Kmart (Nasdaq: KMRT) may be known for its "blue-light special," but today, investors gave it the green-light treatment, bidding shares up nearly 10% this morning.
The enthusiasm was based on the discount retailer reporting its first profitable quarter since it lumbered out of bankruptcy. Also, Martha Stewart's guilty verdict apparently has not had any significant effect on sales of the Martha Stewart Everyday brand, which Kmart happens to carry. Still, today's enthusiasm seems a little much.
For the fourth quarter, Kmart reported net income of $276 million, or $2.78 per share. It reported a net loss of $1.1 billion last year. The company also managed to set aside $2.1 billion in cash and cash equivalents.
While that's good news, there's still reason for worry in this cutthroat retail environment. Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) are very strong and growing contenders in the discounter environment and widely seen as reasons for Kmart's problems. Meanwhile, other department store names such as Sears (NYSE: S), Kohl's (NYSE: KSS), and J.C. Penney (NYSE: JCP) also compete for the same shoppers.
While Kmart's profitable quarter and the stash of cash are heartening -- the result of inventory management, cash flow from operations, and real estate sales -- same-store sales were down 13.5%, with overall sales down 25.8%. And then, of course, there's the issue of that relationship with Martha Stewart Living Omnimedia (NYSE: MSO), with the Martha Stewart Everyday product being one of the exclusive brands Kmart peddles.
In a regulatory filing, Kmart said that it is not seeing any drop-off in sales of the Martha Stewart Everyday brand, as of yet. I'm not too surprised. She may have been convicted of obstruction of justice, but that doesn't mean she's been convicted of bad taste and a complete inability to decorate. It's likely most Kmart shoppers see it that way, too.
So while the Martha Stewart angle may be no big deal, it's the highly competitive environment that seems the biggest reason for continued caution on Kmart.
Is Kmart fried, considering all the discount retail competition -- not to mention the Martha Stewart Everyday brand as a major product in its stores? Or is Kmart going to be a contender again? Chat about it with other Fools on the Kmart discussion board. If you'd rather talk Martha herself, the Martha Stewart Living board is open for business.
Alyce Lomax does not own shares of any companies mentioned.
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