Kmart named James B. Adamson, one of its board of directors, to be chairman, replacing Charles Conaway, who remains as chief executive.
Kmart also said Mark S. Schwartz, who joined the company in September 2000 and most recently served as president and chief operating officer, is "no longer with the company."
Kmart's troubles picked up speed earlier this month after officials announced that 2001 results would break even at best because of disappointing holiday sales, and suggested they might seek additional financing.
The retailer's board of directors held a regularly scheduled meeting on Monday and Tuesday. Until Thursday's announcement, Kmart has refused to comment on its financial state.
In its statement, Kmart said it continues to evaluate its finances and business plans for the 2002 and 2003 fiscal years. The company said it also is continuing discussions with its lenders regarding existing and possible supplemental financing facilities.
"We appreciate the loyalty Kmart has received from our customers and the continuing support shown by many of our vendors and other business partners," Conaway said.
On Jan. 2, Prudential Securities Inc. said it would not be surprised if Troy-based Kmart filed for Chapter 11 bankruptcy "if trends do not improve" in the next six months. The financial organization downgraded the discount retailer's stock from "hold" to "sell."
For the most part, industry experts have been able only to speculate about a Chapter 11 filing, which bankruptcy experts say would mark the biggest retail bankruptcy in history.
Kmart shares closed Wednesday at $1.60, down 85 cents, or nearly 35 percent, on the New York Stock Exchange. In early trading Thursday, shares were down to $1.53.
Thursday, analysts said Chapter 11 is still a possibility.
Connor Reilly, senior partner with the firm Gibson, Dunn and Crutcher, said when companies are rumored to be considering filing for Chapter 11, and decide not to, they usually make an announcement to comfort investors.
"We've gotten total silence from Kmart, not a word," Reilly said. "Now this announcement comes but there's nothing else with it. That silence combined with this shift isn't going to help much."
Justin Pettit, a partner with Stern, Stewart & Co., said the limited information provided by Kmart makes it hard to determine what impact Thursday's changes will be on the company's stock price and financial stability.
"I think the Chapter 11 fear is almost self-fulfilling. I don't think we have enough information yet to stop the downward spiral," Pettit said.
He said the fact Conaway is still with the company tends to indicate that Kmart is sticking with its previous restructuring strategy.
Since Conaway became Kmart's CEO in May 1999, he has closed unproductive stores, reintroduced the BlueLigt Special, and made other changes to help the discount retailer become more productive and more efficient.
Wednesday, Fitch Inc. lowered Kmart's bank facility ratings to CCC from BB- and its notes and debentures ratings to CCC from B+. Moody's Investors Service downgraded Kmart's rating to Caa1 from B2 and left the rating on review for further possible downgrade.
Standard & Poor's, one of the nation's largest debt rating agencies, took Kmart off its 500 index at the market's close Wednesday. The move forces mutual funds modeled on the index to shed the stock.
Also Wednesday, S&P lowered the retailer's credit rating on certain lease transactions for the second time this week. S&P previously placed Kmart on CreditWatch with negative implications.
The discount retailer has been struggling to compete against the lower prices of rivals Wal-Mart Stores Inc. and Target Corp., battling the nationwide recession while mounting its aggressive restructuring effort.
Kmart has about 275,000 employees and 2,105 stores in all 50 states, Puerto Rico, U.S. Virgin Islands and Guam. It is the nation's third-largest discount retailer after Wal-Mart and Target.
Adamson, 53, has been a member of the Kmart Board since 1996. He is the former chairman, president and chief executive officer of Advantica Restaurant Group, Inc., which owns and operates Denny's, CoCo's, and Carrow's.
Adamson joined Advantica in 1995 from Burger King Corp. where he had served as CEO from 1993 to 1995. He also previously served as a senior executive at Target Corp.
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