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Big K to become a little smaller

Kmart will close 72 stores, but none of the 24 in Utah

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TROY, Mich. — Kmart Corp. said it will close 72 stores, reduce inventory and take a $740 million pretax charge for those and other moves as the No. 2 U.S. discount chain tries to catch up with Wal-Mart Stores Inc. and other rivals.

However, the 24 stores in Utah are doing "great" and will not close, according to spokeswoman Vanessa Giancamilli.

"We recently raised the bar in terms of performance of our stores," Giancamilli said. "Clearly the stores in Utah are meeting those standards and are continuing to perform well."

She indicated that the Utah stores are a good fit with the state's demographics of big families with many young children.

Overall, Kmart said earnings in the fiscal second quarter and this year will decline from a year earlier. Excluding the charge, profit in the quarter ending this month will fall to 4 cents to 7 cents a share from 26 cents a year ago. The average forecast of analysts polled by First Call/Thomson Financial was 16 cents.

New Chairman and Chief Executive Chuck Conaway is trying to turn around Kmart, which has been unable to compete against the lower prices offered at bigger rival Wal-Mart and the trendy private-label clothes and home goods sold at No. 3 discounter Target Corp.

Kmart's stock has dropped 66 percent from a high of $20.88 in June 1998.

"Kmart is years behind its two competitors," said Brian James, an analyst at Loomis, Sayles & Co., which owns shares in retailers. "There are a lot more than 72 stores that will eventually have to go."

Kmart will shut 66 traditional stores and 6 Super Kmarts, which have full grocery departments, by Nov. 1. The closings, which will be across the country, will result in a pretax charge of $300 million. Kmart will take another $75 million in pretax charges to reflect inventory at the closed stores.

"You go into a Kmart, and they're dirty stores, they're out of stock and it takes a long time to check out," said Jeffrey Edelman, an analyst at PaineWebber Inc., who rates Kmart shares "neutral." "I would expect more initiatives in the not too distant future to move them on the right path."

Kmart has 2,165 Kmart, Big Kmart and Super Kmart stores.

The company will take pretax charges of $290 million for inventory clearance sales throughout the chain and $75 million for the replacement of computer systems that are still under development.

Kmart will report fiscal second-quarter earnings on Aug. 10.