ShopKo Reports Fourth Quarter and Fiscal Year 2004 Results

ShopKo Reports Fourth Quarter and Fiscal Year 2004 Results

(Fourth Quarter Diluted EPS Improved 11.2 Percent)

(2005 Business Outlook Provided)

GREEN BAY, Wis., March 10 /PRNewswire-FirstCall/ -- ShopKo Stores, Inc. (NYSE:SKO) today announced financial results for the fourth quarter and fiscal year ended January 29, 2005. Diluted earnings per share for the fourth quarter were $1.19 compared with diluted earnings per share of $1.07 last year. Net income for the fourth quarter was $35.4 million compared with net income of $31.6 million last year.

Consolidated sales for the fourth quarter were $909.6 million compared with $952.9 million last year. Consolidated comparable store sales for the fourth quarter decreased 4.4 percent.

Commenting on the results, ShopKo Stores, Inc. President and Chief Executive Officer Sam Duncan said, "We are pleased with our fourth quarter earnings. The results reflect our continued focus on gross margin earnings and delivering profitable sales. I am encouraged by the continued progress our teammates made and with their help, look forward to the opportunities of 2005."

Consolidated gross margin as a percent of sales for the fourth quarter was 27.4 percent compared with 25.3 percent last year. This increase is primarily attributable to a planned reduction in promotional activity and better managed clearance markdowns.

Consolidated selling, general and administrative expenses as a percent of sales for the fourth quarter were 18.3 percent compared with 17.1 percent last year. The increase in rate is primarily due to a reduction in sales. Additionally, consolidated selling, general and administrative expenses include pre-tax charges of $1.5 million (approximately $0.03 diluted earnings per share) to conform the company's lease accounting practices to current Securities and Exchange Commission interpretive guidance and $2.3 million (approximately $0.05 diluted earnings per share) related to an asset impairment charge.

Full Year Summary

Diluted earnings per share for the fiscal year were $1.46 compared with diluted earnings per share of $1.33 last year. Net income was $43.3 million compared with last year's net income of $39.1 million.

Consolidated sales for the fiscal year were $3,166.6 million compared with $3,184.1 million last year. Consolidated comparable store sales for the fiscal year decreased 0.4 percent.

Consolidated gross margin as a percent of sales for the fiscal year was 26.2 percent, compared with 25.7 percent last year. The gross margin as a percent of sales was impacted by improved promotional and clearance margins at both the ShopKo and Pamida divisions.

Consolidated selling, general and administrative expenses as a percent of sales for the fiscal year were 20.6 percent compared with 20.3 percent last year. The increase in rate was primarily attributable to increased payroll to support pharmacy growth, pre-opening costs associated with new stores, store remodels, and employee incentives and benefits. These were partially offset by lower ShopKo main store payroll. During 2004, ShopKo opened three ShopKo Express Rx locations and completed 10 major store remodels. Pamida opened seven new stores and completed 51 store remodels during the year.

Other Factors

The fourth quarter and full year 2004 provision for income taxes reflects a tax benefit of approximately $0.04 diluted earnings per share relating to the settlement of open tax years.

Interest expense for the fourth quarter and year was $7.9 million and $33.9 million compared with $8.7 million and $37.9 million last year, respectively. The reductions were primarily due to reduced debt levels. Debt declined by $60.7 million from fiscal year end 2003.

First Quarter/Fiscal 2005 Outlook

The company remains cautious in its planning and its outlook and therefore projects consolidated comparable store sales for the first quarter ending April 30, 2005 to be negative low single digits. The company expects diluted earnings per share for the first quarter in the range of a loss of $0.10 per share to breakeven. For the fiscal year ending January 28, 2006, the company expects diluted earnings per share to be in the range of $1.45 to $1.60.

As separately announced, the company plans 2005 capital expenditures of up to $60.0 million.

Fourth Quarter/Year End Conference Call Arrangements

ShopKo Stores, Inc. will host a conference call and real-time webcast March 10, 2005, at 10:30 a.m. Central Standard Time (CST) to discuss fourth quarter and year end results and fiscal 2005 outlook. Participants may access the conference by dialing (800) 860-2442 and asking for the ShopKo Stores, Inc. conference call. The webcast will be archived for two weeks at http://www.shopko.com/ .

The call will be rebroadcast immediately following the call through March 18, 2005. The replay can be accessed by dialing (877) 344-7529 or (412) 317-0088. When prompted for an account number dial 718#, then dial 1 for the recorded conference. When prompted for the conference number dial 364641#, then press 1 to begin the playback.

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 140 ShopKo stores, providing quality name-brand merchandise, great values, pharmacy and optical services in mid-sized to larger cities; 220 Pamida stores, 113 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, earnings per share, capital expenditure plans 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) Fourth Quarter

10/31/04- 11/02/03- Change Comp* 1/29/05 1/31/04 Change (13 weeks vs. Business Segments (13 weeks) (13 weeks) Total** 13 weeks)

ShopKo $681.6 $725.6 (6.0)% (5.8)% Pamida* 228.0 227.3 0.3% 0.2% Consolidated $909.6 $952.9 (4.5)% (4.4)%

*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 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.

Consolidated Sales Summary (dollars in millions) Full Year

2/01/04- 2/02/03- Change Comp* 1/29/05 1/31/04 Change (52 weeks vs. Business Segments (52 weeks) (52 weeks) Total** 52 weeks)

ShopKo $2,356.3 $2,383.5 (1.1)% (0.9)% Pamida 810.3 800.6 1.2% 1.2% Consolidated $3,166.6 $3,184.1 (0.5)% (0.4)%

*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 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.

ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Fourth Quarter and Year-to-Date

13 Weeks 13 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended January January January January (In thousands, except per 29, 31, 29, 31, share data) 2005 2004 2005 2004

Revenues: Net sales $909,645 $952,936 $3,166,645 $3,184,088 Licensed department rentals and other income 3,369 3,050 13,215 12,821 913,014 955,986 3,179,860 3,196,909 Costs and expenses: Cost of sales 660,520 711,560 2,338,199 2,366,513

Gross margin 249,125 241,376 828,446 817,575

Selling, general and administrative expenses 166,388 163,128 653,018 645,225 Depreciation and amortization expenses 22,607 21,173 86,181 83,241 188,995 184,301 739,199 728,466

Income from operations 63,499 60,126 102,462 101,930 Interest expense 7,886 8,671 33,871 37,920

Income before income taxes 55,613 51,455 68,591 64,010 Provision for income taxes 20,189 19,903 25,253 24,890

Net income 35,424 31,552 43,338 39,120

Net income per share of common stock: Basic: $1.20 $1.08 $1.48 $1.35

Diluted: $1.19 $1.07 $1.46 $1.33

Weighted average number of common shares outstanding: Basic: 29,519 29,134 29,346 29,018

Diluted: 29,837 29,487 29,624 29,317

ShopKo Stores, Inc. and Subsidiaries Consolidated Statements of Operations Percents of Sales Fourth Quarter and Year-to-Date

13 Weeks 13 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended January January January January 29, 31, 29, 31, 2005 2004 2005 2004 Revenues: Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.4 0.3 0.4 0.4 100.4 100.3 100.4 100.4 Costs and expenses: Cost of sales 72.6 74.7 73.8 74.3

Gross margin 27.4 25.3 26.2 25.7

Selling, general and administrative expenses 18.3 17.1 20.6 20.3 Depreciation and amortization expenses 2.5 2.2 2.7 2.6 20.8 19.3 23.3 22.9

Income from operations 7.0 6.3 3.2 3.2 Interest expense 0.9 0.9 1.1 1.2

Income before income taxes 6.1 5.4 2.2 2.0 Provision for income taxes 2.2 2.1 0.8 0.8

Net income 3.9 3.3 1.4 1.2

ShopKo Stores, Inc. and Subsidiaries Business Segment Information Fourth Quarter and Year-to-Date

13 Weeks 13 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended January January January January 29, 31, 29, 31, (Dollars in thousands) 2005 2004 2005 2004

ShopKo Retail Segment Net sales $681,634 $725,644 $2,356,368 $2,383,473 Licensed department rentals and other income 2,971 2,702 11,653 11,445 684,605 728,346 2,368,021 2,394,918 Costs and expenses: Cost of sales 493,898 544,443 1,737,800 1,772,632

Gross Margin 187,736 181,201 618,568 610,841

Selling, general and administrative expenses 116,819 115,509 454,725 450,888 Depreciation and amortization expenses 16,910 15,192 62,893 59,647 133,729 130,701 517,618 510,535

Income from operations $56,978 $53,202 $112,603 $111,751

Pamida Retail Segment Net sales $228,011 $227,292 $810,277 $800,615 Licensed department rentals and other income 399 348 1,563 1,376 228,410 227,640 811,840 801,991 Costs and expenses: Cost of sales 166,621 167,117 600,399 593,881

Gross Margin 61,390 60,175 209,878 206,734

Selling, general and administrative expenses 43,820 44,353 172,935 173,137 Depreciation and amortization expenses 5,568 5,867 22,728 23,079 49,388 50,220 195,663 196,216

Income from operations $12,401 $10,303 $15,778 $11,894

Corporate Segment

Net sales $- $- $- $- Licensed department rentals and other income - - - - - - - - Costs and expenses: Selling, general and administrative expenses 5,750 3,266 25,358 21,200 Depreciation and amortization expenses 129 114 561 515 5,880 3,380 25,919 21,715

Income from operations $(5,880) $(3,380) $(25,919) $(21,715)

Consolidated Income from operations $63,499 $60,125 $102,462 $101,930

ShopKo Stores, Inc. and Subsidiaries Business Segment Information Percents of Sales Fourth Quarter and Year-to-Date

13 Weeks 13 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended January January January January 29, 31, 29, 31, 2005 2004 2005 2004

ShopKo Retail Segment Net sales 100.0 100.0 100.0 100.0 Licensed department rentals and other income 0.4 0.4 0.5 0.5 100.4 100.4 100.5 100.5 Costs and expenses: Cost of sales 72.5 75.0 73.7 74.4

Gross Margin 27.5 25.0 26.3 25.6

Selling, general and administrative expenses 17.1 15.9 19.3 18.9 Depreciation and amortization expenses 2.4 2.1 2.7 2.5 19.5 18.0 22.0 21.4

Income from operations 8.4 7.3 4.8 4.7

13 Weeks 13 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended January January January January 29, 31, 29, 31, 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 73.1 73.5 74.1 74.2

Gross Margin 26.9 26.5 25.9 25.8

Selling, general and administrative expenses 19.3 19.5 21.3 21.6 Depreciation and amortization expenses 2.4 2.6 2.9 2.9 21.7 22.1 24.2 24.5

Income from operations 5.4 4.5 1.9 1.5

Consolidated Income from operations 7.0 6.3 3.2 3.2

ShopKo Stores, Inc. and Subsidiaries Consolidated Condensed Balance Sheets (In thousands)

January 29, January 31, 2005 2004

Cash and cash equivalents $25,110 $22,786 Receivables, less allowances 62,019 62,808 Merchandise inventories 564,099 569,315 Other current assets 9,046 10,874 Total current assets 660,274 665,783

Other assets and deferred charges 9,037 7,584 Intangible assets 21,865 23,629 Net property and equipment 742,027 781,428 Total assets $1,433,203 $1,478,424

Short-term debt $85,679 $82,270 Accounts payable - trade 225,777 253,313 Accrued liabilities 191,751 193,343 Current portion of long-term obligations 8,018 63,797 Total current liabilities 511,225 592,723

Long-term obligations 238,612 246,990 Other long-term obligations 21,976 25,206 Deferred income taxes 22,963 22,803 Shareholders' equity 638,427 590,702 Total liabilities and shareholders' equity $1,433,203 $1,478,424

Source: ShopKo Stores, Inc.

CONTACT: Media, John Vigeland, +1-920-429-4132, or Investors, Jenine Maloney, +1-920-429-7039, both of ShopKo Stores, Inc.

Web site: http://www.shopko.com/

------- Profile: Ent