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Kmart Reins In Holiday Costs

It will earn about $200 million in November and December despite a same-store sales slide.
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said it will probably earn about $200 million in the first two months of its fourth quarter despite a 13.5% slide in same-store sales, as inventory and promotions-management initiatives have started paying dividends.

The discount chain, which emerged from chapter 11 bankruptcy protection in May, expects to earn about $250 million in November and December, including a $50 million after-tax gain on real-estate sales. Income before interest and income taxes for the period will be more than $425 million, it said.

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Total sales for the two months will be about $5.1 billion, down from $6.9 billion a year ago, reflecting the lower same-store sales and the closing of 316 stores.

Kmart said it ended December with inventory below $3.5 billion, down 20% on a same-store basis from a year ago, a trend that helped it avoid the large markdowns that previously reduced profitability around the holidays.

Based on its projected working capital position, Kmart expects to have more than $1.8 billion in cash and equivalents and about $470 million in long-term debt when its fiscal year ends Jan. 28.

The shares were recently up $2.80, or 12%, to $25.80 on Instinet.