Grocery supplier Fleming responded yesterday [Tuesday] to the announcement by Kmart that it has filed for reorganization under Chapter 11 of the US Bankruptcy Code and obtained debtor-in-possession financing.
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Mark Hansen, chairman of the board and CEO of Fleming. commented: “First and foremost, the Kmart filing helps define the path forward in our relationship. Kmart’s debtor in possession financing gives it the critical liquidity needed to fund its operations during the reorganization process, a necessary first step in resuming our relationship.
“Additionally, Kmart’s reorganization can be an opportunity to close underperforming, high-cost-to- serve stores and redirect capital toward efficient, highly productive discount stores and supercenters. We believe today’s filing provides Kmart the opportunity to better focus company resources on these top performing assets.”
Hansen noted the powerful and positive impact of Kmart supercenters for Fleming. Fleming typically delivers approximately five times the volume of merchandise to a Kmart supercenter compared to a traditional discount store.
Kmart’s filing has almost no impact on Fleming’s comprehensive business strategy or its service to other customers. Fleming’s short-term and long- term strategies have been, and still are, predicated on diversified growth among a wide variety of customers, including convenience stores, supercenters, self-distributing grocery chains, independent supermarket operators, drug chains, and a variety of alternative retail formats. While Kmart is Fleming’s largest customer in terms of sales volume, business with other retail customers continues to grow at a significant rate. Non-Kmart business accounted for more than 10% sales growth in the third quarter and will continue to grow at a sustained rate of at least 5% per year for the foreseeable future.
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By GlobalDataFleming currently intends to resume delivery of food and other consumable products to Kmart upon receiving satisfactory assurances from Kmart, via the bankruptcy court. As previously stated, Fleming’s business arrangement with Kmart includes a seven-day invoice and payment cycle. The company believes the short payment term for product shipments to Kmart limits Fleming’s exposure. Additionally, the reclamation claim filed by Fleming puts it in a strong position to recover its merchandise receivables as of the filing date.
While it is not updating guidance at this time, Fleming is in the process of fully evaluating what, if any, effect Kmart’s filing may have on its previously stated 2001, 2002 and 2003 guidance.
“It is our belief that store closures may be a component of Kmart’s plan,” noted Hansen. “To put this in perspective, our analysis indicates that the least productive ten percent of the Kmart store base likely constitutes less than 6% of Fleming revenues attributable to Kmart, no more than two percent of total Fleming revenues, and approximately US$.05 per share in earnings.”
Hansen continued, saying: “We have benefited from the Kmart alliance by proving that our coast-to-coast network can effectively serve both large and small retailers with a low-cost supply chain solution. We believe the experience we have gained and our demonstrated low-cost supply chain solution position us to secure significant new volume in the coming year.”
