SKO Shopko Stores

GREEN BAY, Wis., Nov. 17 /PRNewswire-FirstCall/ -- ShopKo Stores, Inc. (NYSE:SKO), today announced financial results for the third quarter ended October 29, 2005. Net loss for the third quarter of 2005 was $14.1 million compared with net income of $2.0 million last year. Net loss per diluted share was $0.47 in the third quarter of 2005 compared with net income per diluted share of $0.07 last year. Consolidated sales decreased 5.6 percent to $704.8 million in the third quarter of 2005 compared with $746.4 million for the comparable period last year. Consolidated comparable store sales decreased 5.8 percent. The third quarter 2005 results reflect a number of factors, including: -- Merger-related expenses of $16.3 million ($0.50 per share) related to the proposed sale of the Company, including a $13.5 million merger termination fee (for which no tax benefit was recognized) paid to Badger Retail Holding, Inc., an affiliate of Goldner Hawn Johnson & Morrison Incorporated -- A continued focus on improving the mix between profitable sales and promotional activity, resulting in higher gross margin -- Expenses of $1.1 million associated with the closing of two Pamida stores -- A reduction in interest expense of $2.0 million due to lower debt levels. Debt levels at the end of the third quarter declined by $157.5 million from the comparable 2004 period due to higher cash flows from operations (exclusive of merger-related costs), reduced inventory levels, use of proceeds from the sale of the three Colorado stores, and reduced capital expenditures. Merchandise inventories declined $55.1 million in the third fiscal quarter from the comparable 2004 period. Capital expenditures for the third quarter of 2005 were $12.2 million compared with $19.4 million last year. As a result of reduced borrowing levels and needs, the Company elected to reduce its credit line with Bank of America by $100 million in the third quarter. Year to Date 2005 For the thirty-nine weeks ended October 29, 2005, consolidated sales were $2,145.1 million compared with $2,257.0 million last year, a decrease of 5.0 percent. Comparable store sales decreased 5.4 percent. Net loss was $1.9 million in 2005 compared with net income of $7.9 million in 2004. Net loss per diluted share was $0.06 in 2005 compared with net income per diluted share of $0.27 in 2004. The 2005 results reflect merger-related expenses of $19.1 million ($0.56 per share). Due to the pending merger agreement pursuant to which ShopKo Stores, Inc. will be acquired by an affiliate of the private investment firm Sun Capital Partners, Inc., a Boca Raton, Florida-based private equity firm, the Company has determined not to hold a conference call to discuss third quarter results. ShopKo Stores, Inc. provides weekly updates on consolidated comparable store sales. A real time audio recording of the previous week's results will be available after 10:00 a.m. CDT Monday by calling (920) 429-4646. These recorded messages will not be available on the Monday preceding monthly sales releases. 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 137 ShopKo stores, providing quality name-brand merchandise, great values, pharmacy and optical services in mid-sized to larger cities; 216 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) Third Quarter Business Segments 07/31/05- 08/01/04- Change Total** Change Comp* 10/29/05 10/30/04 (13 weeks vs. (13 weeks) (13 weeks) 13 weeks) ShopKo $522.1 $553.1 (5.6)% (5.6)% Pamida* 182.7 193.3 (5.5)% (6.1)% Consolidated $704.8 $746.4 (5.6)% (5.8)% *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 three closed ShopKo locations in fiscal 2005, 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 and three new locations and seven closed locations in fiscal 2005. ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Third Quarter and Year-to-Date 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October October October October (In thousands, except 29, 30, 29, 30, per share data) 2005 2004 2005 2004 Revenues: Net sales $704,845 $746,391 $2,145,099 $2,257,000 Licensed department rentals and other income 3,425 3,497 10,384 9,847 708,270 749,888 2,155,483 2,266,847 Costs and expenses: Cost of sales 511,843 554,175 1,558,989 1,677,679 Gross margin 193,002 192,216 586,110 579,321 Selling, general and administrative expenses 168,136 162,684 489,695 486,630 Depreciation and amortization expenses 19,739 20,916 61,265 63,574 Merger-related expenses 16,256 (1) - 19,095 (1) - 204,131 183,600 570,055 550,204 (Loss) income from operations (7,704) 12,113 26,439 38,964 Interest expense 6,785 8,840 21,148 25,985 (Loss) income before income taxes (14,489) 3,273 5,291 12,979 (Benefit) provision for income taxes (383) 1,278 7,235 5,064 Net (loss) income $(14,106) $1,995 $(1,944) $7,915 Net (loss) income per share of common stock: Basic: $(0.47) $0.07 $(0.06) $0.27 Diluted: $(0.47) $0.07 $(0.06) $0.27 Weighted average number of common shares outstanding: Basic: 30,211 29,362 30,004 29,288 Diluted: 30,211 29,683 30,004 29,553 (1) Includes a termination fee of $13.5 million paid to Badger Retail Holding, Inc. Due to the non-deductibility of certain merger-related expenses, the impact on net income of such non-recurring expenses was $15.2 million ($0.50 per share) and $16.9 million ($0.56 per share) for the 13 and 39 week periods ended October 29, 2005, respectively. ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Percents of Sales Third Quarter and Year-to-Date 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October October October October 29, 30, 29, 30, 2005 2004 2005 2004 Revenues: Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.5 0.5 0.5 0.4 100.5 100.5 100.5 100.4 Costs and expenses: Cost of sales 72.6 74.2 72.7 74.3 Gross margin 27.4 25.8 27.3 25.7 Selling, general and administrative expenses 23.9 21.8 22.8 21.6 Depreciation and amortization expenses 2.8 2.8 2.9 2.8 Merger-related expenses 2.3 0.0 0.9 0.0 29.0 24.6 26.6 24.4 (Loss) income from operations (1.1) 1.6 1.2 1.7 Interest expense 1.0 1.2 1.0 1.2 (Loss) income before income taxes (2.1) 0.4 0.2 0.5 (Benefit) provision for income taxes (0.1) 0.2 0.3 0.2 Net (loss) income (2.0) 0.3 (0.1) 0.3 ShopKo Stores, Inc. and Subsidiaries Business Segment Information Third Quarter and Year-to-Date 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October October October October 29, 30, 29, 30, (Dollars in thousands) 2005 2004 2005 2004 ShopKo Retail Segment Net sales $522,152 $553,134 $1,573,259 $1,674,734 Licensed department rentals and other income 3,015 3,015 9,008 8,682 525,167 556,149 1,582,267 1,683,416 Costs and expenses: Cost of sales 379,654 407,972 1,144,119 1,243,901 Gross Margin 142,498 145,162 429,140 430,833 Selling, general and administrative expenses 116,986 114,199 337,368 337,907 Depreciation and amortization expenses 14,746 15,513 45,744 45,983 131,732 129,712 383,112 383,890 Income from operations $13,781 $18,466 $55,036 $55,625 Pamida Retail Segment Net sales $182,693 $193,257 $571,840 $582,266 Licensed department rentals and other income 410 482 1,376 1,164 183,103 193,739 573,216 583,430 Costs and expenses: Cost of sales 132,189 146,203 414,870 433,778 Gross Margin 50,504 47,054 156,970 148,488 Selling, general and administrative expenses 44,035 42,616 131,673 129,115 Depreciation and amortization expenses 4,855 5,270 15,135 17,160 48,890 47,886 146,808 146,275 Income (loss) from operations $2,024 $(351) $11,538 $3,378 Corporate Segment Net sales $- $- $- $- Licensed department rentals and other income - - - - - - - - Costs and expenses: Selling, general and administrative expenses 7,115 5,870 20,654 19,608 Depreciation and amortization expenses 138 133 386 431 Merger-related expenses 16,256 0 19,095 0 23,509 6,003 40,135 20,039 (Loss) from operations $(23,509) $(6,003) $(40,135) $(20,039) Consolidated (Loss) income from operations $(7,704) $12,112 $26,439 $38,964 ShopKo Stores, Inc. and Subsidiaries Business Segment Information Percents of Sales Third Quarter and Year-to-Date 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October October October October 29, 30, 29, 30, 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 72.7 73.8 72.7 74.3 Gross Margin 27.3 26.2 27.3 25.7 Selling, general and administrative expenses 22.4 20.6 21.5 20.2 Depreciation and amortization expenses 2.8 2.8 2.9 2.7 25.2 23.5 24.4 22.9 Income from operations 2.7 3.3 3.5 3.3 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended October October October October 29, 30, 29, 30, 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 72.3 75.7 72.5 74.5 Gross Margin 27.7 24.3 27.5 25.5 Selling, general and administrative expenses 24.1 22.1 23.0 22.2 Depreciation and amortization expenses 2.7 2.7 2.7 2.9 26.8 24.8 25.7 25.1 Income (loss) from operations 1.1 (0.3) 2.0 0.6 Consolidated (Loss) income from operations (1.1) 1.6 1.2 1.7 ShopKo Stores, Inc. and Subsidiaries Consolidated Condensed Balance Sheets (In thousands) October 29, October 30, 2005 2004 Cash and cash equivalents $33,215 $29,280 Receivables, less allowances 50,574 55,398 Merchandise inventories 646,832 701,953 Other current assets 6,646 8,241 Total current assets 737,267 794,872 Other assets and deferred charges 8,904 7,943 Intangible assets 22,877 28,984 Net property and equipment 687,541 757,254 Total assets $1,456,589 $1,589,053 Short-term debt $65,000 $156,101 Accounts payable - trade 280,323 297,489 Accrued liabilities 180,170 180,247 Current portion of long-term obligations 6,288 62,304 Total current liabilities 531,781 696,141 Long-term obligations 230,297 240,637 Other long-term obligations 23,975 21,838 Deferred income taxes 22,039 29,791 Shareholders' equity 648,497 600,646 Total liabilities and shareholders' equity $1,456,589 $1,589,053 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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