SKO Shopko Stores

GREEN BAY, Wis., Aug. 18 /PRNewswire-FirstCall/ -- ShopKo Stores, Inc. (NYSE:SKO) today announced financial results for the second quarter ended July 30, 2005. Net income for the second quarter of 2005 was $11.5 million compared with net income of $8.3 million last year. Earnings per diluted share were $0.38 compared with earnings per diluted share of $0.28 last year. Consolidated sales decreased 5.0 percent to $737.0 million in the second quarter of 2005 compared with $775.6 million for the comparable period last year. Consolidated comparable store sales decreased 5.6 percent. The second quarter 2005 results benefited from a number of factors including: -- continued focus on improving the mix between profitable sales and promotional activity, resulting in higher gross margin -- reduction in interest expense of $1.6 million due to lower debt levels -- decrease of $1.7 million in expenses associated with reduced store remodeling activity in 2005 compared with a year ago -- $2.3 million gain on the sale of three Colorado stores partially offset by $1.7 million of merger related costs. Debt levels at period end declined $142 million from the comparable 2004 period due to reduced inventory levels and higher cash flows from operations, use of proceeds from the sale of the three Colorado stores, and reduced capital expenditures. Capital expenditures for the second quarter of 2005 were $5.5 million compared with $21.0 million last year. In the first half of fiscal 2005, capital expenditures were $8.3 million compared with $31.4 million for the same period last year. The decrease in capital expenditures is primarily due to $13.0 million related to the expansion of the Omaha distribution center and $7.9 million in store remodeling activity during the first half of fiscal 2004. The company expects capital expenditures to total approximately $35 million for the fiscal year. During the second quarter of 2005, the Company sold three ShopKo stores in Colorado and closed two Pamida locations. The Company also announced the closing of one additional Pamida location to occur in the third quarter and expects to recognize a charge of $1.1 million upon the store closing. First Half 2005 For the first half, consolidated sales were $1,440.2 million compared with $1,510.6 million last year, a decrease of 4.7 percent. Net income was $12.2 million compared with last year's net income of $5.9 million. Diluted earnings per share were $0.40 compared with diluted earnings per share of $0.20 last year. Due to the pending merger agreement pursuant to which ShopKo Stores, Inc. will be acquired by a private investment group affiliated with and managed by Goldner Hawn Johnson & Morrison Incorporated, a Minneapolis, Minnesota-based private equity firm, the Company has determined not to hold a conference call to discuss second quarter results. The proposed merger agreement will be voted on by the company's shareholders at a special meeting scheduled for September 14, 2005. ShopKo Stores, Inc. is a retailer of quality goods and services headquartered in Green Bay, Wis., with stores located throughout the Midwest, Mountain and Pacific Northwest regions. Retail formats include 140 ShopKo stores, providing quality name-brand merchandise, great values, pharmacy and optical services in mid-sized to larger cities; 220 Pamida stores, 116 of which contain pharmacies, bringing value and convenience close to home in small, rural communities; and three ShopKo Express Rx stores, a new and convenient neighborhood drugstore concept. With more than $3.0 billion in annual sales, ShopKo Stores, Inc. is listed on the New York Stock Exchange under the symbol SKO. For more information about ShopKo, Pamida or ShopKo Express Rx, visit our Web site at http://www.shopko.com/ . This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding expected sales and other financial results. Such statements are subject to important factors that could cause ShopKo's actual results to differ materially from those anticipated by the forward-looking statements including those referenced in ShopKo's current annual report on Form 10-K or as may be described from time to time in ShopKo's subsequent SEC filings; and such factors are incorporated by reference. Consolidated Sales Summary (dollars in millions) Second Quarter 05/1/05- 05/02/04- Change Comp* Business 07/30/05 07/31/04 Change (13 weeks vs. Segments (13 weeks) (13 weeks) Total** 13 weeks) ShopKo $533.3 $568.8 (6.2)% (6.7)% Pamida $203.7 206.8 (1.5)% (2.7)% Consolidated $737.0 $775.6 (5.0)% (5.6)% *Comparable store sales represent sales of those stores open during both fiscal years and do not include sales from the ShopKo wholesale optical lab. **ShopKo division total sales variance reflects sales from one closed ShopKo location in fiscal 2004 and three new ShopKo Express Rx locations. Pamida division total sales variance reflects sales from five closed Pamida locations and seven new locations in fiscal 2004. Pamida sales variance also reflects sales from three closed Pamida locations and three new locations in fiscal 2005. ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Second Quarter and Year-to-Date 13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended (In thousands, except per July 30, July 31, July 30, July 31, share data) 2005 2004 2005 2004 Revenues: Net sales $736,995 $775,576 $1,440,254 $1,510,609 Licensed department rentals and other income 3,499 3,254 6,959 6,349 740,494 778,830 1,447,213 1,516,958 Costs and expenses: Cost of sales 531,895 572,282 1,047,146 1,123,504 Gross margin 205,100 203,294 393,108 387,105 Selling, general and administrative expenses 162,205 163,208 324,398 323,946 Depreciation and amortization expenses 20,645 21,157 41,526 42,658 182,850 184,365 365,924 366,604 Income from operations 25,749 22,183 34,143 26,850 Interest expense 7,002 8,577 14,363 17,145 Income before income taxes 18,747 13,606 19,780 9,705 Provision for income taxes 7,221 5,306 7,618 3,786 Net income $11,526 $8,300 $12,162 $5,919 Net income per share of common stock: Basic: $0.38 $0.28 $0.41 $0.20 Diluted: $0.38 $0.28 $0.40 $0.20 Weighted average number of common shares outstanding: Basic: 30,075 29,291 29,901 29,251 Diluted: 30,433 29,514 30,238 29,491 ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Percents of Sales Second Quarter and Year-to-Date 13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended July 30, July 31, July 30, July 31, 2005 2004 2005 2004 Revenues: Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.5 0.4 0.5 0.4 100.5 100.4 100.5 100.4 Costs and expenses: Cost of sales 72.2 73.8 72.7 74.4 Gross margin 27.8 26.2 27.3 25.6 Selling, general and administrative expenses 22.0 21.0 22.5 21.4 Depreciation and amortization expenses 2.8 2.7 2.9 2.8 24.8 23.7 25.4 24.2 Income from operations 3.5 2.9 2.4 1.8 Interest expense 1.0 1.1 1.0 1.1 Income before income taxes 2.5 1.8 1.4 0.7 Provision for income taxes 1.0 0.7 0.5 0.3 Net income 1.5 1.1 0.9 0.4 ShopKo Stores, Inc. and Subsidiaries Business Segment Information Second Quarter and Year-to-Date 13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended July 30, July 31, July 30, July 31, (Dollars in thousands) 2005 2004 2005 2004 ShopKo Retail Segment Net sales $533,257 $568,801 $1,051,108 $1,121,600 Licensed department rentals and other income 3,018 2,903 5,993 5,667 536,275 571,704 1,057,101 1,127,267 Costs and expenses: Cost of sales 386,394 420,697 764,466 835,930 Gross Margin 146,863 148,104 286,642 285,670 Selling, general and administrative expenses 108,904 112,520 220,382 223,708 Depreciation and amortization expenses 15,401 15,173 30,997 30,470 124,305 127,693 251,379 254,178 Income from operations $25,576 $23,314 $41,256 $37,159 Pamida Retail Segment Net sales $203,738 $206,775 $389,146 $389,009 Licensed department rentals and other income 481 351 966 683 204,219 207,126 390,112 389,692 Costs and expenses: Cost of sales 145,500 151,585 282,680 287,574 Gross Margin 58,238 55,190 106,466 101,435 Selling, general and administrative expenses 44,106 43,543 87,638 86,500 Depreciation and amortization expenses 5,119 5,832 10,280 11,890 49,225 49,375 97,918 98,390 Income from operations $9,494 $6,166 $9,514 $3,728 Corporate Segment Net sales $- $- $- $- Licensed department rentals and other income - - - - - - - - Costs and expenses: Selling, general and administrative expenses 9,196 7,147 16,378 13,738 Depreciation and amortization expenses 125 152 249 298 9,321 7,299 16,627 14,036 Income from operations $(9,321) $(7,299) $(16,627) $(14,036) Consolidated Income from operations $25,749 $22,181 $34,143 $26,851 ShopKo Stores, Inc. and Subsidiaries Business Segment Information Percents of Sales Second Quarter and Year-to-Date 13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended July 30, July 31, July 30, July 31, 2005 2004 2005 2004 ShopKo Retail Segment Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.6 0.5 0.6 0.5 100.6 100.5 100.6 100.5 Costs and expenses: Cost of sales 72.5 74.0 72.7 74.5 Gross Margin 27.5 26.0 27.3 25.5 Selling, general and administrative expenses 20.4 19.8 21.0 19.9 Depreciation and amortization expenses 2.9 2.7 2.9 2.7 23.3 22.5 23.9 22.6 Income from operations 4.8 4.0 4.0 3.4 13 Weeks 13 Weeks 26 Weeks 26 Weeks Ended Ended Ended Ended July 30, July 31, July 30, July 31, 2005 2004 2005 2004 Pamida Retail Segment Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.2 0.2 0.2 0.2 100.2 100.2 100.2 100.2 Costs and expenses: Cost of sales 71.4 73.3 72.6 73.9 Gross Margin 28.6 26.7 27.4 26.1 Selling, general and administrative expenses 21.6 21.1 22.5 22.2 Depreciation and amortization expenses 2.5 2.8 2.7 3.1 24.1 23.9 25.2 25.3 Income from operations 4.7 3.0 2.4 1.0 Consolidated Income from operations 3.5 2.9 2.4 1.8 ShopKo Stores, Inc. and Subsidiaries Consolidated Condensed Balance Sheets (In thousands) July 30, July 31, 2005 2004 Cash and cash equivalents $41,431 $32,819 Receivables, less allowances 52,079 51,714 Merchandise inventories 561,190 613,364 Other current assets 9,614 9,595 Total current assets 664,314 707,492 Other assets and deferred charges 8,788 7,697 Intangible assets 23,462 25,985 Net property and equipment 696,054 761,827 Total assets $1,392,618 $1,503,001 Short-term debt $40,000 $118,825 Accounts payable - trade 230,141 260,010 Accrued liabilities 173,582 174,692 Current portion of long-term obligations 7,177 62,473 Total current liabilities 450,900 616,000 Long-term obligations 234,767 242,876 Other long-term obligations 23,214 23,740 Deferred income taxes 22,963 22,803 Shareholders' equity 660,774 597,582 Total liabilities and shareholders' equity $1,392,618 $1,503,001 DATASOURCE: ShopKo Stores, Inc. CONTACT: Media, John Vigeland, +1-920-429-4132, or Investor Relations, +1-920-429-7039, both of ShopKo Stores, Inc. Web site: http://www.shopko.com/

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