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What direction is Kmart headed?
By MARK ALBRIGHT, Times Staff Writer Kmart Corp. stayed mum Wednesday about deliberations inside a crucial board of directors meeting as questions grew about the discount giant's future. The credit rating and stock of the nation's second-biggest discount store chain continued to take a pounding on speculation that the Troy, Mich., company could file for bankruptcy reorganization, close hundreds of stores or oust its chief executive. Eric Beder, a senior vice president and retailing analyst for Ladenburg, Thalmann & Co. Inc., called Kmart's silence "spooky." "Nothing scares investors more than a vacuum of information," Beder said. "No one knows what's going on except for the people in Troy, Mich., and they're not telling anyone else." Kmart's stock closed Wednesday at $1.60, down 85 cents, or nearly 35 percent. The stock already had fallen enough by Tuesday for Standard & Poor's Corp. to remove Kmart from its S&P 500 index. That all but guarantees a selloff as the major stock index funds that track the S&P 500 shed Kmart from their portfolios. Kmart's woes continued to mount Wednesday, with reports that some of Kmart's smaller suppliers are withholding shipments until its board of directors announces some strategy for dealing with its problems. Then there's the prospect that Kmart could lose its most famous, and lucrative, supplier: Martha Stewart. The queen of home entertaining has the right to take her exclusive deal to supply Kmart elsewhere if the chain files for bankruptcy. The loss of Martha Stewart would cost Kmart its biggest brand name and most credible corporate spokeswoman. Sharon Patrick, president of Martha Stewart Living Omnimedia, said Wednesday the company's relationship with Kmart is solid. "We're taking no action. We're not talking to other partners at this time. We remain in partnership with Kmart," she said. Stock of Martha Stewart Living Omnimedia Inc., which sold about $1.5-billion in home decor goods at Kmart last year, closed at $15.20, up 58 cents. With reports circulating that the company could close as many as 400 of its 2,000 stores, shares of Kimco Realty, a real estate investment trust that is one of Kmart's biggest landlords, have been on a roller coaster. It closed Wednesday at $30.82, up 45 cents. Kmart's downward spiral began a week ago after officials announced that 2001 results would break even at best because of disappointing holiday sales and suggested they may seek additional financing. The retailer's board of directors held a regularly scheduled meeting Monday and Tuesday, and the Associated Press reported that the possibility of bankruptcy was among the topics. Kmart would not divulge the topics covered or whether any decisions had been made about the company's finances or business plan. "The session ended Tuesday. There is nothing to report," Kmart spokesman Jack Ferry said Wednesday. In a Wednesday release announcing ratings downgrades, Fitch Inc. said it appears increasingly likely that Kmart will choose to file for Chapter 11 bankruptcy. In making the downgrades, Fitch cited "continuing uncertainty as to Kmart's current financial strategy in the absence of any communication from the company." Meanwhile, Kmart's other vendors are becoming increasingly anxious. Two "factoring" companies -- firms that provide critical credit assurances for suppliers -- told their clients Tuesday to withhold shipments to Kmart until the company's plans become clear, according to the Wall Street Journal. "We have been told to hold orders pending an announcement," said Tom Puls, president of Designer Dresses 98 LLC, a closely held New York-based fashion company. Kmart Corp. president and CEO Chuck Conaway was recruited from CVS Corp. two years ago to revive the fortunes of the nation's second-largest discount store. Now, there is speculation that firing Conway is among the options facing Kmart's directors. "They are really between a rock and a hard place," said Carl Steidtmann, chief retailing economist for Deloitte Research. -- Information from the Associated Press, Bloomberg News and Knight Ridder Newspapers was used in this report.
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From the Times Business report
From the AP
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