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Kmart in freefall
graphic January 16, 2002: 3:32 p.m. ET

Troubled retailer's stock falls 48% absent company announcement.
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  • Kmart board mulling options - Jan. 15, 2002
  • Kmart warns, reviewing liquidity - Jan. 10, 2002
  • Prudential rates Kmart a 'sell' - Jan. 2, 2002
  • Kmart is on the rebound, but not there yet - Aug. 22, 2001
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  • Kmart
    NEW YORK (CNN/Money) - Kmart's stock sank more than 48 percent Wednesday as jittery investors dumped shares in the absence of any announcements by the board of directors, which is considering shutting stores and is said to be mulling a filing for Chapter 11 bankruptcy protection.

    Shares of the No. 2 discount retailer in the U.S. tumbled to a new 52-week low of $1.26 on the New York Stock Exchange after finishing Tuesday's session at $2.45. The company's stock is well off its 52-week high of $13.55, due to concerns that turnaround efforts are failing.

    A company can be de-listed from the NYSE if its shares fall below $1 for at least 30 days. Kmart on Wednesday was removed from the broader Standard & Poor's 500 index.

    S&P also cut Kmart's ratings to low junk grades, its second downgrade this week, and faulted management for a "lack of communication" about plans to invigorate its business.

    S&P cut Troy, Mich.-based Kmart's senior debt three notches to "CCC-minus," its third lowest grade other than default, from "B-minus." It also cut several other Kmart ratings and warned it may cut the ratings again. Moody's Investors Service on Wednesday cut Kmart's senior unsecured debt to "Caa1," roughly two notches above S&P's new rating.

    S&P said that since Monday, two companies, which it did not name, that provide intermediate financing for suppliers "have begun advising their clients to withhold shipments to Kmart.

    "Management's lack of communication regarding the company's plans has increased Standard & Poor's concerns that the company could implement a financial strategy with high risk for creditors," it added.

    A Kmart spokesman declined to comment on the company's current situation.

    Kmart's (KM: down $1.02 to $1.43, Research, Estimates) board of directors met Tuesday, a company spokesman confirmed, though he declined to discuss the agenda. Many analysts believe the board is mulling a voluntary Chapter 11 bankruptcy filing and the closing of hundreds of its 2,100 stores as it tries to become more profitable.

    Some analysts believe the company is finalizing terms of a new financing agreement that will likely be part of a Chapter 11 filing.

    Chapter 11 shields a company from creditors as it attempts to reorganize while continuing to operate.

    Kmart, which is trying to turn itself around under Chuck Conaway, who succeeded Floyd Hall as CEO just over a year ago, is struggling with fierce price competition from Wal-Mart Stores Inc. (WMT: down $0.75 to $56.12, Research, Estimates), the world's biggest retailer, as it tries to pay off about $1.6 billion in debt.

    Part of that debt includes a $435 million credit facility due next November, analysts said.

    Competitive pressure also has been prodded along by the sluggish economy, which has led consumers to turn to discount stores like Kmart, Wal-Mart and Target (TGT: down $0.19 to $39.82, Research, Estimates) for bargains.

    Separately, Martha Stewart could end her deal with Kmart, taking away a key line of merchandise in a move that would be a severe blow to the company, the Wall Street Journal reported.

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    The paper, citing the housekeeping expert's contract with Kmart, said Martha Stewart Living Omnimedia Inc. (MSO: up $0.48 to $15.10, Research, Estimates) could pull out of its merchandising deal if Kmart files for Chapter 11.

    A Martha Stewart spokeswoman was not immediately available for comment Wednesday.

    Meanwhile, Gary Knell, CEO of Sesame Workshop, another key Kmart supplier, expressed support for the company Wednesday.

    "We totally support Kmart and hope that they pull through this dilemma," Knell said. "Our products have always performed very well, and we hope to continue our relationship with them." graphic

    -- from staff and wire reports


    Kmart board mulling options - Jan. 15, 2002

    Kmart warns, reviewing liquidity - Jan. 10, 2002

    Prudential rates Kmart a 'sell' - Jan. 2, 2002

    Kmart is on the rebound, but not there yet - Aug. 22, 2001