Kmart Reaffirms Commitment to 'Fast-Track Reorganization'

Targets Emergence From Chapter 11 Protection in First Half of 2003

Will Complete Five-Year Business Plan By Year-End, Expects to File Proposed

            Plan of Reorganization No Later Than February 2003

       Sales Trend Improves in September and First Half of October,
           Aided By Successful Promotions and Store Initiatives

TROY, Mich., Oct. 21 /PRNewswire-FirstCall/ -- Kmart Corporation (NYSE: KM) today reaffirmed its commitment to a "fast-track reorganization" with the objective of emerging from chapter 11 court protection by July 2003. Kmart also reported that its comparable store sales trend improved significantly in September and the first half of October, aided by successful promotions and store initiatives.

Fast-Track Reorganization

Under a timeline reviewed last week with its Board of Directors and the three independent statutory committees in its chapter 11 reorganization case, Kmart expects to complete a comprehensive five-year business plan by year-end. Thereafter, the Company also intends to file a proposed plan of reorganization and disclosure statement with the U.S. Bankruptcy Court for the Northern District of Illinois on or before February 24, 2003. As previously reported, the Court has extended the period in which Kmart has the exclusive right to file a plan of reorganization through February 28, 2003.

"We have provided a timeline to our Board and statutory committees that provides for Kmart to emerge from chapter 11 protection as early as the first half of 2003," said James B. Adamson, Kmart chairman and chief executive officer. "This timeline is aggressive and will require a lot of hard work in a relatively short period of time, but should be doable. I have always believed that this Company should not remain under court protection a day longer than necessary, and Kmart's management team is focused on achieving the operational, financial and legal objectives that must be met for the Company to conclude its reorganization. I am as confident as ever that Kmart can emerge from chapter 11 as a strong and viable competitor with a clearly defined niche in the discount retail sector."

Sales Improvement

In its monthly operating report for the four weeks ended September 25, 2002, which was filed today with the Court and the Securities and Exchange Commission, Kmart reported that its comparable store sales in September declined 6.9 percent from the same period a year ago. This represents an improvement of five percentage points from Kmart's comparable store sales in August. Since its Chapter 11 filing in January 2002, Kmart's monthly comparable store sales decline has averaged approximately 11 percent.

"We have been very pleased with the Company's recent same-store sales trend, which is showing continued improvement in the first half of October," said Julian Day, Kmart president and chief operating officer. "We believe the improved trend has been aided by the success of our 'Have To Have It' promotions in the Chicago and Detroit markets and by the progress we have made in staying in-stock in high volume and advertised merchandise. Unlike the rest of the chain, sales at stores in these two markets were flat or positive against last year. While we have continued work to do toward achieving positive same-store sales, our experience in Detroit and Chicago suggests we have the ability to impact sales positively and this program is being launched in other major markets. Our rejuvenated associates are working hard to improve the shopping experience and our customers are giving us another chance."

In a recent test in the Chicago market, managers at 10 Kmart stores were given more autonomy to order and replenish high-volume merchandise, as well as merchandise featured in the Company's weekly sales circulars. Sales at these stores were approximately 10 to 12 percent better than the chain during the test period, with better inventory turns and margins than the Company average.

Day continued, "A key component of our operating plan has been to use promotions aggressively to win back customers we lost after the chapter 11 filing. At the same time, however, we continue to focus on opportunities to improve gross margin and reduce cost."

Liquidity Update

In its monthly operating report, Kmart reported that it had availability under its debtor-in-possession (DIP) facility of approximately $1.5 billion as of September 25, 2002. The Company's net loss for September was $176 million.

"We appreciate the continued strong support of our vendors as we continue to build inventory for the holiday selling season," said Al Koch, Chief Financial Officer. "Our liquidity continues to be better than our internal projections and we believe we have planned prudently for the holiday season. We are very excited about our marketing and merchandising strategy for Christmas, which includes the launch of the new Martha Stewart Everyday Holiday collection and the continued rollout of the JOE BOXER brand -- the most successful launch in the Company's history."

Kmart Corporation is a mass merchandising company that serves America with more than 1,800 Kmart and Kmart SuperCenter retail outlets. Kmart in 2001 had sales of $36 billion.

Cautionary Statement Regarding Forward-Looking Information

Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties, including, but not limited to, Kmart's having filed for bankruptcy and factors relating to Kmart's operations and the business environment in which Kmart operates, which may cause the actual results of Kmart to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include those set forth in Kmart's Annual Report on Form 10-K for the fiscal year ended January 30, 2002, Kmart's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2002 or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission. The forward- looking statements speak only as of the date when made and Kmart does not undertake to update such statements.

Similarly, these and other factors, including the terms of any reorganization plan ultimately confirmed, can affect the value of our various pre-petition liabilities, common stock and/or other equity securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of Kmart common stock receiving no value for their interests. Because of such possibilities, the value of the common stock is highly speculative. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.

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SOURCE: Kmart Corporation

CONTACT: Kmart Corporation, +1-248-463-1021

Web site: http://www.kmart.com/








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