Familiar Story: Sales Down, Profits Up at Kmart

Jan 04, 2005

By George Anderson

The final two months of 2004 produced financial results for Kmart that followed a familiar pattern since the chain emerged from Chapter 11 bankruptcy protection. Same-store sales were down and net income was up.

According to a report by the Detroit News‘ Tenisha Mercer, Kmart saw sales at stores open at least a year decline 4.6 percent. At the same time, the retailer’s net income for the period was up about 10 percent over 2003.

Kmart said it was making progress on shoring up its sales pointing out that it had been posting double-digit declines in same-store performance earlier in the year.

The company’s chief executive, Aylwin Lewis, said, “Kmart has taken action on many fronts to reset baseline sales at a level that forms the basis for profitable growth.

“It is our intention to maintain a substantial base of sales and be significantly profitable at the same time, and we are pleased with our progress to date.”

Mr. Lewis said the retailer is “implementing numerous initiatives to grow sales and increase profits in 2005.”

Not everyone shares Mr. Lewis’ optimism.

C. Britt Beemer, chairman of America’s Research Group, said the proposed merger with Sears, for example, is not a solution to Kmart’s problems. “They may have taken over Sears, but clearly Kmart has not fixed their own problems,” he said. “They have a long ways to go before they are out of the woods. Kmart has not gotten customers back, and they are still in a retreat.”

Stephen Hoch, a marketing professor at the Wharton School at the University of Pennsylvania, is among those skeptical about Kmart’s chances for turning its sales around.

“There are several ways in which firms can influence same-store sales, and one of the ways to do that is to close bad performing stores, which Kmart has been doing a whole heck of a lot of,” he said. “This is just continued evidence that Kmart continues to slowly slide in the abyss. There is no evidence that Kmart or Sears is going to be able to increase their sales.”

Gary Ruffing, a retail analyst with BBK Ltd., said Kmart has “a lot of positives working for them, but they still have to drive additional traffic.”

Moderator’s Comment: Is the Kmart glass half-full as the retailer portrays or half-empty as others suggest?
George Anderson – Moderator

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