ShopKo Reports Third Quarter Results

ShopKo Reports Third Quarter Results

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

Source: 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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