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Kmart earnings up in 3Q
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November 20, 1996: 8:07 p.m. ET
Discount retailer has cut costs, but still has to increase sales figures
From Correspondent Rhonda Schaffler
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NEW YORK (CNNfn) -- Kmart Corp. reported Wednesday third quarter profits of $9 million, or two cents a share, in the third quarter, beating Wall Street's expectations.
That compared with a $69 million loss, or 15 cents a share, from the same period a year ago.
That had Kmart Chairman and CEO Floyd Hall declaring the company was seeing "meaningful progress toward recovery."
After closing hundreds of unprofitable stores over the past two years, Kmart is opening new ones in places like Manhattan.
Cost-cutting has now produced three consecutive quarters of improving earnings at Kmart after four years of declines.
CEO Hall said that earnings are up because costs are down, not because of stronger sales.
"We've had a hard time this year in getting our sales line to move as rapidly as we'd like," admitted Hall. "A lot of it is a reaction to the clearance goods that we had last year."
Even after markdowns, shoppers still continue to bypass Kmart for the nation's number one discounter, Wal-Mart Stores Inc.
Wal-Mart's prices average about five percent lower than Kmart's. Retail analysts, such as Bob Buchanan of NatWest Securities, say Kmart can no longer afford to compete on pricing and must find other ways. (129K WAV) or (129K AIFF)
Kmart is changing its focus from cost-cutting to improving sales.
The discounter hopes to do that by sprucing up its stores, adding more brand name products, and building its apparel lines.
That turnaround may take years to complete and could easily be sidetracked by another downturn in retailing.
Also distracting Kmart are rumors of a buyout from Kohlberg Kravis Roberts, which is reportedly interested in the company.
KKR and Kmart haven't commented on the rumors and Hall said he hasn't been in touch with the firm but he also said he wouldn't close the door on any deal that would give stockholders a higher return for their money.
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