Skip navigation

FLEMING SAYS KMART STORE CLOSINGS NO SURPRISE

DALLAS -- Fleming here said last week it was not caught off guard by the announcement that its largest customer, Kmart Corp., Troy, Mich., would make another round of store closings.Several hours before Kmart officially announced the closings, during a conference call with industry analysts to discuss preliminary results for the fourth quarter and year ended Dec. 28, Mark Hansen, Fleming's chairman

DALLAS -- Fleming here said last week it was not caught off guard by the announcement that its largest customer, Kmart Corp., Troy, Mich., would make another round of store closings.

Several hours before Kmart officially announced the closings, during a conference call with industry analysts to discuss preliminary results for the fourth quarter and year ended Dec. 28, Mark Hansen, Fleming's chairman and chief executive officer, said, "Our goal is to create a more balanced customer portfolio and reduce our exposure to any particular customer.

"The Kmart closings are not a surprise."

He noted that during an October conference call Fleming had presented three Kmart scenarios, ranging from the closing of approximately 300 additional stores to the complete elimination of any continuing supply agreement. He added, "We continue to evaluate and fine-tune these scenarios."

A Fleming spokesman told SN the company was reviewing the list of stores to be closed and would probably present a more detailed response to the closings by Jan. 23, when it is scheduled to report full results for the fourth quarter and the year.

In the preliminary results, Fleming reduced earnings expectations it had reconfirmed as recently as October. The company said it expects earnings per share from continuing operations to be approximately 10 to 12 cents for the quarter and 78 to 80 cents for the year, vs. earlier expectations of 35 to 45 cents and $1.95 and $2.05, respectively.

Commenting on the ongoing divestiture of its price-impact retail stores, Hansen said Fleming now anticipates net proceeds of less than $450 million from sale of the units but more than $400 million in new supply arrangements with the stores' purchasers.

The company said it had initially anticipated receiving net proceeds of $450 million and supply arrangements of $400 million.

Hansen said, "Our decision to elect in certain retail sales arrangements to receive new distribution arrangements over cash proceeds is consistent with our strategy to optimize both near and long-term value."

Hansen added that the sales of the store are likely to continue through the second fiscal quarter.

He also said Fleming has hired the consulting firm Bain & Co., Boston, to advise the company in its goal of earning "new business from the fastest growing retail sectors."

Analysts told SN they were concerned about what they saw as Fleming's deteriorating financial performance. Steve Chick, equity analyst, J.P. Morgan, New York, called the pre-announced results "disappointing."

He noted the company reported improved cash flow in the fourth quarter, but added, "Every fourth quarter is a high cash-flow quarter. Given current trends, it doesn't give us a lot of confidence that heading into 2003 you're going to see similar results, particularly in the first, second and third quarters."