Kmart just seems to be the third choice for consumers behind Wal-Mart and Target because they have cleaner stores, they're more modern

David Sowerby, portfolio manager

Prudential analyst Wayne Hood caused near panic among investors by saying he "would not be surprised" if the company filed for bankruptcy protection "if trends do not improve".

The company's share price lost more than 13%, hitting its lowest level since the early 1980s.

"Kmart just seems to be the third choice for consumers behind Wal-Mart and Target because they have cleaner stores, they're more modern [and have] even better parking lots," said David Sowerby, portfolio manager for Loomis Sayles.

Credit rating hit

Kmart responded by insisting it has sufficient funds and access to credit.

"Kmart is implementing a major corporate revitalization strategy that includes massive cultural and operational changes, said spokesman Jack Ferry, insisting that this strategy has already showed results.

But some analysts remained sceptical following a downgrade of the company's debt rating last month by the Moody's Investors Service.

"They still have access to capital markets, but they do not have competitive and favourable pricing in capital markets anymore," said Richard Hastings, credit economist and retail sector analyst for Cyber Business Credit.

The comments by Mr Hood were unlikely to improve Kmart's standing in the financial markets.

"The downgrades from the debt rating agencies were very damaging to Kmart, but for a stock analyst to come out and make a public comment using 'bankruptcy' makes it even more difficult for Kmart to access markets at competitive pricing," Mr Hastings said.

"I think [the Prudential downgrade] is pretty much the only thing [the company's share price] it right now," said Eric Beder, retail analyst and senior vice-president at Ladenburg, Thalmann & Co.