This week

Kmart

(KM)

started going for pocket change.

It took a

Securities and Exchange Commission

accounting probe, an earnings restatement and a criminal investigation by the FBI, but Kmart's shares are finally trading below a buck. Doing so is the first step toward a

New York Stock Exchange

delisting, an action that would strike another blow against the company -- at least from a public relations standpoint -- as it struggles to evolve into a viable entity.

The shares closed Thursday at 94 cents, down 3 cents. The stock had traded as high as $1.95 in the months following the bankruptcy filing, after sinking to a low of 66 cents in late January.

Speculation

The discount retailer's shares plunged in January after the company sought bankruptcy protection following a torpid holiday selling season. But to the great surprise of many analysts and bankruptcy experts, the stock quickly rebounded, holding well above a dollar well into the spring.

Market watchers

warn that investing in bankrupt companies is fraught with uncertainty, because shareholders are often left with little or nothing once a company reorganizes. This is a point the company readily acknowledges.

Value Play?
Kmart below a buck

"Investing in our common stock and securities is highly speculative," acknowledges Jack Ferry, Kmart's spokesman. On the prospect of delisting, Ferry says he does not know of any meetings between company and stock exchange officials. "Since filing for bankruptcy in late January we've met the requirements for being listed on the New York Stock Exchange," he says. "If that changes, we will review the situation closely."

It would take months for the company to be delisted, according to a spokeswoman at the stock exchange. The rules say that a company's average stock price must be under a buck for 30 consecutive trading days; after that, the company has six months to get the price back above a dollar.

The stock price has dipped below a buck just as an influential group of Kmart investors are set to hold their first equity committee meeting next week. In late May, officials in Chicago overseeing Kmart's bankruptcy proceedings agreed to the formation of an

equity committee to represent shareholders' rights.

Such representation is rare in bankruptcy cases, and while it is a positive sign for shareholders hoping to get some value for their stock, it is no guarantee they will get anything, experts have said.

"We haven't really thought about delisting yet," says Jonathan Rosenthal, a principal at Saybrook Capital, a California banking firm that represents the group of shareholders that sought the appointment of the equity committee. "We faced a lot of resistance to an equity committee, and we're just very focused on getting our team in place and getting the committee organized."

Does It Look Smart?

Troy, Mich.-based Kmart has said it hopes to emerge from bankruptcy in 2003, but so far has given little evidence that it is getting its act together. The company has a new management team and has shut stores -- two steps that have pleased Wall Street -- but sales have continued to fall. Many analysts who have dropped official coverage of the stock say the company will likely have to take more radical steps, which could include more store closings.

Kmart also has come under scrutiny by securities regulators and the FBI. In January the SEC opened a probe of Kmart's accounting after the company received an anonymous letter questioning its accounting practices. This later forced Kmart to restate its 2001 financials. More recently, the FBI confirmed it has opened a criminal investigation centered around

loans some execs received in the months before the bankruptcy filing.

In Kmart's most recent quarter, for the 13 weeks ended May 1, the company lost $1.45 billion, or $2.88 per share, on the heels of falling sales and a large charge to account for store closings. This includes a $758 million charge associated with a round of store closings announced earlier this year. Revenue was $7.6 billion, down 8% from a year ago. In the same period last year, Kmart lost $233 million, or 48 cents per share, on revenue of $8.3 billion.

Kmart lost $2.42 billion last year, nearly 10 times the $244 million loss in 2000. Kmart has struggled to compete with the likes of

Wal-Mart

(WMT) - Get Report

and

Target

(TGT) - Get Report

; the bankruptcy filing was designed in part to trim the company's overhead and reposition Kmart against its well-financed competitors.

Unfortunately, sales have continued to slide throughout 2002, leading many observers to question just what the company's strategy will be -- and making those Kmart shares look even riskier, if that's possible.