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Kmart Back in the Black and Rumors Swirl About Its Future

Kmart’s first profitable quarter in three years put it back on the retail radar and reignited speculation over a Kmart/Sears merger.

As for the firm’s “green logo” stores, Ferry said their role is more “laboratory” than prototype.

Kmart operates five such concepts, in White Lake, Mich., a Detroit suburb, and four others in Peoria, Ill. Asked about significant innovations in these doors, Ferry said the stores have shorter, broader aisles and convenience foods in back, which makes for easier replenishment.

Meanwhile, the scuttlebutt activity in the financial services community ticked up Thursday as the retailer’s results renewed speculation over a possible Kmart-Sears merger, which some say would be led by Ed Lampert, founder of ESL Investments and chairman of Kmart Holding Corp. ESL Investments, along with Third Avenue Trust, bailed Kmart out of bankruptcy and owns more than 50 percent of the retailer’s common stock. Lampert is also the largest stakeholder of Sears. This won’t be the first time speculators have put the two firms together in a marriage. It’s important to note that, of the eight board members of Kmart, aside from Lampert, two work for ESL Investments and one is with Third Avenue Management.

According to an investment banker, one reason a deal hasn’t happened yet is because “Kmart still has too many stores in not-so-great locations.”

Julian Day, president and chief executive officer, told Wall Street Thursday that, “by giving careful thought to the processes of sourcing, logistics, pricing, inventory management and in-store presentation, we have significantly improved the profitability of our market basket. Our store associates and store managers are committed to continuous improvements of customer service. Likewise, our employees based at headquarters are dedicated to supporting improvements in the store experience.”

The ceo also noted that Kmart’s inventory investment has been “prudently managed throughout the year, ending the fiscal year at a level below $3.3 billion, a reduction of more than 25 percent relative to the prior year on a comparable-store basis.”

He added that the company has significantly strengthened its cash position through improved inventory management, cash flow from operations and receipts from sales of surplus real estate. At yearend, Kmart had $2.1 billion in cash and cash equivalents and had not borrowed under its credit facility other than for letters of credit.
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