Kmart remains silent about finances

Posted 7:49AM on Saturday 19th January 2002 ( 23 years ago )

DETROIT - A day after announcing a reshuffling in its top management, Kmart Corp. remained silent about its finances Friday, fueling more speculation about its ability to stave off bankruptcy. ``It would appear to me that bankruptcy is becoming a self-fulfilling prophecy,'' said James Harris, president and CEO of Seneca Financial Group, a financial advisory group in Greenwich, Conn. Harris said that if Kmart does decide to file, the retailer should do so sooner rather than later. ``They need to stop the bleeding as quickly as possible,'' Harris said. Kmart's troubles escalated Jan. 10 after officials announced that 2001 results would break even at best because of disappointing holiday sales, and said they might seek additional financing. Since then, the company's credit ratings have been downgraded and the stock has plummeted. Standard & Poor's, one of the nation's largest debt rating agencies, removed the retailer from its 500 stock index Wednesday. On Thursday, Kmart dismissed its president, Mark S. Schwartz, and named a new chairman, turnaround specialist James B. Adamson, to replace Charles Conaway, who remains chief executive. Kmart spokesman Jack Ferry declined to comment Friday evening on the bankruptcy speculation. He did say, however, that Schwartz's duties would be assumed by Conaway and ``other executives within the company.'' Kmart's stock rose 18 cents Friday to $1.74 a share in regular trading on the New York Stock Exchange, where it gained another 14 cents to reach $1.88 in after-hours trading. Despite the increase in Kmart's stock price, the investment community is still very wary about the company. ``We are looking at the financing arrangement that Kmart eventually puts in place, and the terms of those arrangements and exactly what they will entail,'' said Angela Jameson, managing director of retail and consumer goods at Moody's Investor Services. ``We will be looking for clarity when something is announced.'' Meanwhile, the vendor community is becoming increasingly anxious, with many suppliers holding off on shipments to Kmart. Some vendors are demanding cash payments as a condition to ship their goods, according to analysts. ``The fact that Kmart is not saying anything is hurting the suppliers,'' said Andrew Jassin, managing director of The Jassin-O'Rourke Group., an apparel consulting firm, noting they can't get letters of credit from their lenders. Letters of credit are commonly used in retail industry transactions to protect suppliers. At least one major supplier, Scotts Co., a maker of lawn and garden products, has stopped shipping to the discounter, according to John Baugh, an analyst at Wachovia Securities. The company's business to Kmart accounts for about 10 percent of sales for both fiscal 2001 and fiscal 2002, Baugh wrote in a report. Scotts officials could not be reached for comment. Emanuel Weintraub, president of an apparel consulting firm based in Fort Lee, N.J., said some of the smaller suppliers are finding themselves in the ``crosshairs of the Kmart buying community.'' ``The smaller manufactures are faced with a big dilemma: whether they should go ahead and ship and risk not getting paid, or not ship at all, but risk facing repercussions by Kmart later,'' Weintraub said.

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