Amid continuing speculation of bankruptcy, Kmart on Thursday broke a week-long silence by naming as its chairman an executive who helped revive the Denny's restaurant chain.

James Adamson, a member of the Kmart board since 1996, will serve as the primary liaison between Kmart's board and its management as the retailer takes stock of its financial position. Charles Conaway, named chief executive and chairman in spring of 2000, will keep his post as CEO.

The company also said its president, Mark Schwartz, is no longer with the company.

Shares of Kmart, the second-largest discount chain behind Wal-Mart Stores Inc., were off 4 cents, or 2.5 percent, at $1.56 in Thursday afternoon New York Stock Exchange trading. It was the most heavily traded stock on the exchange, with more than 43 million shares changing hands. Since Jan. 2, the stock has lost about two-thirds of its value.

In its statement, Kmart said it continues to evaluate its finances and business plans for the 2002 and 2003 fiscal years. The company said it also is continuing discussions with its lenders regarding existing and possible supplemental financing facilities.

Kmart Still in Trouble

The discount retailer, whose history dates back to 1897, has been struggling to compete against the lower prices of rivals Wal-Mart Stores Inc. and Target Corp., battling the nationwide recession while mounting its aggressive restructuring effort.

Kmart has about 275,000 employees and 2,105 stores in all 50 states, Puerto Rico, U.S. Virgin Islands and Guam.

Analysts have said Kmart, in the midst of a massive $2 billion restructuring, will need to close as many as 200 to 400 of its stores in order to survive.

"Kmart is still in deep trouble regardless of the management changes," said Kurt Barnard, president of Barnard's Retail Consulting Group. "I think it that what might help them is a voluntary prepackaged bankruptcy. It might relieve the company of immediate debt pressures." In a prepackaged bankruptcy, a company agrees on terms with its creditors before presenting the deal to a judge.

Another analyst said the management changes make it less likely that Kmart will file for protection from creditors under Chapter 11.

"I read between the lines, and to me this means they are trying to avoid bankruptcy," Marie Driscoll, retail analyst at Argus Research, said. "There was no announcement as to store closings, and I still think they are going to do that."

Wednesday, Fitch Inc. lowered Kmart's bank facility ratings to CCC from BB- and its notes and debentures ratings to CCC from B+. Moody's Investors Service downgraded Kmart's rating to Caa1 from B2 and left the rating on review for further possible downgrade. 

Standard & Poor's, one of the nation's largest debt rating agencies, took Kmart off its 500 index at the market's close Wednesday. The move forces mutual funds modeled on the index to shed the stock. 

Also Wednesday, S&P lowered the retailer's credit rating on certain lease transactions for the second time this week. S&P previously placed Kmart on CreditWatch with negative implications.

Rebuilding Denny's

As chairman and CEO of Advantica Restaurant Group Inc. , which operates Denny's restaurants, Adamson helped pull the company, then named Flagstar, out of prepackaged bankruptcy in 1998, although the stock currently trades below $1.00 a share. Adamson retired as chairman in December 2001.

Adamson, 53, also helped to mend the company's reputation after Denny's was slapped with a number of racial discrimination lawsuits in the early 1990s.

"His extensive experience in retail and in managing change at companies undergoing massive transformation is a resource that we believe will be invaluable to our senior management team," Conaway said in a statement.

Conaway, who analysts said is expected to keep his job for now, has come under criticism for his plan to compete with Wal-Mart on pricing. He lowered around 38,000 prices on common everyday items like household cleaners, but that and an accompanying cut in the retailer's advertising budget hurt profits. Kmart is expected to report a loss for fiscal 2001.

"The big mistake was trying to emulate Wal-Mart," Ulysses Yannas, an analyst at Buckman, Buckman & Reid, said. "It was a mistake to spend your advertising dollars to tell people your prices were still higher than Wal-Mart's."

"We saw the president go," said Justin Pettit, a partner at management consulting firm Stern Stewart & Co. "Possibly it's been laid on him."

Wal-Mart is able to keep its prices low in part by squeezing dollars from its efficient infrastructure and using its sheer size as leverage with vendors.

Kmart's strengths include its private brands like its Martha Stewart Everyday housewares line and its Sesame Street children's clothing, the analyst said.

Schwartz, the president whose departure was announced Thursday, was hired by Conaway in September 2000. Before he came to Kmart, he had been president and chief executive of Hechinger Co., a bankrupt home improvement chain. Schwartz also worked for 16 years at Wal-Mart.

Reuters and the Associated Press contributed to this report.