Kmart: Turnaround or ”Take It Away”?

For employees of the discount retailer, ''this week's special'' might include the store they work in.

Kmart Holding Corp. certainly has seen plenty of changes since it emerged from bankruptcy in the spring of 2003.

The discounting giant’s stock has surged nearly sixfold, to the upper $80s; it just completed a second recent sale of underperforming stores; and it recently reported its third straight quarterly profit. And now, Kmart employees have been told that the company plans to increase its contributions to their 401(k) plans, reported The Detroit News. Currently the company matches 50 cents on the dollar, up to 6 percent; under the new plan, Kmart will match dollar for dollar up to 3 percent, then 50 cents on the dollar from 3 percent to 8 percent.

Though Kmart did not discuss details with the News, the paper noted that according to a company statement, it is striving “to create a competitive benefits package, including a company savings plan that will help attract and retain top-notch talent.”

However, Kmart’s current headquarters — Troy, Michigan — might not be the beneficiary of this talent hunt. Last week the News also reported that Kmart has been searching for a new headquarters location, both in Michigan and out of state, and that a decision is expected within a few weeks.

Interestingly, while the company’s strong stock performance, profitability, and larger 401(k) contribution suggest that Kmart is thriving, its customers seem to be staying away in droves. In the second quarter, total sales plunged 15.3 percent to $4.8 billion, and same-store sales fell 14.9 percent compared with a year earlier.

Investors, however, seem to be focused the sale of Kmart stores themselves. Last week, the company completed the sale of 50 stores to Sears; in August, it finalized a deal to sell 18 stores to The Home Depot.

One likely reason for this focus — and for the company’s rising stock price — is the reputation of Kmart’s largest shareholder, hedge fund manager Edward Lampert of ESL Investments. Lampert was instrumental in putting together the company’s reorganization plan and has enjoyed a huge paper profit on his initial investment.

He also happens to be a major shareholder of Sears. Some observers have even speculated that Lampert may one day try to combine the two companies.

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