Kmart files for Chapter 11 bankruptcy protection

By Alexandra R. Moses

Associated Press

DETROIT – Kmart Corp., known for its BlueLight Special and discount prices, filed for bankruptcy protection Tuesday, becoming the largest retailer to seek shelter from creditors under Chapter 11.

The nation’s No. 3 discount retailer has struggled in the fiercely competitive discount market and debt rating agencies, including Standard &Poor’s, have in recent weeks lowered their credit ratings.

The move comes a day after a major food distributor, Fleming Cos., said it had cut off most shipments to Kmart because the discounter failed to make its regular weekly payment for deliveries. Fleming said Kmart, its largest customer, owed $78 million.

The filing was made in U.S. Bankruptcy Court for the Northern District of Illinois, in Chicago.

“I don’t think there’s any surprise here,” said Wayne Hood, with Prudential Securities Inc. Hood said Kmart has to restructure its debt, close unproductive stores and streamline at the corporate level.

But in its release Tuesday, the company said all 2,114 Kmart stores would remain open.

At a Kmart in Greenville, Mich., Carl Rittersdorf said he would feel bad if it closed. He and four friends meet for breakfast at the cafeteria there every Tuesday.

“I like it here. I like the people,” Rittersdorf said.

The company said that it will reorganize on a fast-track basis and hopes to emerge from Chapter 11 in 2003.

Kmart’s bankruptcy declaration is the largest in the retail business since Federated Department Stores Inc. filed for Chapter 11 in 1990 and emerged two years later.

Federated had assets of $11.4 billion when it filed in January 1990. Kmart’s assets in its latest Securities and Exchange Commission filing were just over $17 billion.

“We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future,” Kmart CEO Chuck Conaway said in a statement.

Kmart officials on Jan. 10 announced that the company would not meet Wall Street’s consensus expectation for earnings of a penny a share for fiscal 2001, and suggested it may seek additional financing.

The holiday shopping period didn’t help Kmart rebound. The company said that for the five-week period ended Jan. 2, the close of its fiscal year, net sales slipped 1 percent on a same-store basis from the previous year.

Total net sales for the period were $5.52 billion, down slightly from $5.54 billion for the same period last year, Kmart said.

Its stock plunged and the company was removed from Standard &Poor’s benchmark index of 500 leading stocks. Major credit rating agencies cut their ratings for its debt in recent weeks.

Kmart said its decision to seek bankruptcy protection was based on a combination of factors, including its below-plan sales and earnings performance in the fourth quarter.

Kmart, founded as S.S. Kresge Co., began as a modest five-and-dime store in downtown Detroit more than a century ago. The first Kmart discount store opened in 1962, and by the 1970s the Kmart stores accounted for most of the company’s sales.

Despite its current woes, Kmart has seen improvements since it was at the brink of death in the mid-1990s, when the company suffered heavy losses, closed stores and laid off employees.

The Martha Stewart Everyday brand, which covers such products as sheets, towels, paints and kitchenware, is Kmart’s largest volume-producing label, generating about $1 billion in sales last year.

Since Conaway became Kmart’s CEO in May 2000, he has closed unproductive stores, reintroduced the BlueLight Special discount, and made other changes to help the retailer become more productive and more efficient.

Analyst Michael Bernacchi, a professor of marketing at the University of Detroit Mercy, said Kmart suffers because it isn’t seen as deep a discounter as Wal-Mart, and it doesn’t have the upscale touch that the Minneapolis-based Target portrays.

On the Net:

Kmart: http://www.bluelight.com/