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Dow Jones S&P 500 NASDAQ 10-Year Note
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RealMoney.com : FaceOff - Glenn Curtis


The News at Kmart Isn't All Bad

By Glenn Curtis
Columnist
11/30/2001 07:39 AM EST

Although sales at Kmart (KM:NYSE - news - commentary - research - analysis) were said to be quite strong over the Thanksgiving weekend, investors are still skeptical that the company will be able to turn itself around. And rightfully so.

Let's face it. The stock price has been cut in half over the past two quarters. And the industry's 800-pound gorilla, Wal-Mart (WMT:NYSE - news - commentary - research - analysis), continues to eat up market share. You'd have to be holed up in a cave outside of Kandahar to not know that Kmart is struggling.

That said, I still think investors can make money in this stock. My logic:

  • Chuck Conway (Kmart's chief executive) is a good manager. Although I think he has trimmed expenses too fast -- particularly his advertising budget -- I think he knows how to run a tight ship. And I expect management's efforts to improve its distribution process and keep its inventory at manageable levels to have a positive impact on fiscal 2003 results.

  • The company has a solid merchandise mix. Remember, in the third quarter, Kmart's same-store sales decreased just 1.5%. And the company's gross margins were essentially flat at 20.6%. Now that's nothing to write home about. But considering the current retail environment, including heavy discounting by many of its competitors, Kmart's actual operating performance isn't really as bad as some in the press might have you believe.

  • Investors who wanted to dump Kmart for a tax loss probably already have. As a result, I think the company is a terrific trade heading into the new year. Realistically, given its existing fundamentals and potential for future earnings, I think we could be looking at a $9 or $10 stock by mid-February.

    • In short, Kmart isn't out of the woods by any means. Management will have to prove that the company can generate consistent profits before the stock will experience a major move to the upside. Nevertheless, I think its existing fundamentals and potential for growth in fiscal 2003 make it a solid bet.

    (Note: If you haven't already done so, be sure to check out my newsletter, Era of Value. Click here for your free two-week trial.)


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    Dow Jones S&P 500 NASDAQ 10-Year Note
    10,344.84 1,095.63 2,144.60 32.01
    Oil *
    78.55
    UP
    34.92
    UP
    4.14
    UP
    6.16
    DOWN
    0.30
    10 Yr
    3.20%
    SPDR Gold
    115.65
    +0.34%
    +0.38%
    +0.29%
    -0.93%
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