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Strong Margins Lead ShopKo Back to Black

NEW YORK — Gross margin gains coupled with lower expenses allowed ShopKo Stores Inc. to return to profitability in the third quarter.<br><br>For the three months ended Nov. 2, the Green Bay, Wis.-based regional discounter posted net income of...

NEW YORK — Gross margin gains coupled with lower expenses allowed ShopKo Stores Inc. to return to profitability in the third quarter.

For the three months ended Nov. 2, the Green Bay, Wis.-based regional discounter posted net income of $877,000, or 3 cents a diluted share. That compares with last year when the company sustained a net loss of $5.2 million, or 18 cents. Earnings per share beat the Wall Street forecast by 3 cents. Excluding goodwill and other intangibles charges in the year-ago period, ShopKo’s net loss last year would have been a more modest $3.9 million, or 14 cents.

Sales for the period declined 3.5 percent to $773 million from $800.9 million a year ago, as consolidated same-store sales dropped 3.2 percent. By segment, the company’s ShopKo division reported a 2.6 percent fall in sales to $584.1 million from $599.7 million last year, while comparable-store sales also dipped 2.6 percent. At the Pamida unit, sales regressed 6.2 percent to $185.5 million from $197.8 million, as comps decreased 4.9 percent.

“We are pleased with the improvement in both operating divisions,” said chief executive officer Sam Duncan in a statement. “Gross margin expansion and interest expense reduction drove the improvement. In addition to the improved operating performance, we continue to strengthen our financial position through the end of the quarter through disciplined working capital management.”

Gross margin rose to 24.8 percent of sales, or $190.9 million, from 22.3 percent, or $177.9 million a year ago, and interest expense fell to $13.3 million, or 1.7 percent of sales, from $16.2 million, or 2 percent, last year. Other efficiencies that found their way to the bottom line included a cost-of-sales reduction to 75.2 percent of sales from 77.7 percent a year ago, as well as lower depreciation and amortization expenses, which ticked down to 2.7 percent of sales from 2 percent in the prior-year period.

Overall, for the first nine months of the year, ShopKo suffered a net loss of $177.5 million, or $6.07 a diluted share. That compares unfavorably with last year’s much smaller loss of $6.7 million, or 23 cents. Excluding special accounting change charges, this year’s net earnings would have been $8.6 million, or 29 cents, while last year’s loss would have been $2.9 million, or 10 cents.

Consolidated sales for the period fell 3.7 percent to $2.29 billion from $2.38 billion a year ago. Excluding closed stores, last year’s total sales were $2.32 billion.