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.

He would like to see Kmart make two moves quickly — renegotiate its Martha Stewart license for more favorable terms and hire a chief merchant.

Overall, Whalin said holiday 2004 will be a do-or-die for Kmart. “I think they are on the right track, but they are moving slowly and this is an unforgiving business to move slowly in,” he noted. “They’ve got to make it happen in the next three quarters and they’ve got to go into holiday ready.”

The retailer said in its annual report, or Form 10-K, which it filed with the Securities and Exchange Commission on Thursday, that it has more than $23 billion in annual sales and more than two million customer visits a day. Among its top proprietary brands are Martha Stewart Everyday, Joe Boxer, Jaclyn Smith and Thalia Sodi. The company said in the filing that a disproportionate amount of revenues and operating cash flow are generated during the all-important holiday selling period, with fourth-quarter sales representing 28 percent of same-store sales in fiscal 2003.

While much has been written about the recent conviction of Martha Stewart and its potential impact on her brand, Kmart said in the SEC filing, “To date, we have not experienced any significant adverse impact from this matter on the sales of Martha Stewart Everyday brand products. Although product sales have not been significantly affected by past events, the company is not able to determine the potential effects that these events may have on the future sales of its Martha Stewart Everyday brand products.”

In a matter related to Stewart’s firm, Martha Stewart Living Omnimedia, the lawsuit filed by Kmart against a subsidiary of Omnimedia over a dispute in how royalty rates are calculated — Kmart is seeking to reduce royalty payments by $4.5 million to $47.5 million from $52 million — is still progressing.

The company was silent about the status of a federal investigation surrounding the circumstances of its bankruptcy that was started by the U.S. Attorney’s Office in Michigan, with the assistance of the Federal Bureau of Investigation, suggesting it was still in progress. Kmart did reference in its filing the 10-K filed last year for fiscal 2002, which had more information about the nature of the investigation and Kmart’s own stewardship review.
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