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ShopKo Continues Financial Turnaround

Extending a turnaround begun earlier this year and putting up a third straight quarterly earnings gain, heartland discounter ShopKo Stores Inc. recorded a fourth quarter profit of $35.4 million, up more than 12 percent form $31.6 million last year.

Lifting the bottom line, the retailer beefed up margins and slashed interest expense, more than offsetting weaker sales and higher costs.

ShopKo sales fell off 4.5 percent, to $909.7 million from $952.9 million last year, while the crucial gauge of same-store sales was off almost as much, dropping 4.4 percent.

Driving the earnings growth, despite the lagging sales, ShopKo lifted its margins 210 basis points, or 2.1 percentage points, to 27.4 percent from 25.3 percent during the same period a year ago. Despite the lower level of sales, gross margin dollars improved 3.2 percent, to $249.1 million from $241.4 million the preceding year.

Margins gained strength at both operations, ShopKo Stores and the small-format Pamida chain. At the larger ShopKo operation, margins improved 250 basis points, or 2.5 percentage points, to 27.5 percent from 25 percent a year ago. And at Pamida, margins grew 40 basis points, or four-tenths of a percentage point, to 26.9 percent from 26.5 percent.

In another boost to profits, the retailer hacked away at its interest expense, reducing it 9.1 percent, to $7.9 million from $9.7 million last year, yielding a cash savings of $785,000.

Sam Duncan, president and CEO, commented, "The results reflect our continued focus on gross margin earnings and delivering profitable sales."

ShopKo Stores Inc.

Qtr. 1/29 (x000) 2004 2003 % change
Sales $909,645 $952,936 – 4.5
Oper. Income (EBIT) 63,499 60,126 5.6
Net income 35,424 31,552 12.3
Per share (diluted) 1.19 1.07 11.2
Average gross margin 27.4% 25.3%
SG&A expenses 18.3% 17.1%
12 months
Sales 3,166,645 3,184,088 – 0.5
Oper. Income (EBIT) 102,462 101,930 0.5
Net income 43,338 39,120 10.8
Per share (diluted) 1.46 1.33 9.8
Average gross margin 26.2% 25.7%
SG&A expenses 20.6% 20.3%


4Q Segment Results

(x000) 2004 2003 % change
ShopKo Stores
Sales $681,634 $725,644 –6.1
Average gross margin 27.5% 25.0%
SG&A expenses 17.1% 15.9%
Operating profit 56,978 53,202 7.1
Pamida Stores
Sales 228,011 227,292 0.3
Average gross margin 26.9% 26.5%
SG&A expenses 19.3% 19.5%
Operating profit 12,401 10,303 20.4


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