ShopKo profits drop 3.5 percent

Don Hogsett, March 15, 2004

With thinning margins and weaker sales offsetting lower costs, and a deep cut in interest expense, fourth-quarter profits at heartland retailer ShopKo Stores Inc. slipped by 3.5 percent, to $31.6 million from $32.7 million last year.

With stronger sales in the recovering Pamida unit offset by weakness in the core ShopKo business, sales backed off by 0.6 percent, to $952.9 million from $958.4 million. Same-store sales slipped by 0.5 percent. Sales in the small-store-format Pamida business increased by 2.3 percent, to $227.3 million. But sales in the larger ShopKo franchise gave up 1.4 percent, to $725.6 million.

Tugging on the bottom line, average gross margin contracted under holiday markdown pressure by 160 basis points, or 1.6 percent, to 25.3 percent from 26.9 percent a year ago. Weaker margins offset lower costs, which improved by 30 basis points, or three-tenths of a percentage point, to 17.1 percent from 17.4 percent.

Measured in absolute dollars, costs decreased by 2.1 percent, generating a cash savings of $3.5 million.

In another big savings, Costco slashed its interest expense by 33.6 percent, to $8.7 million from $13.1 million, dropping another $4.4 million to the bottom line.

ShopKo Stores Inc.

Qtr. 1/31 (x000) 2003 2002 % chg
(...) - denotes decline
a-Results in the prior-year fourth quarter and 12-month periods include a $6 million restructuring charge.
Sales $952,936 $958,444 -0.6
Oper. income (EBIT) 78,248 91,409 -14.4
Net income 31,551 32,679a -3.5
Per share (diluted) 1.07 1.12 -4.5
Average gross margin 25.3% 26.9%
SG&A expenses 17.1% 17.4%
12 months 2003 2002 % chg
Sales 3,184,088 3,240,187 -1.7
Oper. income (EBIT) 172,350 197,391 -12.7
Net income 39,120 (144,819)a
Per share (diluted) 1.33 (4.95)
Average gross margin 25.7% 25.7%
SG&A expenses 20.3% 19.6%

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