KMART PLANS TO CLOSE 72 UNITS

ELLIOT ZWIEBACH

TROY, Mich. -- Kmart Corp. here said last week it hopes to strengthen its financial performance by enhancing the productivity of its store base, reducing inventory and upgrading information systems.

The company's plan calls for the closing of 72 stores, including six supercenters; an acceleration of planned inventory reductions, and an upgrade of its information, distribution and logistics systems.

Those initiatives were the first concrete actions taken by Charles Conaway since he was named Kmart chairman and chief executive officer in early June.

According to Conaway, the company had to take "swift and decisive actions to make Kmart a stronger and more competitive business model, to improve our return on invested capital and [to] create a heightened sense of urgency around asset productivity."

He said the chain was experiencing "inadequate financial performance" as a result of "a non-competitive customer experience, supply chain and store execution."

When it releases second-quarter financial results late next week, Kmart said earnings will be below expectations -- in the range of 4 to 7 cents per share, compared with an industry consensus of 21 cents. The company's lowered expectations are down 21% from last year's second-quarter results. The company also said it will take a pretax charge of $740 million in the quarter.

To support its new strategies, Kmart said it is restructuring its organization to encompass several senior-level executive changes, including the promotion of Andy Giancamilli to the new post of president and chief operating officer, "to ensure that merchandising, marketing and supplying our product lines are directly linked with store-level execution," Conaway said. Giancamilli was formerly division president and general merchandise manager.

The company also named Cecil Kearse, formerly senior vice president, general merchandise manager for home, as executive vice president, merchandising, and announced the retirement of Donald W. Keeble as president, store operations, for U.S. Kmart stores -- including Super Kmart stores -- after a 29-year career.

Kmart said it is conducting an executive-level search for a chief marketing officer -- who will "align advertising, marketing, in-store presentation and display and an enhanced understanding of the customer" -- and for a new operations executive.

Mark Husson, an analyst with Merrill Lynch, New York, said the new strategies are not unexpected, "given the fact Chuck Conaway has a fairly religious attachment to return on invested capital, and after his initial analysis, he determined that a number of stores fell beneath the acceptable hurdle rate with no chance for improvement."

Ed Comeau, an analyst with Donaldson Lufkin & Jenrette, New York, said Kmart's new chairman "is rolling up his sleeves and trying to turn things around from the bottom up, and there are probably more changes to come as the company tries to pare away unproductive stores and whittle itself down to a more productive business.

"Revamping information technology and distribution is probably the right thing for Kmart to do. The story there is really the same as it has been for years -- an eroded retail format that's trying to play catch up with Wal-Mart. But it's a long-term process, and Conaway has his hands full."

Gary Giblen, senior vice president and director of research for C.L. King, New York, said Conaway is still in his honeymoon period, "when he can make changes without annoying investors. But the problems Kmart faces are the same ones that have plagued the company for years, and Conaway put it very well -- Kmart is not giving customers a competitive shopping experience, which is particularly hurtful at a time most general retailers are finding consumer spending and confidence down a bit."