ShopKo profits drop 3.5 percent

GREEN BAY, WIS. — With thinning margins and weaker sales offsetting lower costs, and a deep cut in interest expense, fourth-quarter profits at heartland retailer ShopKo Stores Inc. slipped by 3.5 percent, to $31.6 million from $32.7 million last year.

With stronger sales in the recovering Pamida unit offset by weakness in the core ShopKo business, sales backed off by 0.6 percent, to $952.9 million from $958.4 million. Same-store sales slipped by 0.5 percent. Sales in the small-store-format Pamida business increased by 2.3 percent, to $227.3 million. But sales in the larger ShopKo franchise gave up 1.4 percent, to $725.6 million.

Tugging on the bottom line, average gross margin contracted under holiday markdown pressure by 160 basis points, or 1.6 percent, to 25.3 percent from 26.9 percent a year ago. Weaker margins offset lower costs, which improved by 30 basis points, or three-tenths of a percentage point, to 17.1 percent from 17.4 percent.

Measured in absolute dollars, costs decreased by 2.1 percent, generating a cash savings of $3.5 million.

In another big savings, Costco slashed its interest expense by 33.6 percent, to $8.7 million from $13.1 million, dropping another $4.4 million to the bottom line.