NEW YORK — Joseph Antonini is at the helm of a troubled ship.
The chairman and chief executive officer of Kmart Corp. has come under fire in the past year for the sagging performance of the core discount store operation, and some observers are questioning his ability to outlast the storm.
At the company’s annual meeting last Friday, a management-backed, targeted stock plan to sell stakes in the specialty store divisions was defeated, and some read that as a vote against Antonini and his leadership.
If approved, the proposal would have raised between $600 million and $900 million for Kmart, selling 20 to 30 percent stakes in the specialty units, which include Sports Authority, Borders/Waldenbooks, Builders Square and OfficeMax.
Despite not raising money from this proposal, Kmart is firmly committed to its $3.5 billion refurbishment of the discount stores, for which it has the money set aside, said a spokeswoman on Tuesday. Analysts generally think Kmart’s chief executive needs to shore up performance fast, and some feel his days could be numbered if the figures don’t improve. Antonini, 52, has been with the company for 30 years. He joined it as a management trainee in 1964, when it was S.S. Kresge Co. He was named chairman, president and ceo in 1987.
Linda Morris, a retail analyst with PNC Bank, Philadelphia, said the defeat of the proposal signals a lack of confidence “in the way the company is dealing with turning around the discount store operation.”
“This,” she added, “shows the shareholders’ disillusionment that management is spending so much time with the specialty stores and not enough time with the discount operation.
“Kmart is a company in trouble and is earning less than it was when Antonini took over. He claims he has the board behind him, but I question the board. Frankly, I’m surprised the board was voted back in.”
One investment community observer, who declined to be identified, said the proposal never should have made it to a vote.
“It was a bad plan, and showed a lack of understanding of how to realize value in the company and deal with the investment banking community,” the source said. “Certainly, the clock is ticking for Antonini to produce some results. The question is whether the board gives him until the end of the year, replaces him now or brings in an outsider as chief operating officer to work with him.”
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The source speculated that the latter might be the best alternative, adding that Kmart has big problems with execution and strategy, and these will not be solved overnight if a new ceo is brought in.
“The company has an awful lot of ground to cover,” said the executive.
A Wall Street analyst who also requested anonymity said there’s no short-term fix for Kmart — anything to improve the company is long term. Consequently, the long-term solution is not good for profits in the short run.
“We’ve seen a huge build-down of inventory, which caused a decline in gross profits,” the analyst said. “Part of the decrease is due to better efficiency through inventory controls and computer systems, and that’s ultimately beneficial for the whole organization. I think in the next few quarters we’ll see inventory build back up, and profits will start to rebound.
“I think the company is fixable,” the analyst added. “The renewed stores are doing much better and, as they keep remodeling stores, they will show improved performance.”
A management consultant concurred that Kmart can be fixed, but added that Antonini had better show some results soon.
“There’s no doubt the heat is picking up on him,” the executive said. “Management has to get the values back into Kmart, especially as Wal-Mart keeps undercutting them in price. Wal-Mart’s operating costs are 4 percent lower, so it’s difficult for Kmart to keep cutting prices to compete.”
He agreed that bringing in a chief operating officer, who complements Antonini, might be “his salvation.”
Antonini could not be reached Tuesday for comment.
The company has been renewing stores since 1990, and by the end of this year, roughly 1,600 of its 2,400 units will be renovated.
At the annual meeting, Antonini acknowledged that 1993 was “a down year,” but said by the end of 1994, “we will begin to show significant, tangible financial returns directly tied to these changes.”
Kmart’s profits from the core discount stores plummeted 32.4 percent last year.
That was mostly from margin erosion due to pricing pressure throughout the mass retail industry. But Antonini said stores that had been modernized by 1992 were performing well enough to show improved profits by this year and next.
After the annual meeting, Antonini said that apparel inventories had been pared too much and the company would be rebuilding its stocks over the next two months.