NEW YORK (CNN/Money) - Bankrupt retailer Kmart Corp. reported a sharply wider fiscal first-quarter net loss Friday as it took a $758 million charge to write off inventory in stores it closed in May and June and to get out of lease obligations.

For the quarter ended May 1, Kmart, which closed 283 stores in the first quarter, reported a net loss of $1.45 billion, or $2.88 a share, compared with a net loss of $233 million, or 48 cents a share, a year earlier.

Excluding reorganization and other items, the discount chain, which filed for Chapter 11 bankruptcy protection Jan. 22, reported a loss of $408 million, or 81 cents a share, compared with a loss of $218 million, or 45 cents, a year earlier.

The big charge in the quarter is for writing off inventory at the 283 stores the company closed in the period.

Net sales fell 8.4 percent to $7.64 billion from $8.34 billion. Sales at stores open at least a year, or same-store sales, fell 8.8 percent from the year-earlier quarter.

Stiff competition from Wal-Mart (WMT: up $0.08 to $56.58, Research, Estimates) and Target (TGT: down $1.19 to $37.69, Research, Estimates) contributed to Kmart's bankruptcy filing earlier this year as the Troy, Mich.-based chain struggled with declining sales.

"Kmart's significant losses and sales decline in the first quarter reflect the many challenges the company faced in the period following our voluntary Chapter 11 filing," Chairman James Adamson said. "These challenges included reduced inventory levels as vendors withheld shipments in the early days of the reorganization and reduced store traffic arising from the bankruptcy filing."

Kmart Chief Financial Officer Al Koch and General Counsel Jack Butler told reporters during a teleconference Friday that a shareholders committee had been formed to monitor and provide input on the retailer's restructuring plan. Kmart said it could emerge from bankruptcy by mid 2003.

The shareholders committee consists of seven members, including venture capital firm Softbank and other institutional and individual shareholders.

Kmart (KM: down $0.02 to $0.89, Research, Estimates) had about $1.1 billion in cash and $1.6 billion available under its debtor-in-possession credit facility as of May 1, the company said.

Kmart has been trying to compete in the last few years by offering exclusive licensed lines such as Sesame Street and Disney-labeled clothing and Martha Stewart home items.

The company had no comment Friday regarding its relationship with style maven Stewart, who is under fire for selling 3,928 shares, worth $227,824, of troubled pharmaceutical firm ImClone Systems Inc. late last year. Reports Friday said federal prosecutors are looking into whether Stewart had inside information when she sold the shares.

"Martha is a valued brand partner," Koch said on the call.

Additionally, Kmart said Friday that as of March 20, the Bankruptcy Court authorized relationships with several of its key brand partners, including Martha Stewart, Jaclyn Smith, Kathy Ireland World Wide Inc., Disney Enterprises and Joe Boxer.

Koch said the company is working on a number of initiatives to boost sales with fewer promotions and improved margins and inventory levels.

Some of the initiatives under way include making sure the stores remain stocked with the most popular promotional items and improving the efficiency of advertising.

"We need to blend promotional items with an everyday selling price that results in the company generating a satisfactory gross margin," Koch said.

The company said part of its improved margins in the first quarter came from lower food sales. Kmart, through its partner, food distributor Fleming Co., has been trying to ramp up grocery items, and it blamed the decline in food sales on money-losing promotions, particularly one on soda, and inventory streamlining.

Koch said there has been no change in Kmart's relationship with Fleming.

Kmart is also looking at a number of further cost-cutting moves, including staff cuts.

"We're just making certain that we are as efficient as we can be," Koch said.

Kmart's financial distress comes amid a sea of troubles.

Former CEO Chuck Conaway was criticized for trying to compete head-to-head with Wal-Mart on low prices. Conaway resigned from the board earlier this year and his management now is under an internal stewardship review.

The FBI currently is investigating Kmart, but neither the agency nor the company would discuss the reasons. Kmart is investigating its own practices related to the way it accounts for vendor credits.

Last month, Kmart said it may have to restate some fiscal results.

In its earnings report filed with the Securities and Exchange Commission Friday, Kmart said gross margins increased 18.3 percentage points from a year earlier, excluding non-comparable and reorganization items.

The company cited slower sales of food and consumables, which carry lower margin rates, and a shift from clearance sales to regular prices.

Selling, general and administrative expenses jumped 23.4 percent from a year earlier, chiefly because of severance payments, contractual obligations and other expenses.

"While there is still much hard work ahead, we are pleased with the early progress we are making in addressing in-stock levels, customer service and store traffic," Adamson said. "Nearly all of our vendors have resumed shipments to us and in-stock levels in the stores have improved."