Kmart Holding Corp. posted its fourth straight quarterly profit on Wednesday as the discount retailer and Sears, Roebuck and Co. announced an $11 billion merger.
For its fiscal third quarter of 2004, Kmart reported net income of $553 million, or $5.45 per share, compared with a net loss of $23 million, or 26 cents per share, for the same period a year ago.
Excluding the effect of gains mainly related to the sale of some stores to Sears and Home Depot Inc., the Troy-based company said earnings were $59 million, or 59 cents per share for the 13 weeks ended Oct. 27, compared with a net loss of $24 million, or 27 cents per share for the same period in 2003.
"We have a lot of work ahead of us to achieve the level of in-store execution consistent with our goal of being a great company," Aylwin Lewis, Kmart president and chief executive, said in a statement. "But I have been impressed by the enthusiasm and energy of the executives and store associates, and believe that together, we have the ability and willingness to meet the challenge."
Kmart attributed the profitable quarter in part to fewer promotions that helped it achieve bigger margins. Selling, general and administrative expenses also were down $136 million, or 11.5 percent, to $1.04 billion, compared with expenses of $1.18 billion for the same period a year ago.
Same-store sales, often considered the best indicator of a retailer's health, continued to decrease, down 12.8 percent. Total sales for the quarter were down 13.7 percent to $4.4 billion, compared with $5.1 billion a year ago.
Kmart said it expects to end the year with more than $3.1 billion in cash.
"This demonstrates the considerable financial strength and cash generation of the company, and provides the foundation for our continued improvement," Lewis said. "Kmart has been very successful doing more with less; we are now in a position to do more with more."
The company being created by the surprise combination with Sears announced Wednesday would be known as Sears Holdings Corp., but will continue to operate the Kmart and Sears business under their current brand names. It will be based in Hoffman Estates, Ill., a northwestern Chicago suburb where Sears has its headquarters.
Shares of both companies surged on news of the deal. Kmart shares climbed $17.12, or 16.9 percent, to $118.34 on the Nasdaq Stock Market while Sears shares soared $9.65, or 21 percent, to $54.85 on the New York Stock Exchange.
Kmart filed for Chapter 11 bankruptcy protection in early 2002, leading to the closing of about 600 stores, termination of 57,000 Kmart employees and cancellation of company stock. The retailer emerged from bankruptcy in May 2003 and in March posted its first profitable quarter in three years.