NATION Is Kmart all about real estate or retail? Analysts speculate

One analyst says Kmart is becoming an investment company, not a retailer.
DETROIT (AP) -- As Kmart Holding Corp. announced the second deal in less than a month to sell off dozens of stores, observers wondered whether chairman and majority owner Edward Lampert intends to revive the company's ailing retail business, or gradually sell it off, capitalizing on its vast real-estate holdings.
The announcement Wednesday that the retailer would sell up to 54 of its stores to Sears, Roebuck and Co. for up to $621 million came less than a month after Troy, Mich.-based Kmart said it would sell up to 24 stores to The Home Depot. A deal with Sears, where Lampert is also a major shareholder, had been widely anticipated.
Wednesday's announcement boosted the widely held theory that Lampert is less interested in helping Kmart, the nation's No. 3 retailer, succeed in its core business -- where it is increasingly squeezed by Wal-Mart and Target -- than in gradually selling off its assets.
A comparison
The theory's proponents liken Lampert to Warren Buffett, and Kmart to Berkshire Hathaway, the one-time textile company that Buffet converted into an investment empire.
Some analysts, however, say it is too soon to tell what Lampert's strategy is, and point to a new management team and intensive efforts to revamp Kmart's apparel lines as proof that the company is still serious about turning around sales.
Kmart, which emerged from bankruptcy in May 2003, has achieved a speedy financial turnaround, posting a profit in the previous two quarters and amassing $2.2 billion in cash. Meanwhile, same-store sales, which compare sales at stores open at least a year and are considered a good measure of a retailer's health, have continued to plummet.
That doesn't appear to have turned off investors. Kmart's shares are worth nearly five times their prices when the company left bankruptcy.
The falling sales are not a problem for Lampert's plan, said analyst Howard Davidowitz.
"He is in the process of liquidating Kmart and turning Kmart into an investment company like Berkshire Hathaway -- exactly what Warren Buffett did," said Davidowitz, chairman of Davidowitz & amp; Associates Inc., a New York-based retail consulting and investment banking firm. "Eddie Lampert was smart enough to know that this was a cadaver and his job is to maximize the value of this cadaver."
Davidowitz estimated Lampert would peel away at Kmart's real estate over three or four years.
Comments in report
Gary Balter, of UBS Investment Research, said in a report Wednesday that as it divests real estate, Kmart is also quietly acquiring new properties.
"We believe that Kmart might potentially sell these at a profit in the future, generating more cash than originally anticipated," Balter wrote.
Kmart spokesman Jon Geiselman confirmed that the company recently acquired a strip mall in Indiana but would not comment further on Balter's report.
Not all analysts are ready to write off Kmart's retail business.
"With the hiring of operations people, merchants, marketing people ... there's a belief that there's a core group of stores that Kmart can do very well with," said Gary Ruffing, a former Kmart executive who is now a retail consultant at BBK Ltd. in Southfield, Mich. "I don't think it's all about the real estate."