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Subject:  Re: The value of Kmart Date:  6/9/2004  7:19 AM
Author:  TMFCop Number:  31002 of 46922


I liked your look at Kmart. I've been following the Big K since it emerged from bankruptcy last year and have written a handful of Takes in recent months that may be of interest to you:

Kmart Rising - March 22

Kmart, Martha Kiss and Make Up - April 27

Kmart a Contender Wannabe - May 18

Kmart, Land Baron - June 7

I've been fairly impressed with their turnaround, though it is not one that has been predicated on increasing sales to be sure. Yet I don't know that Julian Day isn't taking the right course: when you're hemorraghing money, you've got to stem the flow first before moving on. He's been cutting costs and most recently selling old stores (not including the 600 they jettisoned in bankruptcy). So I don't know that I'd characterize Kmart's resurgence as simply "pure asset appreciation."

It has some good lines to merchandise: Martha Stewart Everyday, Joe Boxer, Thalia Soldi, and WB TV lines. The company doesn't rely upon a "sale" to generate revenues; it's gone to the high/low pricing strategy to generate profitable sales. Margins have been steadily improving, SG&A continues to fall, and cash continues to accumulate in the bank. The sale of underperforming stores is a smart move so that Kmart can concentrate on making money in only those stores that make money.

I don't believe Kmart is the same company that went in to bankruptcy. Yet they will have a hard time overcoming a lot of the bad feelings they generated by that act, as evidenced by PosFCF's comments. Laying off 57,000, closing more than 600 stores, and leaving prior shareholders with lots of bird-cage liners doesn't generate warm, fuzzy feelings for a company.

Still, for the employees that remain with the company, it was a better solution than simply folding too. If they can find their niche and begin generating growing sales again, the company and the employees will undoubtedly be better off.

There's more to Kmart than its property and more to its resurgence than just its balance sheet assets. I think there's a place for a thriving Kmart and when they finally post a quarter with increased sales (which I think they will soon), I believe their stock price will reflect that trend.

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