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 TROY, Mich., January 5, 1994 /PRNewswire/ -- Kmart Corporation
 (NYSE: KM) today announced that the Board of Directors approved
 several actions designed to enhance long-term shareholder value and
 provide greater financial flexibility.
 Kmart plans to seek stockholder approval to authorize the issuance,
 through initial public offerings for cash, of four series of
 targeted stock of Kmart designed to track the performance of certain
 specialty retail businesses.
 The company also intends to establish a pretax provision of
 approximately $1.3 billion ($850 million after-tax) to cover
 expenses substantially associated with the restructuring of the U.S.
 Kmart stores division, certain specialty retail businesses and Kmart
 Additionally, Kmart announced that it expects earnings for the
 fourth quarter and full year ending January 26, 1994 to be well
 below the $1.15 per share and $2.06 per share earned in the fourth
 quarter and full year of 1992, respectively.
 Subject to stockholder approval at its Annual Stockholders Meeting
 on May 24, 1994, Kmart currently intends to issue, through public
 offerings for cash, four series of targeted stock which are designed
 to represent approximately 20% to 30% of the equity value attributed
 to the following Kmart specialty retail businesses: Borders-
 Waldenbooks, Builders Square, OfficeMax and The Sports Authority.
 Kmart's retail book subsidiaries, Borders and Walden Book Company,
 will be combined to form a new book group.
 "We believe these specialty businesses have the potential for very
 strong growth and substantial contributions to Kmart's profitability
 in the years ahead," said Joseph E. Antonini, Kmart chairman of the
 board and chief executive officer. "Kmart's proposal to issue
 targeted stock is intended to enhance Kmart shareholder value over
 the long term, improve the structure of employee incentive plans for
 each of the businesses and provide Kmart with additional financial
 (The targeted stock program is explained further in an attachment to
 this press release.)
 Kmart intends to establish a pretax restructuring reserve of
 approximately $1.3 billion ($850 million after-tax) to cover
 expenses associated with its modernization programs as well as other
 non-recurring charges. Due to the success of the modernization
 programs, a greater number of Kmart stores will be relocated, and
 the refurbishment of Kmart Canada stores and Builders Square will be
 accelerated. In addition, the reserve will cover the closing of
 underperforming Waldenbook stores. This provision excludes the
 previously announced anticipated charges to 1993 after-tax earnings
 of approximately $350 million and $100 million associated with the
 sale and disposition of the assets of PACE Membership Warehouse and
 the sale of the PayLess Drug Stores Northwest subsidiary,
 The approximate $1.3 billion pretax ($850 million after-tax)
 provision for restructuring to be charged against 1993 earnings will
 include the expenses to be incurred in connection with stores that
 will be closed, relocated or refurbished, as well as other non-
 recurring charges. The costs for closed stores include estimated
 lease obligations and asset write-offs, primarily for furniture,
 fixtures and inventory. About 70% of the pretax restructuring
 provision consists of costs associated with U.S. and Canadian Kmart
 stores. Approximately 15% of the restructuring provision is for
 costs associated with Builders Square stores and about 15% is for
 costs associated with Waldenbooks stores.
 U.S. Kmart Stores Division
 The store renewal program as announced in February 1990 included
 plans to close and relocate approximately 300 Kmart stores, to
 expand about 620 stores and to refurbish the remaining 1,250 stores.
 "Kmart's initial plan called for more than half of its store base to
 be modernized through refurbishment, without adding square footage.
 After extensive review and experience with the very successful
 110,000 square foot prototype Kmart and the Super Kmart Center
 concepts, it is apparent that many of the stores originally slated
 for refurbishment are not large enough to provide a strong
 competitive vehicle for the future," said Joseph R. Thomas,
 Executive Vice President of U.S. Kmart Stores.
 The restructuring plan now incorporates a total of 800 closings
 related to relocations, 700 expansions and 670 refurbishments. To
 date, Kmart has closed 300 stores related to relocations and
 completed 430 expansions and 450 refurbishments. "The modernized
 stores continue to outperform those which have not yet been
 updated," said Thomas.
 Original Stores Completed Enhanced
 1990 Plan Through 1993 1994 Plan
 Relocations 300 300 800
 Expansions 620 430 700
 Refurbishments 1,250 450 670
 The company still expects to have the store modernization program
 substantially completed by the end of 1996. Substantially all of
 the restructuring charge in the U.S. Kmart Stores division relates
 to the costs associated with completing this modernization program.
 Kmart Canada
 To date, Kmart Canada has modernized 30 of the 128 Kmart stores in
 Canada. "Based upon the performance of these stores and the success
 of the U.S. modernization program, the program will be broadened to
 include modernization of the entire chain in Canada through
 expansions, relocations and refurbishments," said Thomas W. Watkins,
 Senior Vice President of International Operations. The
 restructuring plans for Kmart Canada include about 25 Kmart store
 closings, of which 15 will be relocated, and the closing of the 13
 remaining Kresge stores.
 Builders Square
 "Based on the favorable sales and profit performance of the 109,000
 square foot Builders Square II format stores, Builders Square plans
 to convert virtually all of its stores to the new format by 1997,"
 said George R. Mrkonic, Executive Vice President of Specialty
 Retailing. The Builders Square II stores have an easier-to-shop
 layout that utilizes a "store-within-a-store" format with
 substantially increased customer service levels. Including 15
 stores closed in 1993, plans call for the closing and relocation of
 about 90 existing Builders Square stores. There are currently 177
 Builders Square stores in operation, of which 54 are in the Builders
 Square II format.
 "The restructuring plan for Waldenbooks includes closing 187
 underperforming units out of the 1,232 Waldenbooks stores," said
 Mrkonic. While the majority of the restructuring reserve for
 Waldenbooks relates to this activity, approximately 30% relates to
 certain changes to accounting policies to prepare for combining
 Waldenbooks with Borders. Changes will be made in accounting
 related to inventory valuation, capitalization policies and fee
 With respect to the outlook for 1993 earnings, Antonini said, "While
 total sales of Kmart Corporation improved during the holidays, the
 gain was not sufficient to offset the profit shortfall resulting
 from lower gross margins. Sales were disappointing in the higher-
 margined apparel business, as was generally the case for retailers
 during the holiday season. Margins were unfavorably impacted as
 consumers concentrated more of their purchases in the lower-margined
 hardline products. As a result, earnings for 1993 have been
 adversely affected by lower operating profits at the U.S. Kmart
 stores division, resulting from flat sales in most apparel
 merchandise lines and, in hardlines departments, consumers buying
 more low-margined product; a decline in Builders Square profits
 caused by severe winter storms in the first quarter of the year; an
 $87 million operating loss at PACE Membership Warehouse through the
 first nine months of 1993; and higher interest expense.
 "While we are not pleased with the bottom-line results, there have
 been some important positives in 1993. The renewed Kmart stores
 continue to perform well. The 17 Super Kmart Centers have exceeded
 our expectations. Traffic counts in our Kmart stores have been
 running ahead of year-ago levels on a consistent basis since May.
 Inventory comparisons relative to the prior year continue to
 improve. And, our Borders, OfficeMax and The Sports Authority
 operations have made significant progress during the year. We are
 confident that these trends will result in better profit levels in
 "By focusing on five strong businesses and enhancing our financial
 flexibility, Kmart Corporation will be positioned for improved
 strategic and financial performance in the highly competitive retail
 markets of the 1990s," said Antonini.
 Kmart Corporation serves America with over 4,000 retail outlets in
 all 50 states in the United States and in Puerto Rico, Canada, the
 Czech Republic and Slovakia. Kmart, currently operating 2,457 Kmart
 stores, is also the parent company for Builders Square, Waldenbooks,
 Borders, The Sports Authority and OfficeMax, as well as the soon-to-
 be-divested PACE Membership Warehouse and PayLess Drug Stores.
 Kmart Corporation's stock is listed on the New York, Pacific and
 Chicago Stock Exchanges. Its trading symbol is KM.
 Kmart Corporation will seek stockholder approval at its 1994 Annual
 Meeting of Stockholders of a proposal to authorize the issuance of
 four series of "targeted stock" of Kmart designed to reflect
 separately the performance of certain of its specialty retail
 Joseph E. Antonini, Kmart chairman of the board and chief executive
 officer, said, "The proposal is intended to enhance stockholder
 value over the long term and provide Kmart greater flexibility with
 regard to raising capital and structuring employee incentive plans
 with an equity security related specifically to each of Kmart's
 businesses. At the same time, the proposal enables Kmart to retain
 operational control over the specialty retail groups and enables
 each of the Kmart businesses to retain the benefits of being part of
 a single consolidated entity."
 Subject to approval of the proposal by Kmart stockholders, Kmart
 currently intends to issue in public offerings for cash four series
 of targeted stock, which are designed to represent approximately
 20-30% of the equity value attributed to the following specialty
 retail businesses: (1) the Borders-Walden bookstore group; (2) the
 Builders Square home improvement products and services group;
 (3) the OfficeMax office supply superstore group; and (4) The Sports
 Authority sporting goods megastore group.
 The timing, sequence and size of such public offerings, as well as
 the price at which such shares would be sold, would be determined by
 the Board of Directors at the time of each offering based upon then
 prevailing market and other conditions.
 At the time of the first targeted stock offering, Kmart's existing
 common stock would be redesignated as Kmart Group Common Stock,
 which is intended to reflect the separate performance of the core
 Kmart discount store business and its remaining businesses. The
 Kmart Group would retain an interest in each of the specialty retail
 businesses, which is initially expected to represent approximately
 70-80% of the equity value of each of the specialty retail
 The targeted stocks proposed to be offered by Kmart will be similar
 to targeted stocks issued by Ralston Purina Company that reflect
 separately the results of its Ralston Purina and Continental Baking
 groups and by USX Corporation that reflect separately the results of
 its US Steel, Marathon Oil and Delhi groups.
 Kmart currently intends that the dividend policy applicable to the
 Kmart Group Common Stock will be substantially the same as the
 dividend policy applicable to the existing common stock, with the
 initial dividend rate on the Kmart Group Common Stock being the rate
 in effect for the existing common stock at the time of the
 redesignation. Kmart's annual dividend rate, which is presently
 $.96 per share, is customarily reviewed at the April meeting of the
 Board of Directors. The Board does not expect the issuance of the
 targeted stock to adversely affect the company's ability to pay
 dividends on the Kmart Group Common Stock. The dividend policy for
 each targeted stock will be determined at the time of issuance of
 such stock and will be based upon the financial condition, results
 of operations and business requirements of each specialty retail
 group and of Kmart Corporation as a whole.
 The proposal would not result in any transfer of legal title to
 Kmart's assets, nor would it affect the rights of any of Kmart's
 debt holders or creditors.
 Stockholders will vote on the proposal at Kmart's Annual Meeting,
 which is scheduled for May 24, 1994. Additional information
 regarding the targeted stock proposal will be available when the
 Proxy Statement regarding the Annual Meeting is filed with the
 Securities and Exchange Commission.
 This announcement does not constitute an offer of securities. An
 offering will be made only by means of a prospectus.
 -0- 1/5/94
 /CONTACT: Orren F. Knauer or Lois M. Connelly of Kmart Investor Relations, 313-643-1040/

CO: Kmart Corporation ST: Michigan IN: REA SU: OFR ERP

ML -- DE003 -- 9176 01/05/94 08:17 EST
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Publication:PR Newswire
Date:Jan 5, 1994

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