ShopKo rebounds with $34M profit in 4Q

Don Hogsett, March 18, 2002

Climbing back on track after a sweeping restructuring and the shutdown of 23 stores, heartland discounter ShopKo Stores Inc. widened margins, cut costs and paid down debt to generate a fourth-quarter profit of $34.9 million, recovering from a year-ago loss of $47.3 million, when its bottom line was weighed down by more than $37 million in restructuring and special charges.

Weakened by store closings and a broadly soft retail environment, ShopKo sales fell of by 11.5 percent in the closing quarter, to $1.0 billion from $1.1 billion last year. Sales in ShopKo stores fell off by 4.2 percent, to $769.1 million from $802.9 million. But harder hit was the smaller-format Pamida Stores division, where sales dropped off by 9.4 percent, to $234.3 million from $258.6 million.

Despite the drop-off in sales, ShopKo expanded its margins by 240 basis points, to 26.7 percent from 24.3 percent a year ago, gaining, the company said, on improved inventory management, resulting in less clearance, and lower distribution costs, including freight.

In another big operational improvement, ShopKo slashed its operating costs by 6.5 percent, to $173.8 million from $185.9 million last year, a cash savings of $12.1 million. But given the lower level of sales, costs climbed somewhat higher when measured as a percentage of sales, to 17.3 percent from 16.4 percent the prior year.

Fueled by stronger margins and lower costs, the retailer's fourth-quarter operating profit advanced at a double-digit pace, climbing by 10.4 percent, to $75.4 million from $68.3 million.

The company's debt load was reduced by 24.3 percent, to $203.3 million, resulting in sharply lower interest costs, down 21.3 percent, to $14.4 million from $18.3 million last year, a savings of $3.9 million.

Bill Podany, president and ceo, commented, "While we fell short of our initial operating performance targets, due in part to a difficult economic environment and under-performance at our Pamida division, we achieved and, in some cases, exceeded a number of critical financial objectives for the year, resulting in improved liquidity."

Shopko Stores Inc.

Qtr. 2/2/02 (x000) 2002 2001 % CHG
a-Results in the prior-year fourth quarter include restructuring charges totaling $125.0 million; special charges totaling $2.0 million; partially offset by an income-tax credit of $29.8 million.
b-Results for all of 2001 include restructuring charges totaling $125.0 million; special charges totaling $9.2 million; a $32.6 million gain on the sale of a discontinued business; and an income-tax benefit of $29.0 million.
Sales $1,003,090 $1,133,787 -11.5
Oper. income (EBIT) 75,379 68,255 10.4
Net income 34,886 (47,268)a
Per share (diluted) 1.21 (1.65)
Average gross margin 26.7% 24.3%
SG&A expenses 17.3% 16.4%
12 months
Sales 3,373,935 3,517,112 -4.1
Oper. income (EBIT) 115,597 121,206 -4.6
Net income 28,217 (15,818)b
Per share (diluted) 0.98 (0.55)
Average gross margin 23.9% 24.9%
SG&A expenses 18.1% 19.2%

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