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NEW YORK - The news that Fleming Cos., Kmart's major food distributor, had decided on Monday to halt shipments after the retailer failed to pay its weekly bill was the final nail in the coffin for Kmart, which filed for bankruptcy protection on Tuesday, according to a report published by Retail Merchandiser magazine.
Fleming was the latest of many vendors that stopping shipping goods to the retailer amid the bankruptcy speculation that was touched off by Kmart's poor holiday sales results, a series of credit downgrades of Kmart's debt ratings, and a sudden drain on the company's cash flow. The latest credit downgrade occurred on Monday: Moody's Investors Service downgraded the long-term ratings of Kmart (senior unsecured to Caa3) and left the ratings on review for a further possible downgrade.
Prior to the filing, Scotts Co, a maker of lawn and garden products, also said it stopped shipments to Kmart, and several overseas vendors of Kmart apparel lines said they were delaying shipments to the retailer. A check of stores by RM staff in the past few days found numerous out-of-stocks throughout most departments.
According to the New York Times, Kmart failed to pay Fleming's latest $78 million bill. Kmart represents 27% of Fleming's business. Fleming began a 10-year exclusive-supplier relationship with Kmart last July. Arguably, only Martha Stewart, with her line of Martha Stewart Everyday (MSE) housewares and home goods accounting for approximately $1.5 billion of Kmart's $32 billion in annual sales, is a more important supplier to the retailer. Supposedly a Chapter 11 filing by Kmart would enable Martha Stewart Living Omnimedia to get out of its contract with the retailer.
According to a Reuters report, Fleming Cos. said on Tuesday it is evaluating the effect of Kmart Corp.'s bankruptcy filing on its earnings through 2003. Fleming said it currently intends to resume delivery of food and other consumable products to Kmart upon receiving satisfactory assurances from Kmart, via the bankruptcy court. Fleming's business arrangement with Kmart includes a seven-day invoice and payment cycle. The company said it believes the short payment term for product shipments to Kmart limits Fleming's exposure.
Non-Kmart business accounted for more than 10 percent of sales growth in the third quarter and will continue to grow at a sustained rate of at least 5 percent per year for the foreseeable future, Fleming said.
While it is not updating guidance at this time, Fleming said it 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.