Pamida dragging down ShopKo

GREEN BAY, WIS. — Checked by mounting losses in its small-store Pamida unit, heartland discounter ShopKo Stores Inc. recorded a widening first-quarter loss of $2.4 million, more than twice the size of a year-before deficit of $1.1 million.

Pushing the bottom line underwater, Pamida ran out of steam after making some earlier progress, posting a $2.4 million loss, up from $1.4 million last year. Weakness at Pamida offset a modest operating profit at the core ShopKo business of $13.8 million, down 12.7 percent from $15.9 million last year.

Tugging at Pamida's bottom line was a weakening average gross margin of 24.9 percent, down 80 basis points, or eight-tenths of a percentage point from 25.7 percent a year ago.

Overall, sales at ShopKo edged up 3.8 percent, to $735 million from $707.9 million last year, with both retail units making headway. Sales at ShopKo stores improved 4.2 percent, to $552.8 million from $530.5 million a year ago. Same-store sales increased 4.2 percent. Pamida sales increased 2.7 percent, to $182.2 million from $177.4 million the preceding year, while same-store sales rose 3.3 percent.

Putting earnings under pressure, overall average gross margin declined 80 basis points, or eight-tenths of a percentage point, to 25 percent of sales from 25.8 percent, due largely to stepped-up promotional activity in the ShopKo division. Operating costs improved slightly, to 21.9 percent of sales from 22 percent last year, mostly due to sales leverage and tight cost controls at the core ShopKo business.

Inventory increased 7.1 percent, to $644.2 million from $601.4 million last year, the retailer said, "principally due to expanded merchandise assortments and deeper in-stock levels to support merchandising and sales-growth initiatives."

Sam Duncan, ShopKo CEO, commented, "Overall, first-quarter earnings were in line with our expectations. We were encouraged by the continued improvement in comparable-store sales. Our increased promotional efforts generated additional traffic and sales, and indicated that our merchandise initiatives are appealing to consumers."