ShopKo sees profit rise 7% in second quarter

GREEN BAY, WI — 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.