Though the two months combine for a 4.6% drop, same-store sales in December only fell by 2.6%. "We are pleased with the significant improvement in the rate of our same store sales decline," said Aylwin Lewis, the company's CEO, who took on that post late last year. "As we have discussed before, Kmart has taken actions on many fronts to reset baseline sales at a level that forms the basis for profitable growth."

Kmart is in a $11 billion deal to merge with Sears, Roebuck & Co. Officials from the companies expect that transaction to close in March. It will make the combined company the third-largest retailer in the country, behind Wal-Mart and the Home Depot.

When the two retailers combine they will have a total of 3,500 stores and annual revenues of about $55 billion. At the closing of the transaction, Edward S. Lampert, Kmart's chairman, will become chairman of Sears Holding Corp., the firm's new name.