When Kmart Corp. filed for Chapter 11 bankruptcy protection Jan. 22, its stock price — which had reached a 52-week high of $13.55 in August — plummeted to an abysmal 66 cents.

But this week, after Kmart announced progress in its restructuring efforts, Wall Street began regaining some confidence in the Troy, Mich.-based retailer. Kmart’s stock price broke the dollar barrier for the first time since the bankruptcy filing Tuesday, rising 31 cents, or 34%, to close at $1.23 per share.

Kmart shares rose still further Wednesday morning, trading at around $1.40 per share.

The rebound followed Kmart’s announcement that it had received court approval to continue providing wages and benefits to its employees, and that many of its key vendors had resumed merchandise shipments under normal terms. The retailer also said it had received interim court approval for a $2 billion debtor-in-possession credit facility, and that it had received strong support from customers and communities across the country.

"Although it is just the beginning of what will be a long road for Kmart, we accomplished a great deal during the first week of our reorganization," said Kmart CEO Charles Conaway.

The court also gave Kmart the green light to reject unexpired leases at about 350 previously closed Kmart stores. Doing so will save the company about $250 million, Kmart predicts. Speaking to members of the Detroit media Tuesday, Conaway called the court approval to drop payment on those leases "a huge win" for Kmart.

He said the court’s decision to give Kmart immediate access to more than $1 billion of the $2 billion debtor-in-possession financing provides the retailer with "unprecedented liquidity." The credit facility is being provided by a group of banks led by JPMorgan Chase Bank, Fleet Retail Finance Inc., General Electric Capital Corp. and Credit Suisse First Boston.

It allows Kmart to pay its most important vendors and to keep its 2,100 stores operating normally. The retailer, which hopes to emerge from bankruptcy in 2003, is reviewing the profitability of its stores and plans to close money-losing locations. Analysts predict Kmart could eventually shutter between 250 and 500 stores.

Laying a foundation for recovery?

Last Wednesday, Kmart’s largest supplier, Fleming Cos. of Dallas, restarted shipments after a three-day halt. John Melaniphy III of Chicago-based retail consulting firm Melaniphy & Associates, said Fleming’s restoration of shipments was essential.

"The SuperKmart brand, which includes food and general merchandise to compete with the Wal-Mart and Target supercenters, is key to Kmart’s strategy," Melaniphy said.

But Melaniphy added that it’s too early to judge whether the restructuring efforts will guarantee long-term success for Kmart. "They’ve got some underlying problems at this point with their operations and distribution systems," he said. "They’re really not as efficient as Wal-Mart and some of their other competitors."

While Wal-Mart and Target have created strong brand identities with consumers, Kmart has floundered. According to Brandweek.com, the retailer will launch a new advertising campaign Thursday designed to win consumers back. It will feature a commercial directed by Spike Lee, along with the slogan "Kmart: For Real Life."

"That’s what Kmart really needs to do," Melaniphy said. "Target is really taking market share away from them. Target’s advertising has really captivated the consumer. Kmart must get consumers into their stores again."

Kmart's bankruptcy announcement came in the wake of lower-than-expected holiday sales and fourth-quarter earnings, a severe stock slide, and a series of downgrades by credit ratings agencies.

-- Joel Groover