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Kmart's Mixed Bag

Reports 4Q profit declines, sales increases, aggressive infrastructure improvements

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Kmart Corp. (Troy, Mich.) had a mixed report for its fiscal year-ending fourth quarter, ending Jan. 31, 2001. The bad news: a nearly 40 percent decline in fourth-quarter net earnings, and a roughly 65 percent drop in net income for the year. The good news: a 2.1 percent same-store sales increase for the quarter, and a 3.3 percent increase in February.

“We finished the fiscal year with solid evidence that we are building momentum and making progress in the implementation of our three key strategic imperatives,” said chairman and ceo Chuck Conaway. “With our same-store sales increasing over the past four months, it is clear that the new Kmart is closing the gap with our competition, and in some cases moving ahead. We are properly focused on the massive structural and cultural transformation necessary to convert these gains into a strong and sustainable improvement in our financial performance. After only 215 days of operating under aggressive new metrics and management, we have generated significant strides in sales growth, merchandise in-stock position, customer satisfaction and other key measures.”

Since August 2000, Kmart said it has been focusing on its strategic imperatives: 1) to achieve world-class execution; 2) to create a customer centric culture; and 3) to aggressively pursue sales and marketing opportunities to differentiate the company from its competitors. In July, the retailer announced the closure of 72 underperforming stores. The next month, the company said it would invest $2 billion in infrastructure improvements over the next two years “in an effort to improve store operations and customer service.”

While it has reported measurable improvements, such as an increase in its Super Service Index and its recent same-store sales gains, it has cautioned that planned changes for its stores and the slowdown seen in consumer spending will keep a lid on sales growth. The Super Service Index measures the percentage of customers rating their overall shopping experience as excellent. Conaway says, “Our customer service has been enhanced by our improved in-stock levels, which have increased from 79 to 86 percent since we began measuring this key metric in October 2000. Some of our non-negotiables in store improvements include no more than three in a checkout line, clean stores and clear aisles.” The nation's Number Two retailer has more than 2100 stores (including more than 100 Super Kmart Centers) in all 50 states, Puerto Rico, the U.S. Virgin Islands, and Guam. It has recently been converting most of its old stores to the Big Kmart format (grocery sections and an expanded selection of merchandise).

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