updated 10/18/2004 3:29:57 PM ET 2004-10-18T19:29:57

Kmart Holding Corp. has chosen fast-food industry veteran Aylwin Lewis to lead the retailing company, a decision some analysts said could point to a new push to improve operations following discounter's successful financial turnaround. Its shares rose more than 4 percent in afternoon trading.

Kmart announced Monday that Lewis, formerly an executive at the restaurant operator Yum Brands Inc., will replace Julian Day as chief executive and president.

Lewis, 50, is a 13-year veteran of Yum, whose brands include Pizza Hut, KFC, Taco Bell, Long John Silver's and A&W All-American Food, and most recently served as president and chief operating officer.

In a statement, Edward Lampert, Kmart's chairman and majority shareholder, praised Lewis as "the ideal leader and agent of change for Kmart at this time."

Lewis, who also sits on the boards of Halliburton Co. and Walt Disney Co., is Kmart's first black chief executive. Yum chairman and chief executive David Novak noted in a statement that Lewis had been the highest-ranking black executive in the restaurant industry.

Day, who became chief executive in January 2003 when the company was in bankruptcy, will remain on the board of directors and assist Lewis in the transition, Kmart said.

Under Day, Troy-based Kmart has achieved a speedy financial turnaround since emerging from bankruptcy in May 2003. It has posted a profit for three quarters in a row. Its shares, which closed at $19.60 following their first day of trading in June of last year, were up $3.10 at $89.81 in afternoon trading Monday on the Nasdaq Stock Market.

Much of the excitement over Kmart on Wall Street has been fueled by speculation that Lampert plans to slowly dismantle the company and turn it into an investment vehicle akin to Warren Buffett's Berkshire Hathaway Inc.

That theory was boosted by Kmart's recent sale of 50 stores to Sears, Roebuck and Co. for $575 million and 18 stores to The Home Depot Inc. for $271 million. And in August, Kmart said it had delegated authority to invest surplus cash to Lampert. At the time, Kmart said it was sitting on $2.6 billion.

But as a retailer, Kmart has failed to shake its dowdy image and continues to lose market share to rivals Wal-Mart Stores Inc. and Target Corp. The company's same-store sales, which measure sales at stores open at least a year and are commonly considered the best measure of a retailer's health, have been sliding for several years.

Gary Balter of UBS Investment Research said Lewis' appointment could be "the first move to expand executive talent and experience, should Kmart begin to invest outside of the pure retail area."

At the same time, Balter said the appointment signals that Kmart is putting more emphasis on retail operations now that its financial house is in order.

"Julian Day is viewed as a strong, financially oriented executive and has been a key component behind the margin-expansion success to date," Balter said in a research note. "He is less noted for his operational skills, and this change could point to a transition to more focus on operations."

Richard Hastings, retail sector analyst at Bernard Sands, a New York-based credit advisory firm, said that because Lewis comes from the restaurant business, he has expertise in branding and customer satisfaction. Those are areas where Kmart needs work right now, he said.

Kmart has taken some steps in that direction, notably by hiring new design and marketing executives and by revamping its apparel lines.

"Lewis fits in with that culture," Hastings said.

Louisville, Ky.-based Yum replaced Lewis as chief operating officer with chief financial officer David Deno, 47, who has 21 years' experience in the restaurant industry. He will retain his job as Yum's CFO until Rick Carucci takes over as CFO in a year.

Deno previously worked as an executive at Pizza Hut and at Yum's international operations. The company's burgeoning international sales have become a key contributor to Yum's earnings.

Carucci, 47, was named senior vice president of finance after most recently serving as executive vice president and chief development officer of Yum's international segment, where he was responsible for franchising and development.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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