Kmart Names Adamson Chairman, Says Schwartz Quit (Update8)
By Rachel Katz
Troy, Michigan, Jan. 17 (Bloomberg) -- Kmart Corp. named James Adamson, a retailing turnaround veteran, as chairman to help oversee a restructuring that some analysts say may include a bankruptcy filing by the second-largest U.S. discount chain.
Chuck Conaway, hired in May 2000, ceded his title as chairman and will stay as chief executive, Kmart said in a statement. His top lieutenant, Mark Schwartz, left the company. Analysts say Kmart may close hundreds of its 2,100 stores and fire thousands of its 250,000 workers in an attempt to return to profitability.
Kmart said that it still is reviewing business plans for this year and next and that it's in talks with lenders for new financing. Kmart is working with bankers to receive a new line of credit of about $3 billion, financial news network CNBC reported, without citing its sources.
Adamson, 53, was pivotal in convincing suppliers to support the Revco drugstore chain when it was in bankruptcy proceedings, analysts said, and most recently led Advantica Restaurant Group Inc., operator of the Denny's chain, through its reorganization. As chairman, Adamson will oversee any Kmart restructuring under Conaway, who lacks experience in managing a company through bankruptcy and so far has failed to revive Kmart, analysts said.
``Jim Adamson is one of the consummate turnaround people in modern retailing,'' said Burt Flickinger, managing partner of Reach Marketing.
The shares of Troy, Michigan-based Kmart fell 4 cents to $1.56. Its 9.38 percent notes due in 2006 rose 2 cents to about 51 cents on the dollar from 49 cents yesterday, traders said, pushing down the yield to 32 percent from 33 percent.
Adamson and Conaway declined to comment.
Spokesman Jack Ferry said Conaway's plan to turn around Kmart was expected to take at least two years to complete.
``The Kmart board continues to have confidence in Conaway's ability to successfully lead the company as its CEO,'' he said.
Ferry said the company wasn't commenting further on the nature of Schwartz's departure.
Conaway
Conaway promised investors that he would revive Kmart's sales and profit by August of this year. He pledged to match Wal-Mart Stores Inc.'s low prices, cut checkout waits by 20 percent and spend almost $2 billion to upgrade computer and distribution systems. He tapped Schwartz's experience expanding the Wal-Mart chain of warehouse-size stores with grocery departments as he added more food to Kmart's stores.
Instead of reviving Kmart, the retailer is losing money for a second straight year. Adding snacks and groceries to Kmart's stores hasn't been enough to attract consumers, who keep flocking to Wal-Mart for lower prices, analysts said. Cuts in advertising spending, particularly during the holiday season, further undermined Conaway's efforts to reach shoppers, they said.
Kmart's same-store sales were unchanged or declined the past four months, draining Kmart of cash. Analysts say the company may violate loan agreements with its bank lenders this quarter, forcing Kmart to negotiate new terms and loans, or seek bankruptcy protection.
Kmart accumulated $344 million in losses in the first nine months of this year, and had borrowed $1.46 billion of its $1.6 billion in credit lines as of the third quarter ended Oct. 31, according to a regulatory filing. The company had $366 million in cash and cash equivalents, the quarterly filing said. Kmart's loans were arranged by a group of banks led by J.P. Morgan Chase & Co.
J.P. Morgan spokesman Adam Castellani declined to comment.
Debt
The company's flexibility also is limited by a plunge in its bond prices, which would make it more expensive to roll over any debt. Moody's Investors Service and Standard & Poor's Corp. each have cut Kmart's credit ratings three times since November. The retailer's bonds are rated junk.
In a statement yesterday, S&P said further ratings cuts are possible after two factoring companies, which provide intermediary financing for suppliers, have begun advising their clients to withhold shipments to Kmart.
David Divan, vice president of sales at toymaker P&M Products USA Inc. in Downingtown, Pennsylvania, said that while the company received payments until Jan. 14, they have stopped shipping to Kmart.
``We are taking the advice (of factors), cutting back their line,'' he said. ``We're not shipping to them right now.''
Kmart's biggest holders of its 9.38 percent notes include Vanguard Group Inc., Fidelity Management & Research and Principal Life Insurance Co., according to Bloomberg data. The retailer's biggest stockholders include Barrow Hanley Mewhinney & Strauss, Dodge & Cox and Fidelity Management & Research.
Adamson
Adamson has been on Kmart's board since 1996, serving on its audit and finance committees. When he led Advantica through its restructuring, the company, formerly known as Flagstar Cos., shed more than $1 billion in debt. He was replaced in February as chief executive of Advantica by Nelson Marchioli, staying on as chairman until his retirement last month.
Prior to joining Advantica, Adamson was chief executive of Burger King Corp., and from 1988 to 1991 he was an executive vice president of marketing at Revco, which emerged from bankruptcy in 1992.
Schwartz joined Kmart in September 2000 as executive vice president, and in March the following year was named president and chief operating officer. His compensation at Kmart last year included $243,192 in salary, a $1.8 million bonus and $1 million in other compensation, according to a proxy filing.
Previously, he was president and chief executive of Big V Supermarkets Inc., operator of supermarkets under the Shoprite name in the New York region, where he has remained on the board.
Before that, Schwartz was a 16-year veteran of Wal-Mart, where he helped to expand the company's Supercenter chain, warehouse-size stores with grocery departments.
Schwartz's duties will be taken over by Conaway and other senior executives, Ferry said.
AI
