Discounter Kmart filed for Chapter 11 today in the largest-ever bankruptcy for a U.S. retailer. The bankruptcy has been widely expected.
The company, which secured $2 billion in debtor-in-possession financing, said it would continue to operate its 2,100 stores while it restructures its business.
Shares in Kmart, which have lost around 85 percent of their value since the beginning of the year, dropped by another 50 percent on the news today.
The move comes as no surprise to industry watchers, who have been speculating in recent weeks that the company's financial woes would prompt it to file for bankruptcy. On Monday, the Troy, Mich.-based retailer's sole supplier of groceries said it delayed or stopped shipments to the beleaguered retailer.
Dallas-based food supplier Fleming said Kmart owes it $78 million in merchandise receivables. Retail analysts tell ABCNEWS many other vendors have been withholding shipments to Kmart, demanding that the company pay cash for the products.
Kmart Chief Executive Charles Conaway said in a statement that he regrets any adverse effect the bankruptcy will have on the retailer's associates, vendors and business partners, but after considering alternatives, bankruptcy protection was the only way to truly resolve the company's problems. Kmart is aiming to emerge from Chapter 11 in 2003.
"I am confident that, with our tremendous resources and dedicated supplier and associate communities, Kmart will emerge from this process as a stronger, more dynamic, more profitable enterprise with a well-defined position in the discount retail sector," said Conaway.
Times of Trouble
While the bankruptcy filing will give the retailer a chance to help itself out of its precarious financial situation, some suspect the move could lead to hundreds of store closings across the country.
Kmart said in a statement that all of its stores are open for business, but that it would continue to pursue "opportunities to reduce annual expenses by an additional $350 million through reengineering the organization, staff reductions, office consolidations and other actions."
The discount retailer also named Ronald B. Hutchinson to a new position of chief restructuring officer, in which he will work to rebuild and reposition the company. Hutchinson was most recently the chief financial officer of the Advantica Restaurant Group, a Spartanburg, S.C., group that owns restaurant chains like Denny's.
Bad news for Kmart has been mounting in recent weeks after the company announced that weak December sales would cause it to miss analysts' earnings estimates for the fiscal year ending Jan. 30. Credit rating agencies Moody's Investors Service and Standard & Poor's have also struck by downgrading their credit ratings on the discount retailer.
Amid the turmoil last week, the company ousted Chief Operating Officer Mark Schwartz and named James B. Adamson, one of its board of directors, to be chairman, replacing Conaway, who will remain as chief executive.
Investors nervous about the company's fundamentals have sent Kmart's shares plummeting since the beginning of the year, prompting Standard & Poor's to take Kmart out of its S&P 500 index last week.
Analysts say a bankruptcy reorganization could help the retailer sort through some of its financial problems.