Kmart Corporation stock plunges 14 percent Tuesday
Stock of Kmart Corp. plunged close to 14 percent Tuesday, fueled by concerns over a possible bankruptcy filing amid a series of downgrades by analysts and investment rating agencies.
Standard & Poor's, one of the nation's largest debt rating agencies, announced that it will take the retailer off its 500 index after the close of trading Wednesday.
David Blitzer, the managing director of quantitative services for S&P, said Kmart was removed ``because of its low stock price and the company's financial instability.''
Shortly after the market opened Tuesday, the stock dropped to a new 52-week low of $2.29 from Monday's closing price of $2.84 but rebounded to $2.45 at the close of Tuesday's trading.
Kmart spokesman Jack Ferry confirmed that the company's board of directors was holding a previously scheduled meeting Tuesday and also held committee meetings Monday.
Richard L. Church, an analyst at Salomon Smith Barney, said Tuesday that it was lowering its risk rating on the Troy-based retailer from ``high'' to ``speculative,'' given the uncertainties surrounding the company's situation and outlook.
``While ... we believe that Kmart has many options it can explore in order to meet its liquidity over the coming 12 to 18 months, other less quantifiable factors such as lack of vendor support have elevated Kmart's risk profile considerably more than we thought to be the case as recently as yesterday,'' Church wrote in a research report.
The illustrious retailer has about 275,000 employees and 2,105 stores in all 50 states, Puerto Rico, U.S. Virgin Islands and Guam. It is the nation's third-largest discount retailer after Wal-Mart Stores Inc. and Target Corp.
Howard Nemiroff, a professor of finance at Long Island University, said unless Kmart can secure additional financing in the next few days, a Chapter 11 bankruptcy filing within the week is likely.
Nemiroff said, however, that the company's larger suppliers could help bail out Kmart by extending credit to the retailer.
``It's generally in the company's best interest to be flexible, because they want to keep their sales up,'' he said. ``But they're not going to keep doing that if they think they're throwing their money down a pit.''
Adam Winters, senior vice president of Merchants Factors Corp., which provides loans to small and midsize apparel companies, said that Kmart has been slower in paying its vendors since November. He added that many of his small apparel clients are holding off on their spring shipping to Kmart for fear of not getting paid.
Cincinnati-based Procter & Gamble Co. and Fleming Companies Inc. of Dallas represent two of Kmart's largest suppliers. Officials for both companies said Tuesday that the retailer is up to date in its payments, but they are monitoring the situation.
Kmart is P&G's second-largest customer behind Wal-Mart and accounts for one-fourth of Fleming's annual revenue, or $4.5 billion.
Kmart officials on Jan. 10 said the company would not meet Wall Street's consensus expectation for earnings of one penny per share for fiscal 2001 and suggested it may seek additional financing.
The holiday shopping period didn't help Kmart rebound. The company said that for the five-week period ended Jan. 2, the close of its fiscal year, net sales slipped 1 percent on a same-store basis from the previous year. Total net sales for the period were $5.52 billion, down slightly from $5.54 billion for the same period last year, Kmart said.
David Littmann, chief economist for Comerica Inc., said he said he didn't know if a Chapter 11 filing is in Kmart's near future. The company should get some help this year from an expected decline in inflation and interest rates.