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ShopKo cuts interest, ups profits

Sales creep up 1.4 percent

Driven largely by a gain in same-store sales and a deep cut in interest expense, second quarter profits at heartland discounter ShopKo Stores Inc. rose 7.8 percent, to $8.3 million from $7.7 million during the same period a year ago.

Sales edged up 1.4 percent, to $775.6 million from $764.7 million a year ago, while same-store sales improved 1.3 percent.

In a big boost to the bottom line, the retailer whittled interest expense 18.9 percent, to $8.6 million from $10.6 million last year, generating a cash savings of $2 million. For all of last year, interest costs were rolled back 19.2 percent, for a savings of $4.1 million.

Operating costs improved slightly, declining 10 basis points, or one-tenth of a percentage point, to 21 percent of sales from 21.1 percent the prior year. But any savings there were offset by eroding margins, which contracted 20 basis points, to 26.2 percent form 26.4 percent.

Hobbled by narrowed margins, earnings in the core ShopKo Stores business declined 6.2 percent, to $23.2 million from $24.9 million, even though sales improved 1.8 percent, to $568.8 million from $558.8 million.

Profits in the small-store format Pamida unit slipped 2.2 percent, to $6.2 million from $6.3 million last year. Sales were virtually flat, up just 0.4 percent to $206.8 million from $205.9 million.

ShopKo Stores Inc.

Qtr. 7/31 (x000) 2004 2003 % chg
Sales $775,576a $764,692a 1.4
Oper. Income (EBIT) 22,183 23,354 -5.0
Net income 8,300 7,699 7.8
Per share (diluted) 0.28 0.26 7.7
Average gross margin 26.2% 26.4%
SG&A expenses 21.0% 21.1%
Six months 2004 2003 % chg
Sales 1,510,609b 1,472,609b 2.6
Oper. Income (EBIT) 26,850 32,172 -16.5
Net income 5,919 6,604 -10.4
Per share (diluted) 0.20 0.23 -13.0
Average gross margin 25.6% 26.1%
SG&A expenses 21.4% 21.5%
a-Net sales, excluding licensed department rentals and other income of $3.3 million, compared with $3.2 million last year.
b-Net sales, excluding licensed department rentals and other income of $6.3 million versus $6.3 million a year ago.


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