Kmart's Profits Hurt by Buying BlueLight

TROY, Mich. – Kmart Corp. on Thursday reported a fiscal second-quarter loss as the discount chain's $80 million acquisition of its BlueLight.com online arm took a toll on results.

Kmart, which is in the midst of its BlueLight Always campaign that aims to drive customers traffic with lower prices on common household products like cleaners and food, also said it is facing pricing pressures.

The No. 2 U.S. discount chain behind Wal-Mart Stores Inc. posted a net loss of $95 million, or 19 cents a diluted share, for three months ended Aug. 1, compared with a year-earlier loss of $448 million, or 93 cents a share.

Earlier this month, Kmart said it would take an after-tax restructuring charge of $76 million, or 16 cents a share, in the second quarter to buy the 40 percent of BlueLight.com it did not already own. Excluding the charge, the loss was $22 million, or 4 cents per share.

Analysts were expecting a loss of 3 cents to 5 cents a share before the charge, with the mean estimate at 4 cents, according to research firm Thomson Financial/First Call.

"As planned, we completed our conversion of our entire store base to the Fleming distribution network and reset over 90 percent of our store base during the quarter," Chief Executive Chuck Conaway said in a statement.

In an effort to cut costs, Kmart in February named Fleming Cos. Inc. as its sole food distributor.

"We continue to reduce our reliance on advertising and, with the lowering of prices on 20,000 items as part of our BlueLight Always program, face deflationary pricing conditions," Conaway said.

Net sales fell 0.9 percent to $8.92 billion from a year earlier. Sales at stores open at least a year rose 1 percent.

Gross margin for the quarter was 20.8 percent of sales, compared with 20.5 percent a year ago, excluding items that are not comparable. Kmart attributed the increase to a reduction in the amount of damaged, lost or stolen merchandise — called shrink — which offset the price cuts.