DETROIT – Shares of Kmart Holding Corp. surged 17 percent Monday after the discount retailer reported a profit for the second quarter and said chairman and majority owner Edward Lampert is now free to invest the company’s $2.6 billion in surplus cash.
There has long been speculation that Lampert plans to gradually dismantle Kmart as a retailer and turn it into an investment empire akin to Warren Buffett’s Berkshire Hathaway.
The fact that Lampert is now being given the authority to make investment decisions, revealed in a quarterly report to the Securities and Exchange Commission, boosts that theory and helped propel Kmart stock to a gain of $11.15 a share to $76.05 in Nasdaq Stock Market trading.
Even as Kmart continues to lose market share to Wal-Mart Stores Inc. and Target Corp., investors are betting that “maybe he can turn this into something different,” said Marisa Lenhard, a retail analyst at Southfield, Mich.-based Sigma Investment Counselors.
Kmart earned $155 million, or $1.54 per share, in the three months ended July 28. That compared with a loss of $5 million in the same quarter last year. It marked the retailer’s third consecutive quarterly profit since emerging from bankruptcy in May 2003.
Lampert’s investment company, ESL Investments Inc. of Greenwich, Conn., owns 52.6 percent of Kmart’s stock, according to the company’s most recent proxy statement.
The second-quarter results included $72 million from the sale of assets. The company has been selling off stores to the Home Depot Inc. and Sears, Roebuck and Co.
Second-quarter sales fell 15.3 percent to $4.8 billion from $5.6 billion in the year-ago period and sales at Kmart stores open at least a year fell 14.9 percent. The company attributed the sales decline to fewer promotional events and less newspaper advertising, as well as to unseasonably cold weather, which affected sales of seasonal merchandise such as lawn and garden products.
Kmart has won the praise of investors for its quick financial turnaround, and the company’s shares have more than doubled since March. But some retail analysts have expressed wariness at the continued decline in same-store sales. Kmart executives, however, have said they are not worried and are focused on achieving profitable sales.
“We are pleased with our continued progress and ability to deliver consistent profit,” chief executive Julian Day said in a statement Monday. “We have continued to focus on process changes that simplify the operations of our stores and distribution centers, including improving merchandise flow and lowering inventory levels which result in lower shrink expense, lower clearance and promotional markdowns and lower payroll expenses.”
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