DJ Horrigan got the shock of his life this week when he saw Kmart ( KMRT) crossing on the Nasdaq at more than $20 a share. The Des Moines, Iowa, resource manager thought the stock was cheap two years ago when he paid $2 apiece for several hundred shares, betting on a turnaround. It proved grossly overpriced, of course, going to zero after the company filed Chapter 11 in January 2002. Now it's back, trading for a spiffy $18.50 one month after reappearing on the OTC bulletin board at about $14. "When I found out that my stock was worthless while other people were buying new stock at over $20, I felt kind of betrayed by the organization," Horrigan said. "I'm not buying the new stock. I helped them once, and that is enough."
The new shares opened at $17.55 and shot as high as $21.42. By the end of the trading day, investors were paying $19.71, betting that the start of a new chapter in the discount retailing saga had begun.
"Only time will tell if the new Kmart can survive," said Kurt Barnard, the president of Barnard's Consulting Group. "They have a lot of loyal customers who would rather die than give up their Kmart. At the same time, they have to improve their stores and steal market share from their competitors."
Kmart projects that it will lose $286 million in 2003 and then turn a $181 million profit in 2004. In 2007, the company projects a profit of $644 million. "It's great that they're out of bankruptcy," Horrigan said. "But it's pretty disheartening that, after shopping there and buying their stock, they couldn't do anything for their common shareholders."