Perhaps

Kmart's

(KM)

anonymous critics had it right.

The company said Wednesday that it is delaying the release of its annual report because it may have to restate its 2001 financials. The company said the delay would allow new management to review accounting policies including the questions of "vendor allowances and rebates and general liability reserves."

The

Securities and Exchange Commission

opened a probe of Kmart's accounting in January just weeks after the big discount retailer sought Chapter 11 protection from creditors. The inquiry was triggered after the company received an

anonymous letter from employees questioning its accounting practices.

The company said it now plans to release its annual report on May 15, to "provide additional time for Kmart's new management team to complete its review of Kmart's accounting policies and methods," the company said in a statement.

Kmart projected, without offering specifics, that it will show a significantly wider 2002 loss than the $244 million deficit it showed for fiscal 2001. Like most retailers, the company runs a fiscal year that ends in January after the lucrative holiday season.

Kmart shares, which to the surprise of some investors have stayed above the $1 threshold for delisting, were off lately 11 cents, or 8.2%, at $1.23.

Troy, Mich.-based Kmart has said it hopes to emerge from bankruptcy in 2003, but thus far has shown little progress in turning around its business. Since filing for Chapter 11 in January, Kmart has put in a new management and announced a round of store closings. In March, Kmart said it was closing 283 stores and slashing 22,000 jobs. However, the number of closings fell far short of what some analysts were expecting and many expect another round.

Meanwhile, its sales have continued to disappoint, indicating Kmart continues to lose market share from rivals

Target

(TGT) - Get Report

and

Wal-Mart

(WMT) - Get Report

. In February, same-store sales, which measure activity in shops open at least a year, declined 10.8%. This was followed by an 8.4% decline in March. This compares with rises of 9.5% and 6.8% at Wal-Mart and Target, respectively.

Meanwhile, shareholders have had little luck getting a seat at the bankruptcy proceedings. A group of institutional holders of Kmart stock have retained Saybrook Capital, a California banking firm, and the Chicago law firm of Goldberg Kohn Bell Black Rosenbloom & Moritz to ask the bankruptcy judge to appoint an equity committee, but no decision has been made.

An establishment of an equity committee is rare in bankruptcy proceedings, say experts. Typically, shareholders are often ignored in bankruptcy cases. Often, the stock is canceled and new equity issued to creditors and court-approved new investors.