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ShopKo sees profit rise 7% in second quarter

Helped by stronger margins, lower borrowing costs and an ongoing turnaround in its Pamida Stores division, heartland retailer ShopKo Stores drove second-quarter profits up by 6.9 percent, to $7.7 million from $7.2 million last year.

ShopKo sales backed off by 2.4 percent, to $764.7 million from $783.4 million last year. Same-store sales declined by 2.2 percent, with a decline at the ShopKo Stores division offsetting gains at Pamida.

Bounding back from earlier weakness, Pamida drove operating profits up by 70.0 percent, to $6.3 million from $3.7 million last year. Pamida sales increased by 2.9 percent, to $205.9 million from $200.1 million last year, while same-stores grew by 3.7 percent.

Fueling the earnings improvement at Pamida, in addition to the stronger sales, were sharply improved margins, which grew by 130 basis points, or 1.3 percentage points, to 26.5 percent from 25.2 percent. Operating costs held steady at 20.8 percent.

But offsetting Pamida's growing strength, operating profits in the larger ShopKo business slipped by 13.2 percent, to $24.9 million from $28.6 million. ShopKo sales declined by 4.2 percent, to $558.8 million from $583.3 million, and same-store sales declined by 4.2 percent.

Despite the sluggish sales, margins at ShopKo improved by 90 basis points, or nine-tenths of a percentage point, to 26.4 percent from 25.5 percent. But operating costs climbed higher as a percentage of sales, rising by 130 basis points, or 1.3 percentage points, to 19.8 percent from 18.5 percent.

Average gross margin improved by 90 basis points, or nine-tenths of a percentage point, to 26.4 percent from 25.5 percent a year ago. Gross margin dollars rose by 1.1 percent, to $201.7 million from $199.5 million. Interest expense was cut by 17.2 percent, to $10.6 million from $12.8 million, freeing up $2.2 million in cash.

ShopKo Stores Inc.

Qtr. 8/2 (x000) 2003 2002 % chg
(loss)
a-Earnings in the six-month period of 2002 include a $186.1 million one-time, non-cash charge stemming from a change in accounting. Excluding the on-time item, earnings in the six months declined by 814.0 percent, to $6.6 million from $7.7 million.
Sales $764,692 $783,369 -2.4%
Oper. income (EBIT) 40,722 42,234 -3.6
Net income 7,699 7,205 6.9
Per share (diluted) 0.26 0.25 4.0
Average gross margin 26.4% 25.5%
SG&A expenses 21.1% 20.1%
Six months
Sales 1,472,609 1,512,133 -2.6
Oper. income (EBIT) 67,464 73,878 -8.7
Net income 6,604 (178,375)a
Per share (diluted) 0.23 (6.10)
Average gross margin 26.1% 25.4%
SG&A expenses 21.5% 20.5%


SEGMENT RESULTS

Qtr. 8/2 (x000) 2003 2002 % chg
ShopKo stores
Sales $558,810 $583,283 -4.2%
Same-store sales -4.2
Average gross margin 26.4% 25.5%
SG&A expenses 19.8% 18.5%
Operating profit 24,858 28,634 -13.2
Pamida
Sales 205,882 200,086 2.9
Same-store sales 3.7
Average gross margin 26.5% 25.2%
SG&A expenses 20.8% 20.8%
Operating profit 6,304 3,708 70.0


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