting, two of which have been forward by stockholders and neither supported by the board. They include:

* Instituting a no-salary-increase plan if the company's stock dividend is cut. (This has been forward by a stockholder who owns 10,000 shares.)

* Requiring that board directors receive 50.1% or more votes to remain in office. No more than three directors can be unseated due to lack of sufficient votes in any one election year. This proposal was recommended by an ex-Kmart associate who holds 13,355 shares of stock.

The other three proposals, supported by the board, include:

* The election of six directors--always a hot topic at Kmart's annual meeting--including Warren Flick, president and chief operating officer of Kmart;

* Long-term equity compensation plan, covering stock options, stock appreciation rights, restricted stock and performance units and performance shares to key employees and non-employee directors. This plan is to replace the 1992 stock option plan which makes no shares available for grant.

* Ratification and appointment of independent accountants, or, in this case, Price Waterhouse LLP.

In other news, Kmart announced that it has chosen Michigan-based Don Coleman Advertising to create advertising programs for African-American shoppers. DCA will partner with Campbell Mithun Esty, Kmart's advertising agency of record. Kmart works with Castor Advertising, N.Y., on programs to reach Latino shoppers. Don Colman was chosen for its expertise in research, strategic planning, advertising and promotion, said Larry Davis, Kmart's vp, advertising.