Bankruptcy Isn’t the End of Kmart’s Troubles 01/14/03 - 07:11 PM EST
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mart (KMRTQ - Cramer’s Take - Stockpickr) may soon emerge from bankruptcy, but it still faces a tough task in trying to establish a viable business. The discount retailer, which filed for Chapter 11 bankruptcy last January, said on Tuesday that it expects to emerge from bankruptcy protection by the end of April. As part of its ongoing effort to restructure its business, the company announced that it is closing 326 more stores and laying off up to 35,000 employees. Despite the cutbacks and a possible $2 billion in financing once it leaves bankruptcy, Kmart is still on shaky ground, analysts say. And the history of retailers emerging from bankruptcy is not a promising one. “The question is will Kmart be ready to compete on a level playing field by April? At this point, I would say no,” said Daryl Rigby, head of Bain’s retail practice. “I just don’t see that Kmart has found a successful format to compete against Wal-Mart and Target.” Kmart has struggled for years to compete against the two discounters. The company filed for bankruptcy after missing its sales expectations in December 2001. The company ended up losing $2.4 billion, or $4.95 per share, on $36 billion in revenue in its 2001 fiscal year. Since then, the company has been trying to turn its operations around. Last March, the company announced it would close 284 stores and cut 22,000 jobs. The turnaround efforts also led to a management shake-up that saw the discounter replace its chief executive and chief financial officers. The efforts do seem to have borne some fruit. The company posted a $349 million profit during the five-week holiday period that ended Jan. 1, on sales of $4.71 billion. During the period, the company reported a gross margin of $924 million, or 19.6%. |