ShopKo Stores, Inc. announced sales and earnings for the first quarter ended May 3, 2003. Consolidated sales were $707.9 million compared with $728.8 million for the same period last year. Comparable store sales decreased 2.7 percent. Net loss for the quarter was $1.1 million compared with net earnings of $0.5 million last year before the cumulative effect of accounting change related to SFAS No. 142. Loss per share, on a fully diluted basis, was $0.04 compared with earnings of $0.02 before the cumulative effect of accounting change last year.
Both first quarter periods were affected by the adoption of new accounting rules. For the first quarter ended May 3, 2003, diluted loss per share includes the effect of adopting Emerging Issues Task Force Consensus No. 02-16 (EITF No. 02-16), on accounting for money received from suppliers, which reduced earnings by approximately $0.9 million after tax ($0.03 per share). Under the new accounting standard, monies received from suppliers are generally considered a reduction in the price of a vendor’s product and recognized as a reduction in the cost of goods sold. The Company believes, however, the full year impact on earnings will be immaterial.
For the first quarter ended May 4, 2002, diluted net loss per share was $6.35. The loss was a direct result of adopting SFAS No. 142 and the resultant write off of goodwill related to the acquisition of the Pamida Division.
Commenting on the quarter, ShopKo Stores, Inc. President and Chief Executive Officer Sam Duncan said, “While sales were disappointing at the ShopKo Division, we continue to be encouraged by the improvement in sales trends at the Pamida Division. Although the retailing environment was difficult, inventories and expenses continue to be well controlled in both divisions.
“We were also pleased with the continued improvement of our capital structure. Debt was reduced $154.0 million compared with last year. We reduced our secured credit facility commitment by $50.0 million to $450.0 million in the first quarter. This is the second reduction in five months, contributing to a cumulative commitment reduction of $150.0 million.”
The Company believes that sales were impacted by poor consumer sentiment, the geopolitical environment, competitive openings, and deflation in cost of goods sold.
Consolidated Sales Summary (dollars in millions)
First Quarter
Business Segment 02/02/03- 02/03/02- Change Total** Change Comp*
05/03/03 05/04/02 (13 weeks
(13 weeks) (13 weeks) vs. 13 weeks)
ShopKo $530.5 $552.5 (4.0)% (4.0)%
Pamida 177.4 176.3 0.6% 1.3%
Consolidated $707.9 $728.8 (2.9)% (2.7)%
* Comparable store sales represent sales of those stores open during
both fiscal years.
** Pamida division total sales variance reflects sales in the prior year
periods from three locations which have been closed and not replaced.
Consolidated gross margin as a percent of sales was 25.8 percent compared with 25.4 percent last year. The adoption of EITF No. 02-16 favorably affected gross margin by 90 basis points or $6.3 million (ShopKo, $6.6 million; Pamida, ($0.3) million). Excluding the effect of EITF No. 02- 16, the company experienced compressed merchandise margins attributable to heavier promotions in the ShopKo Division, partially offset by reduced shrink expense.
Consolidated selling, general and administrative (SG&A) expense as a percent of sales was 22.0 percent compared with 21.0 percent last year. The adoption of EITF No. 02-16 adversely affected SG&A expense by 110 basis points or $7.7 million (ShopKo, $7.5 million; Pamida, $0.2 million). Excluding the effect of EITF No. 02-16, the Company’s expense rate would have improved ten basis points which was primarily attributable to reduced employee benefit costs, partially offset by sales deleveraging.
The difference between the $6.3 million in gross margin and the $7.7 million in SG&A expense, or $1.4 million, relates to the deferred recognition of vendor allowances until the merchandise is sold.
Interest expense was $10.9 million compared with $13.1 million last year, a reduction of $2.2 million due primarily to lower debt levels.
The effective tax rate was 39.7 percent compared with 39.5 percent last year.
Capital expenditures were $2.8 million compared with $2.9 million last year. The Company continues to expect capital expenditures to be approximately $76.0 million for the fiscal year.
Current economic conditions continue to create an environment of uncertainty, making forecasting somewhat difficult. The Company expects consolidated comparable store sales for the second quarter ending August 2, 2003, to be in the negative low single digit range, and earnings per share to be in the range of $0.25 to $0.30. For the fiscal year ending January 31, 2004, the Company expects consolidated comparable store sales to be in the negative low single digit range, and earnings per share to be at the low end of the previously provided range of $1.40 to $1.50.
ShopKo Stores, Inc. and Subsidiaries
Consolidated Statements of Operations
First Quarter
13 Weeks 13 Weeks
Ended Ended
May 3, May 4,
(In thousands, except per share data) 2003 2002
Revenues:
Net sales $707,917 $728,764
Licensed department rentals and
other income 3,047 3,124
710,964 731,888
Costs and expenses:
Cost of sales 525,254 543,839
Gross margin 182,663 184,925
Selling, general and administrative
expenses 155,643 153,281
Depreciation and amortization
expenses 20,971 20,902
176,614 174,183
Income from operations 9,096 13,866
Interest expense - net 10,913 13,086
Earnings (loss) before income taxes
and accounting change (1,817) 780
Provision (benefit) for income taxes (722) 308
Earnings (loss) before accounting
change (1,095) 472
Cumulative effect of accounting change - (186,052)
Net earnings (loss) $(1,095) $(185,580)
