Kmart Says It Saw Profit for 2 Months

Discount retailer Kmart Holdings Corp. estimated Monday that it rang up a profit for November and December, which could put it on track to post its first quarterly profit since emerging from Bankruptcy Court protection last year.

But while fewer costly promotions and tight inventory controls boosted results, sales at stores open at least one year dropped 13.5%, and some retail experts said it was too soon to say that Kmart’s turnaround was succeeding.

“It is much too early to say that,” said Kurt Barnard, head of consulting firm Retail Forecasting Group. “This a bad news, good news situation.”

Still, the profit estimate sent Kmart shares up more than 26%.

“I can’t imagine anyone looking at this and being anything but impressed with Kmart management’s discipline,” said Richard Hastings, retail sector analyst with credit advisory firm Bernard Sands.

Kmart filed the largest-ever retail bankruptcy in January 2002 after lackluster sales compounded financial woes.

It emerged in May 2003 with a cleaner balance sheet and a new management team, though still facing stiff competition from larger rivals Wal-Mart Stores Inc. and Target Corp.

The Troy, Mich.-based company forecast income before interest and income taxes for November and December of more than $350 million, not including gains of about $75 million on real estate transactions.

After interest and taxes, Kmart said it expected to post net income of more than $200 million for those two months, excluding the gain from real estate.

The company said sales for the first two months of the fourth quarter, which include the key holiday shopping season, were about $5.1 billion, compared with $6.9 billion a year earlier.

While the falling sales probably will raise concern about how well Kmart can survive in the long term, Hastings said right now it has to focus on improving profit in order to reduce debt.

Shares of Kmart closed up $6.12 to $29.12 on Nasdaq.