<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

             FOR THE QUARTERLY PERIOD (13 WEEKS) ENDED JULY 30, 2005

                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                 to
                               ---------------    ---------------
Commission file number 1-10876


                               SHOPKO STORES, INC.
             (Exact name of registrant as specified in its Charter)

   Wisconsin                                             41-0985054
--------------------------------------------------------------------------------
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

   700 Pilgrim Way, Green Bay, Wisconsin                    54304
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

     Registrant's telephone number, including area code      (920) 429-2211
                                                        -----------------------

Former name, former address and former fiscal year, if changed since last
report:

N/A
--------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days.

                                        Yes    X         No
                                            -------

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                        Yes    X         No
                                            -------

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                        Yes              No   X
                                                            -------

The number of shares outstanding of each of the issuer's classes of Common Stock
as of September 2, 2005 is as follows:

     Title of Each Class                         Shares Outstanding
     -------------------                         ------------------

     Common Shares                               30,237,596

     Exhibit Index                               Page 1 of Page 31
     on Page 28


<PAGE>



                               SHOPKO STORES, INC.

                                    FORM 10-Q

                      FOR THE 13 WEEKS ENDED JULY 30, 2005

                                      INDEX
<TABLE>
<CAPTION>

Part I   Item 1 - Financial Statements                                                    Page
                                                                                          ----

<S>                                                                                       <C>
                  Condensed Consolidated Statements of Operations for the                   3
                  13 weeks ended July 30, 2005 and July 31, 2004

                  Condensed Consolidated Statements of Operations for the                   4
                  26 weeks ended July 30, 2005 and July 31, 2004

                  Condensed Consolidated Balance Sheets as of July 30,                      5
                  2005, July 31, 2004 and January 29, 2005

                  Condensed Consolidated Statements of Cash Flows for the 26                6
                  weeks ended July 30, 2005 and July 31, 2004

                  Condensed Consolidated Statement of Shareholders'                         7
                  Equity for the 26 weeks ended July 30, 2005

                  Notes to Condensed Consolidated Financial Statements                      8-11

         Item 2 - Management's Discussion and Analysis of Financial                         12-24
                  Condition and Results of Operations

         Item 3 - Quantitative and Qualitative Disclosures About Market Risk                24

         Item 4 - Controls and Procedures                                                   24

Part II  Item 1 - Legal Proceedings                                                         25

         Item 6 - Exhibits                                                                  26

         Signatures                                                                         27

</TABLE>


                                       2
<PAGE>



                         PART I - FINANCIAL INFORMATION


ITEM 1:     FINANCIAL STATEMENTS



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
----------------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES                                     SECOND QUARTER (13 WEEKS) ENDED
----------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
                                                                            JULY 30,            JULY 31,
                                                                              2005                2004
----------------------------------------------------------------------------------------------------------
                                                                           (UNAUDITED)         (UNAUDITED)
<S>                                                                        <C>                 <C>
Revenues:
   Net sales                                                                    $736,995          $775,576
   Licensed department rentals and other income                                    3,499             3,254
                                                                                --------          --------
                                                                                 740,494           778,830

Costs and expenses:
   Cost of Sales                                                                 531,895           572,282
   Selling, general and administrative expenses                                  162,205           163,208
   Depreciation and amortization expenses                                         20,645            21,157
                                                                                --------          --------
                                                                                 714,745           756,647

Earnings from operations                                                          25,749            22,183
Interest expense                                                                   7,002             8,577
                                                                                --------          --------

Income before income taxes                                                        18,747            13,606

Income tax provision                                                               7,221             5,306
                                                                                --------          --------

Net income                                                                      $ 11,526          $  8,300
                                                                                ========          ========

Net income per share of common stock:
   Basic and Diluted                                                            $   0.38          $   0.28
                                                                                ========          ========


Weighted average number of common shares outstanding:
   Basic                                                                          30,075            29,291
   Diluted                                                                        30,433            29,514
</Table>

See notes to condensed consolidated financial statements.


                                       3

<PAGE>



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES                                YEAR TO DATE (26 WEEKS) ENDED
---------------------------------------------------------------------------------------------------
(In thousands, except per share data)
                                                                    JULY 30,             JULY 31,
                                                                      2005                 2004
---------------------------------------------------------------------------------------------------
                                                                   (UNAUDITED)          (UNAUDITED)
<S>                                                                <C>                  <C>
Revenues:
   Net sales                                                         $1,440,254         $1,510,609
   Licensed department rentals and other income                           6,959              6,349
                                                                     ----------         ----------
                                                                      1,447,213          1,516,958
Costs and expenses:
   Cost of sales                                                      1,047,146          1,123,504
   Selling, general and administrative expenses                         324,398            323,946
   Depreciation and amortization expenses                                41,526             42,658
                                                                     ----------         ----------
                                                                      1,413,070          1,490,108

Earnings from operations                                                 34,143             26,850
Interest expense                                                         14,363             17,145
                                                                     ----------         ----------

Income before income taxes                                               19,780              9,705

Income tax provision                                                      7,618              3,786
                                                                     ----------         ----------

Net income                                                           $   12,162         $    5,919
                                                                     ==========         ==========

Net income per share of common stock:
   Basic                                                             $     0.41         $     0.20
                                                                     ==========         ==========

   Diluted                                                           $     0.40         $     0.20
                                                                     ==========         ==========

Weighted average number of common shares outstanding:
   Basic                                                                 29,901             29,251
   Diluted                                                               30,238             29,491
</TABLE>


See notes to condensed consolidated financial statements.



                                       4

<PAGE>


CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES                                             SECOND QUARTER AS OF                FISCAL YEAR END
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
                                                                               JULY 30,             JULY 31,            JANUARY 29,
ASSETS                                                                           2005                 2004                 2005 *
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (UNAUDITED)         (UNAUDITED)
<S>                                                                        <C>                 <C>                      <C>
Current assets:
  Cash and cash equivalents                                                   $    41,431          $    32,819          $    25,110
  Receivables, less allowance for losses of $1,956
  $2,464 and $1,833, respectively                                                  52,079               51,714               62,019
  Merchandise inventories                                                         561,190              613,364              564,099
  Other current assets                                                              9,614                9,595                9,046
                                                                              -----------          -----------          -----------
     Total current assets                                                         664,314              707,492              660,274


Other assets and deferred charges                                                   8,788                7,697                9,037
Intangible assets, net of accumulated amortization of $15,031, $12,551             23,462               25,985               21,865
and $13,330, respectively

Property and equipment, net of accumulated
depreciation of $862,109, $831,294 and
$828,768; impairment reserve of $2,573, $8,005
and $1,660, respectively                                                          696,054              761,827              742,027
                                                                              -----------          -----------          -----------
     Total assets                                                             $ 1,392,618          $ 1,503,001          $ 1,433,203
                                                                              ===========          ===========          ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Short-term debt                                                             $    40,000          $   118,825          $    85,679
  Accounts payable - trade                                                        230,141              260,010              225,777
  Accrued compensation and related taxes                                           33,119               35,920               37,088
  Deferred taxes and other accrued liabilities                                     99,899              102,028              104,903
  Accrued income and other taxes                                                   40,564               36,744               49,760
  Current portion of long-term obligations and leases                               7,177               62,473                8,018
                                                                              -----------          -----------          -----------
    Total current liabilities                                                     450,900              616,000              511,225

Long-term obligations and leases, less current portion                            234,767              242,876              238,612
Other long-term obligations                                                        23,214               23,740               21,976
Deferred income taxes                                                              22,963               22,803               22,963

Shareholders' equity:
  Common stock                                                                        321                  313                  316
  Additional paid-in capital                                                      406,539              392,871              396,514
  Retained earnings                                                               294,622              244,964              282,261
  Less treasury stock                                                             (40,708)             (40,566)             (40,664)
                                                                              -----------          -----------          -----------
     Total shareholders' equity                                                   660,774              597,582              638,427
                                                                              -----------          -----------          -----------
     Total liabilities and shareholders' equity
                                                                              $ 1,392,618          $ 1,503,001          $ 1,433,203
                                                                              ===========          ===========          ===========
</TABLE>


* Condensed from audited financial statements.

See notes to condensed consolidated financial statements.

                                       5

<PAGE>





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
--------------------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES                                          YEAR TO DATE (26 WEEKS) ENDED
--------------------------------------------------------------------------------------------------------------
(In thousands)
                                                                               JULY 30,          JULY 31,
                                                                                 2005              2004
--------------------------------------------------------------------------------------------------------------
                                                                              (UNAUDITED)       (UNAUDITED)
<S>                                                                           <C>               <C>
Cash flows from operating activities:
Net income                                                                     $ 12,162            $  5,919
Adjustments to reconcile net income to net
  cash provided by operating activities:
         Depreciation and amortization                                           41,526              42,658
         Impairment charges                                                         595                 704
         Gain on sale of property and equipment                                  (4,287)             (2,733)
         Change in assets and liabilities:
                 Receivables                                                      9,940              11,094
                 Merchandise inventories                                          2,908             (44,049)
                 Other current assets                                              (568)              1,279
                 Other assets                                                       884                 786
                 Accounts payable                                                 4,364               6,697
                 Accrued liabilities                                            (16,447)            (18,548)
                 Other long-term obligations                                      1,238              (1,466)
-----------------------------------------------------------------------------------------------------------
                Net cash provided by operating activities                        52,315               2,341
-----------------------------------------------------------------------------------------------------------


Cash flows from investing activities:
         Purchases of property and equipment                                     (8,291)            (31,416)
         Proceeds from the sale of property and equipment                        17,737              11,171
         Purchases of pharmacy customer lists                                    (3,299)             (3,630)
-----------------------------------------------------------------------------------------------------------
         Net cash provided by (used in) investing activities                      6,147             (23,875)
-----------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
         Proceeds from short-term borrowings                                          0              36,555
         Payments of debt and capital lease obligations                         (50,434)             (5,576)
         Sale of common stock due to exercise of stock options                    8,336                 839
         Purchase of treasury stock                                                 (43)               (251)
-----------------------------------------------------------------------------------------------------------
         Net cash (used in) provided by financing activities                    (42,141)             31,567
-----------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                        16,321              10,033
Cash and cash equivalents at beginning of period                                 25,110              22,786
-----------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                                     $ 41,431            $ 32,819
-----------------------------------------------------------------------------------------------------------
</Table>

<TABLE>
<S>                                                                          <C>                   <C>
Supplemental cash flow information:
  Noncash investing and financial activities -
    Capital lease obligations incurred                                       $    -                $   -
    Capital lease obligations terminated                                     $    -                $   -
</TABLE>



See notes to condensed consolidated financial statements.



                                       6
<PAGE>



CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------------------------
SHOPKO STORES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)                                                     (UNAUDITED)


                                        Common Stock                                      Treasury Stock                Total
                                   --------------------    Additional                  ---------------------     -------------------
                                                             Paid-in        Retained
                                    Shares       Amount      Capital        Earnings   Shares       Amount       Shares     Amount
------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>   <C>    <C>            <C>            <C>       <C>            <C>       <C>
BALANCES AT JANUARY 29, 2005       31,580     $   316    $  396,514     $   282,261    (1,930)    $ (40,664)     29,650   $ 638,427

Net income                                                                   12,162                                          12,162

Issuance of restricted stock           10                       219            (219)                                 10         -0-

Forfeiture of restricted stock        (25)                     (325)            325                                 (25)        -0-

Sales of common stock under           546           5         8,331                                                 546       8,336
     option plans

Income tax benefit related to                                 1,800                                                           1,800
     stock options

Restricted stock expense                                                         93                                              93

Purchase of treasury stock                                                                 (2)          (44)         (2)        (44)
                                  -------------------------------------------------------------------------------------------------
BALANCES AT July 30, 2005           32,111    $    321   $  406,539     $   294,622    (1,932)   $  (40,708)     30,179   $ 660,774
                                  =================================================================================================
</TABLE>

See notes to condensed consolidated financial statements.


                                       7

<PAGE>



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A.     Interim Financial Statements

The Company operates on a 52/53-week fiscal year basis. The 2005 fiscal year
will end on January 28, 2006 and the 2004 fiscal year ended January 29, 2005.
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit. However, the foregoing financial statements
reflect all adjustments (which include only normal recurring adjustments) which
are, in the opinion of Company management, necessary to present fairly the
consolidated financial position of the Company as of July 30, 2005 and July 31,
2004, and the results of operations and cash flows for the then ended periods.

These interim results are not necessarily indicative of the results of the
fiscal years as a whole because the operations of the Company are highly
seasonal. The fourth fiscal quarter has historically contributed a significant
part of the Company's earnings due to the Christmas selling season.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company's
fiscal 2004 Annual Report on Form 10-K, as amended, contains a summary of
significant accounting policies and includes the consolidated financial
statements and the notes to the consolidated financial statements. The same
accounting policies are followed in the preparation of interim reports. The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto for the fiscal year ended January 29, 2005.


B.     Restructuring Reserve

In connection with the reorganization plan announced in the fourth quarter of
fiscal 2000 to close 23 ShopKo retail stores, a distribution center, and to
downsize its corporate workforce, the Company incurred a pre-tax charge of
$125.0 million related to inventory and property write-downs, lease termination
and property carrying costs, and employee separation and other costs. The
inventory and fixed asset write-down reserves were recorded in the fourth
quarter of fiscal 2000, and the Company closed all 23 stores and a distribution
center in fiscal 2001. The Company utilized all of the employee severance
reserve prior to fiscal 2002. Of the 24 properties initially covered by the
restructuring reserve, twenty were disposed of in subsequent years, leaving four
remaining leased properties covered by the restructuring reserve as of the
beginning of fiscal 2005.

During the second quarter of fiscal 2005, no additional leases were terminated.
As of July 30, 2005, the remaining reserve for lease termination and related
property carrying costs, as well as other costs, was $12.7 million. For balance
sheet reporting purposes, the portion of the reserve for the lease termination,
property carrying and other costs to be paid in the next 12 months is reported
in accrued expenses ($1.8 million) as a current liability and the remainder
($10.9 million) is recorded in other long-term obligations at July 30, 2005.

The Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords. However, due to the Company's inability to
terminate the leases or to sublease the four locations, the level of reserves
could prove to be inadequate and additional

                                       8

<PAGE>




charges may be required. The Company will continue to evaluate the adequacy of
the amounts reserved as it proceeds with the termination of the leases.

Activity in the restructuring reserve (in thousands) during the second quarter
of fiscal 2005:

<Table>
<Caption>
                                                    Lease termination and
                                                   property carrying costs
                                                   -----------------------
       <S>                                       <C>
       Balance as of January 29, 2005                      $        13,329
       Cash Payments                                                   608
                                                 -------------------------
       Balance as of July 30, 2005                         $        12,721
                                                 =========================
</Table>

C.     Stock-Based Employee Compensation Plans

The Company has various stock-based employee compensation plans, which are
described more fully in Note F of the Notes to Consolidated Financial Statements
in the Company's fiscal 2004 Annual Report on Form 10-K, as amended. The Company
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in
results of operations for stock option awards, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. During the first half of fiscal 2005, pre-tax
expense related to the intrinsic value of restricted stock was $0.1 million
compared with $0.2 million last year.

The following pro forma information illustrates the effect on net earnings and
earnings per share as if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
in accounting for its employee stock options (in thousands):

<Table>
<Caption>
                                                                         SECOND QUARTER                     YEAR TO DATE
                                                                        (13 WEEKS) ENDED                  (26 WEEKS) ENDED
                                                                  ---------------------------       -----------------------------
                                                                   July 30,         July 31,            July 30,      July 31,
                                                                   ---------        ---------           --------      --------
                                                                      2005             2004               2005          2004
                                                                      ----             ----               ----          ----
<S>                                                               <C>               <C>             <C>               <C>
Net income as reported                                            $     11,526      $     8,300         $  12,162     $    5,919
Add:       Stock-based employee compensation expense included
           in reported net income, net of related tax
           effects                                                          40              121                57            195
Deduct:    Total stock-based employee compensation expense
           determined under fair value method for all share
           and option awards, net of related tax effects                  (376)          (1,074)             (614)        (1,515)
                                                                  -----------------------------         ------------------------

Pro forma net income                                              $     11,190      $     7,347         $  11,605     $    4,599
                                                                  =============================         ========================

Net income per share:
     Basic - as reported                                                $ 0.38           $ 0.28            $ 0.41         $ 0.20
     Basic - pro forma                                                  $ 0.37           $ 0.25            $ 0.39         $ 0.16
     Diluted - as reported                                              $ 0.38           $ 0.28            $ 0.40         $ 0.20
     Diluted - pro forma                                                $ 0.37           $ 0.25            $ 0.38         $ 0.16
</Table>

                                       9

<PAGE>


D.     Business Segment Information

The Company's reportable segments are based on the Company's strategic business
operating units and include a ShopKo Retail segment and a Pamida Retail segment,
each of which includes the following product categories: hardlines/home,
softlines, and retail health services.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's fiscal 2004 Annual
Report on Form 10-K, as amended. The Company evaluates performance based on
earnings from operations of the respective business segments.

Summary financial information concerning the Company's reportable segments is
shown in the following table (in thousands).

<Table>
<Caption>
                                      SECOND QUARTER (13 WEEKS) ENDED           YEAR TO DATE (26 WEEKS) ENDED
                                     --------------------------------         ---------------------------------
                                     JULY 30,             JULY 31,            JULY 30,              JULY 31,
                                       2005                 2004                2005                  2004
                                     --------------------------------         ---------------------------------
<S>                                  <C>                  <C>                  <C>                  <C>
Net sales
    ShopKo Retail                    $   533,257          $   568,801          $ 1,051,108          $ 1,121,600
    Pamida Retail                        203,738              206,775              389,146              389,009
---------------------------------------------------------------------         ---------------------------------
      Total net sales                $   736,995          $   775,576          $ 1,440,254          $ 1,510,609
---------------------------------------------------------------------         ---------------------------------

Earnings from operations
    ShopKo Retail                    $    25,576          $    23,314          $    41,256          $    37,159
    Pamida Retail                          9,494                6,166                9,514                3,728
    Corporate                             (9,321)              (7,297)             (16,627)             (14,037)
---------------------------------------------------------------------         ---------------------------------
    Earnings from operations         $    25,749          $    22,183          $    34,143          $    26,850
---------------------------------------------------------------------         ---------------------------------
</Table>

The Company's areas of operations are principally in the United States. No major
customer accounted for a significant amount of consolidated revenue during the
second quarter and first half of fiscal 2005 and fiscal 2004.


E.     Commitments & Contingencies

The Company is contingently liable on the lease payments for two former retail
stores, which were assumed by an unrelated party. Total remaining lease
obligations for the stores are $9.2 million as of July 30, 2005.


F.     Merger Announcement

On April 8, 2005, the Company announced it had signed a definitive merger
agreement to be acquired by an affiliate of Goldner Hawn Johnson & Morrison
Incorporated ("Goldner Hawn"). Under the terms of the agreement, each
outstanding share of the Company's common stock will be converted into a right
to receive $24.00 in cash. The total value of the transaction is approximately
$1 billion, including assumed debt of approximately $330 million. The Company's
Board of Directors approved the transaction based on the unanimous
recommendation of a Special Committee of disinterested and independent
directors. The closing of the transaction is subject to funding under finance
commitments, regulatory approvals and approval by the Company's shareholders. A
special meeting of shareholders to vote on the proposed transaction is scheduled
to be held on September 14, 2005.

                                       10

<PAGE>



G.     Litigation

Following the Company's April 8, 2005 announcement that it had signed a
definitive merger agreement to be acquired by an affiliate of Goldner Hawn, six
putative class action lawsuits challenging the proposed merger were filed in
Circuit Court for Brown County, Wisconsin. These six lawsuits were consolidated
under the caption, In re the Company Shareholder Litigation, Case No. 05-CV-677,
and the Company, each member of the Company board of directors and Goldner Hawn
were named as defendants. The consolidated complaint alleges, among other
things, that the Company and its directors breached their fiduciary duties to
the Company's shareholders by negotiating the proposed merger at a price that
the plaintiffs allege to be inadequate, by supporting the merger rather than
effecting a recapitalization and by failing to disclose all material information
concerning the merger agreement, the transactions contemplated thereby and the
background of and reasons for the merger. In addition, the consolidated
complaint alleges that Goldner Hawn aided and abetted the directors' breach of
their fiduciary duties. The consolidated complaint seeks, among other relief,
rescission of the proposed merger, an injunction requiring disclosure of all
material information and preventing completion of the proposed merger, and
compensatory damages. The Company believes the litigation is without merit and
plans to defend against it vigorously. The litigation is proceeding, however,
and on August 16, 2005 the plaintiffs filed a motion seeking a preliminary
injunction. The hearing on the motion was held on September 1 and September 2,
2005. Following oral argument, the court denied the plaintiffs' motion, allowing
the Company's shareholders to vote on the proposed merger.


                                       11

<PAGE>



ITEM 2:     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS


RECENT DEVELOPMENTS:

On April 8, 2005, the Company announced it had signed a definitive merger
agreement (the "Merger Agreement") to be acquired by an affiliate of Goldner
Hawn. Under the terms of the Merger Agreement, each outstanding share of the
Company's common stock will be converted into the right to receive $24.00 in
cash. The total value of the transaction is approximately $1 billion, including
assumed debt of approximately $330 million. The Company's Board of Directors
approved the transaction based on the unanimous recommendation of a Special
Committee of disinterested and independent directors. The Company's former
Chairman of the Board, Jack W. Eugster who has agreed to provide certain of the
equity financing for the transaction as described below, resigned his position
as Chairman of the Board and his Board committee positions, but will remain on
the Board of Directors while the transaction is pending. John Turner and Steve
Watson, both members of the Board of Directors, have been named Co-Chairmen of
the Board. The closing of the transaction is subject to funding under finance
commitments, regulatory approvals, and approval by the Company's shareholders. A
special meeting of shareholders has been scheduled for September 14, 2005. The
transaction is currently scheduled to close in the Company's third fiscal
quarter.

An affiliate of Goldner Hawn has delivered to the Company the following: a fully
executed commitment letter (the "Real Estate Debt Letter") from Bank of America,
N.A. (the "Real Estate Lender") providing the terms and conditions upon which
the Real Estate Lender has committed to provide the Company with secured real
estate financing in connection with the transaction in an aggregate amount equal
to $700 million and a fully executed commitment letter (each, a "Senior Debt
Letter") from each of Bank of America Retail Financial Group and Back Bay
Capital Funding LLC (each a "Senior Debt Lender", and collectively with the Real
Estate Lender, the "Lenders") providing the terms and conditions upon which the
Senior Debt Lenders have committed to provide the Company with senior debt
financing in connection with the transaction in an aggregate amount equal to
$415 million, and a fully executed letter (the "Equity Commitment Letter"),
pursuant to which the affiliate of Goldner Hawn has committed to provide equity
financing in an aggregate amount of $27 million and Mr. Eugster has committed to
provide equity financing in an aggregate amount of $3 million (the Equity
Commitment Letter, together with the Real Estate Debt Letter and the Senior Debt
Letters, the "Financing Letters"). The financing contemplated by the Financing
Letters (the "Financing"), together with excess cash are sufficient to pay the
aggregate merger consideration costs, any amounts due under the Amended Secured
Credit Facility and any amounts due in connection with the repayment of
outstanding debt and pay all merger-related fees and expenses. The obligations
to fund the commitments under the Financing Letters are not subject to any
condition other than as set forth in the Financing Letters. The definitive
agreements giving effect to the Financing are being negotiated with the Lenders.

For additional information and other material developments related to the
transaction, refer to the Current Reports on Form 8-K filed by the Company on
April 8, April 15, April 28, May 31, July 1, August 16, August 18, August 24,
and August 31, 2005, and the Company's definitive proxy materials for the
special meeting of shareholders filed pursuant to Regulation 14A and Rule 13e-3
of the Securities Exchange Act of 1934.


                                       12


<PAGE>



EXECUTIVE SUMMARY:

ShopKo Stores, Inc. is a retailer headquartered in Green Bay, Wis., with 363
stores and approximately 23,000 teammates throughout the Midwest, Mountain and
Pacific Northwest regions. The Company's reportable Retail segments include a
ShopKo Retail segment and a Pamida Retail segment. The ShopKo Retail segment
includes 140 ShopKo stores providing quality name-brand merchandise, great
values, pharmacy and optical services in mid-sized to larger cities and three
ShopKo Express Rx stores, a new and convenient neighborhood drugstore concept.
The Pamida Retail segment includes 220 Pamida stores bringing value close to
home in small, rural communities.

During the second quarter, the Company sold three ShopKo stores in Colorado and
closed three Pamida locations. The Company also announced the closing of one
additional Pamida location to occur in the third quarter and expects to
recognize a charge of $1.1 million upon the store closing.

In the second quarter of fiscal 2005, earnings per diluted share were $0.38
compared with earnings per diluted share of $0.28 for the same period of fiscal
2004. Second quarter 2005 earnings benefited from a $2.3 million gain on the
sale of three Colorado stores; a $1.7 million decrease in expenses associated
with reduced store remodeling activity in 2005; and a decline in interest
expense of $1.6 million due to lower debt levels. Merger-related expenses of
$1.7 million partially offset the second quarter 2005 results. Net income was
$11.5 million compared with last year's net income of $8.3 million. The increase
in earnings is primarily the result of continued focus on improving the mix
between profitable sales and promotional activity accompanied by disciplined
expense control. The Company's close monitoring of sales and inventory receipts
resulted in an 8.5 percent decrease in consolidated inventory in the second
quarter of fiscal 2005 compared to the same period last year. Consolidated sales
during the second quarter of fiscal 2005 were $737.0 million compared with
$775.6 million in fiscal 2004. Consolidated comparable store sales decreased 5.6
percent from the prior year. ShopKo comparable store sales decreased 6.7
percent. The Company believes the decline in sales is largely attributable to a
change in the Company's promotional pricing strategy. Pamida comparable store
sales decreased 2.7 percent, primarily due to a decline in general merchandise
sales, partially offset by an increase in the retail health category.

During the first half of fiscal 2005, earnings per diluted share were $0.40
compared with earnings per diluted share of $0.20 for the same period of fiscal
2004. Earnings for the first half of 2005 benefited from a $23.1 million decline
in capital expenditures compared to last year; a $2.3 million gain on the sale
of three Colorado stores; and a $2.8 million reduction in interest expense due
to lower debt levels. Merger-related expenses of $2.8 million partially offset
the first half of 2005 results. Net income was $12.2 million compared to $5.9
million for the same period last year. The increase in earnings is primarily the
result of continued focus on improving the mix between profitable sales and
promotional activity. Consolidated sales decreased 4.7 percent to $1,440.2
compared with $1,510.6 million for the same period last year. Consolidated
comparable store sales decreased 5.2 percent from the prior year. ShopKo
comparable store sales decreased 6.6 percent. The Company believes the decline
in sales is largely attributable to a change in the Company's promotional
pricing strategy. Pamida comparable store sales decreased 1.4 percent, primarily
due to a decline in general merchandise sales, partially offset by an increase
in the retail health category.

Consistent with the past several years, the retail health category continued to
increase as a percentage of the Company's sales in the second quarter of fiscal
2005. In the second quarter of fiscal 2005, retail health sales made up 32.4
percent and 24.7 percent of ShopKo and Pamida retail segments' sales,
respectively. In the first half of fiscal 2005, retail health sales made up 32.5
percent and 25.9 percent of ShopKo and Pamida segment sales, respectively.


                                       13

<PAGE>



The Company's second quarter of fiscal 2005 results highlight the Company's
objectives of improving the mix between profitable sales and promotional
activity, resulting in higher gross margin. The consolidated gross margin as a
percent of sales was 27.8 percent compared to 26.2 percent for the same period
last year. The increase is primarily attributable to improved general and
pharmacy margins as well as less aggressive promotional pricing and better
managed clearance inventory markdowns. During the first half of fiscal 2005,
gross margin as a percent of net sales was 27.3 percent compared with 25.6
percent for the same period last year. Debt declined 33.5 percent, or $142.2
million, compared to the end of the second quarter of fiscal 2004, resulting in
a $2.8 million interest expense reduction in the first half of fiscal 2005 as
compared with a year ago.

During the second quarter and for the first half of fiscal 2005, consolidated
selling, general and administrative expenses (SG&A) were essentially flat when
compared to the same periods last year. However, consolidated SG&A as a percent
of net sales for the second quarter increased to 22.0 percent compared with 21.0
percent last year. Consolidated SG&A expenses as a percent of net sales, for the
first half of fiscal 2005, increased to 22.5 percent from 21.4 percent for the
same period last year. The increase in consolidated SG&A expenses as a percent
of net sales for both the second quarter and first half of fiscal 2005 in
comparison to the same periods last year is primarily due to the decline in
sales.

Capital expenditures for the second quarter of fiscal 2005 were $5.5 million
compared with $21.0 million for the same period last year. In the first half of
fiscal 2005, capital expenditures were $8.3 million compared with $31.4 million
for the same period last year. The decrease in capital expenditures is primarily
due to $13.0 million related to the expansion of the Omaha distribution center
and $7.9 million in store remodeling activity during the first half of fiscal
2004. In the first half of fiscal 2005, the Company opened three new Pamida
stores, had store remodeling activity in both divisions and invested in its
technology infrastructure by replacing the optical center system in ShopKo. The
Company expects capital expenditures of up to $35 million for the fiscal year.

The retail industry is highly competitive and ShopKo competes in most of its
markets with a variety of national and regional retailers. Pamida's competition
varies by market, which includes other general merchandise retailers,
supermarkets, dollar stores, drug and specialty stores, and mail order
merchants. The Company expects to continue to be challenged by competitor store
openings for the foreseeable future. While there can be no assurance that the
Company's efforts will succeed, the Company remains committed to improving
profitability.

The following table sets forth items from the Company's unaudited condensed
consolidated financial statements for the second quarter and year to date of
fiscal 2005 and fiscal 2004 as a percentage of net sales:


<Table>
<Caption>
                                                                 SECOND QUARTER               YEAR TO DATE
                                                                     (13 WEEKS)                (26 WEEKS)
                                                          --------------------------   ---------------------------
                                                            FISCAL         FISCAL         FISCAL         FISCAL
                                                             2005           2004           2005           2004
                                                          -------------------------    ---------------------------
<S>                                                       <C>            <C>           <C>              <C>
Revenues:
  Net sales                                                     100.0%        100.0%           100.0%       100.0%
  Licensed department rentals and other income                    0.5           0.4              0.5          0.4
                                                          -----------    ----------    -------------    ---------
                                                                100.5         100.4            100.5        100.4

  Cost of sales                                                  72.2          73.8             72.7         74.4

  Gross margin                                                   27.8          26.2             27.3         25.6
</TABLE>

                                       14

<PAGE>


<TABLE>


<S>                                                       <C>           <C>            <C>           <C>
Selling, general and administrative expenses                    22.0           21.0          22.5          21.4
Depreciation and amortization expenses                           2.8            2.7           2.9           2.8
                                                          ----------    -----------    ----------    ----------
                                                                24.8           23.7          25.4          24.2

Earnings from operations                                         3.5            2.9           2.4           1.8
Interest expense                                                 1.0            1.1           1.0           1.1
                                                          ----------    -----------    ----------    ----------
Earnings before income taxes                                     2.5            1.8           1.4           0.7
Income tax provision                                             1.0            0.7           0.5           0.3
                                                          ----------    -----------    ----------    ----------

Net income                                                       1.5%           1.1%          0.9%          0.4%
                                                          ==========    ===========    ==========    ==========
</Table>

The Company has two business segments: a ShopKo Retail segment and a Pamida
Retail segment. The following tables set forth items from the Company's business
segments as percentages of net sales:

<Table>
<Caption>

                                                                 SECOND QUARTER              YEAR TO DATE
                                                                    (13 WEEKS)                (26 WEEKS)
                                                          -------------------------    ------------------------
                                                             FISCAL        FISCAL       FISCAL          FISCAL
                                                              2005          2004          2005           2004
                                                          -------------------------    ------------------------
<S>                                                       <C>           <C>            <C>           <C>
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

  Cost of sales                                                 72.5           74.0          72.7          74.5

  Gross margin                                                  27.5           26.0          27.3          25.5

  Selling, general and administrative expenses                  20.4           19.8          21.0          19.9
  Depreciation and amortization expenses                         2.9            2.7           2.9           2.7
                                                          ----------    -----------    ----------    ----------
                                                                23.3           22.5          23.9          22.6

Earnings from operations                                         4.8%           4.0%          4.0%          3.4%
                                                          ==========    ===========    ==========    ==========
</TABLE>


<TABLE>
<CAPTION>


                                                                SECOND QUARTER                YEAR TO DATE
                                                                  (13 WEEKS)                   (26 WEEKS)
                                                          --------------------------   -------------------------
                                                           FISCAL           FISCAL         FISCAL        FISCAL
                                                            2005             2004           2005          2004
                                                          --------------------------   -------------------------
<S>                                                       <C>           <C>            <C>           <C>
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

  Cost of sales                                                 71.4           73.3          72.6          73.9

  Gross margin                                                  28.6           26.7          27.4          26.1

  Selling, general and administrative expenses                  21.6           21.1          22.5          22.2
  Depreciation and amortization expenses                         2.5            2.8           2.7           3.1
                                                          ----------    -----------    ----------    ----------
                                                                24.1           23.9          25.2          25.3

Earnings from operations                                         4.7%          3.0%           2.4%          1.0%
                                                          ==========    ===========    ==========    ==========
</Table>


                                       15


<PAGE>


NET SALES:

The following table presents the Company's consolidated net sales for the second
quarter and year to date of fiscal 2005 and fiscal 2004:

              <Table>
              <Caption>
                                                      SECOND QUARTER
                                                         (13 WEEKS)                      % INCREASE
                                            ---------------------------------------------------------------
                                                    FISCAL           FISCAL
                                                     2005             2004         TOTAL **        COMP*
                                                    ------           ------        --------        -----
<S>                                         <C>               <C>             <C>             <C>
                ShopKo Retail                        $ 533.3         $ 568.8          (6.2)%        (6.7)%
                Pamida Retail                          203.7           206.8          (1.5)%        (2.7)%
                                            ----------------- ------------------------------- -------------
                Consolidated                         $ 737.0         $ 775.6          (5.0)%        (5.6)%
                                            ================= =============================== =============
              </Table>


              <Table>
              <Caption>
                                                      YEAR TO DATE
                                                       (26 WEEKS)                      % INCREASE
                                            ---------------------------------------------------------------
                                                    FISCAL           FISCAL
                                                     2005             2004         TOTAL **        COMP*
                                                    ------           ------        --------        -----
<S>                                         <C>               <C>             <C>             <C>
                ShopKo Retail                      $ 1,051.1        $1,121.6          (6.3)%        (6.6)%
                Pamida Retail                          389.1           389.0            0.0%        (1.4)%
                                            ----------------- ------------------------------- -------------
                Consolidated                        $1,440.2       $ 1,510.6          (4.7)%        (5.2)%
                                            ================= =============================== =============
              </Table>

          *       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
                    ShopKo closed location in fiscal 2004 and three new ShopKo
                    Express Rx locations in 2004. Pamida division total sales
                    variance reflects sales from five closed Pamida locations
                    and seven new locations in fiscal 2004. Pamida sales
                    variance also reflects sales from three closed Pamida
                    locations and three new locations in fiscal 2005.

ShopKo comparable store sales decreased 6.7 percent during the second quarter of
fiscal 2005, primarily due to the decline in the hardlines/home category as well
as a change in promotional pricing strategy. Changes in ShopKo comparable store
sales in the second quarter of fiscal 2005 by category were as follows:
Hardlines/Home, (11.4)%; Softlines, (2.7)%; and Retail Health, (1.3)%. The 2.7
percent decrease in Pamida comparable store sales was primarily due to a
decrease in apparel sales, primarily offset by an increase in pharmacy sales.
Changes in Pamida comparable store sales in the second quarter of fiscal 2005 by
category were as follows: Pharmacy, 9.4%; Hardlines, (4.9)%; and Softlines,
(10.8)%.

The 6.6 percent decline in ShopKo comparable store sales during the first half
of fiscal 2005 is primarily due to decreased sales in the hardlines/home
category as well as a change in promotional pricing strategy. Changes in ShopKo
comparable store sales in the first half of fiscal 2005 by category were as
follows: Hardlines/Home, (11.9)%; Softlines, (3.2)%; and Retail Health, (0.1)%.
The 1.4 percent decrease in Pamida comparable store sales is primarily
attributable to decreased apparel sales, partially offset by increased pharmacy
sales. Changes in Pamida comparable store sales in the first half of fiscal 2005
by category were as follows: Pharmacy, 11.7%; Hardlines, (3.5)%; and Softlines,
(12.2)%.

The Company also believes comparable store sales continue to be negatively
affected by ongoing competition from both national and regional retailers.


                                       16

<PAGE>



The Company's store activity is summarized below:

     <Table>
     <Caption>
                                                             26 Weeks Ended           Year Ended
                                                        -------------------------    ------------
                                                           July 30,     July 31,      January 29,
                                                             2005         2004            2005
                                                             ----         -----           ----
<S>                                                     <C>         <C>            <C>
     SHOPKO STORES
          Beginning number of stores                           143           141             141
          Openings *                                             0             0               3
          Closings                                               0             1               1
                                                        -------------------------  --------------
          Ending number of stores                              143           140             143
                                                        =========================  ==============

     PAMIDA STORES
          Beginning number of stores                           220           218             218
          Openings                                               3             1               7
          Closings                                               3             2               5
                                                        -------------------------  --------------
          Ending number of stores                              220           217             220
                                                        =========================  ==============
     </Table>


     * ShopKo retail segment includes three new ShopKo Express locations.


GROSS MARGIN:

Consolidated gross margin dollars increased 0.9 percent to $205.1 million in the
second quarter of fiscal 2005 from $203.3 million for the same period last year.
Consolidated gross margin, as a percent of net sales for the second quarter of
fiscal 2005, was 27.8 percent compared with 26.2 percent for the same period
last year. The increase is primarily attributable to improved general and
pharmacy margins as well as less aggressive promotional pricing and better
managed clearance inventory markdowns.

ShopKo's gross margin dollars decreased 0.8 percent to $146.9 million in the
second quarter of fiscal 2005 from $148.1 million for the same period last year.
ShopKo's gross margin, as a percent of net sales, was 27.5 percent compared with
26.0 percent for the same period last year. The rate increase was primarily due
to higher general merchandise and pharmacy margins (collectively 189 basis
points), partially offset by increased distribution expenses (27 basis points).
General merchandise margin improvement is attributable to improved initial
markup, less aggressive promotional pricing and better managed clearance
inventory markdowns in fiscal 2005. Pamida's gross margin dollars increased 5.6
percent to $58.2 million in the second quarter of fiscal 2005 from $55.2 million
for the same period last year. As a percent of sales, Pamida's gross margin was
28.6 percent in the second quarter of fiscal 2005 compared with 26.7 percent for
the same period last year. The increase was primarily due to improved
merchandise margins (156 basis points) attributable to reduced promotional
activity and better managed clearance inventory markdowns in 2005 and a decline
in distribution expenses (55 basis points), partially offset by increased shrink
expense (12 basis points).

Consolidated gross margin dollars increased 1.6 percent to $393.1 million in the
first half of fiscal 2005 from $387.1 million for the same period last year.
Consolidated gross margin, as a percent of net sales for the first half of
fiscal 2005, was 27.3 percent compared with 25.6 percent for the same period
last year. The increase is primarily attributable to improved general
merchandise and pharmacy margins as well as less aggressive promotional pricing
and better managed clearance inventory markdowns.

ShopKo's gross margin dollars increased 0.3 percent to $286.6 million in the
first half of fiscal 2005 from $285.7 million for the same period last year.
ShopKo's gross margin, as a percent of net sales, was 27.3 percent compared with
25.5 percent for the same period last year. The rate increase was primarily due
to general merchandise and pharmacy margin improvement (collectively 201 basis
points), partially offset by increased shrink expense (14 basis points).


                                       17
<PAGE>
General merchandise margin improvement is attributable to improved initial
markup, less aggressive promotional pricing and better managed clearance
inventory markdowns in fiscal 2005. Pamida's gross margin dollars increased 5.0
percent to $106.5 million in the first half of fiscal 2005 from $101.4 million
for the same period last year. As a percent of sales, Pamida's gross margin was
27.4 percent in the first half of fiscal 2005 compared with 26.1 percent for the
same period last year. The increase was primarily due to improved merchandise
margins (113 basis points) attributable to reduced promotional activity and
better managed clearance inventory markdowns in fiscal 2005 as well as a decline
in distribution expenses (37 basis points), partially offset by increased shrink
(19 basis points).

The Company uses the last-in, first-out (LIFO) method for substantially all
inventories. There was no LIFO charge or credit for the quarters ended July 30,
2005 and July 31, 2004. There was no difference between the LIFO and FIFO cost
methods at July 30, 2005, July 31, 2004 and January 29, 2005.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

Consolidated selling, general and administrative (SG&A) expense dollars for the
second quarter of fiscal 2005 decreased 0.6 percent to $162.2 million from
$163.2 million for the same period last year. SG&A expenses as a percent of net
sales for the second quarter of fiscal 2005 were 22.0 percent compared with 21.0
percent for the same period last year, primarily attributable to the decline in
sales (110 basis points), partially offset by a reduction in preopening expenses
associated with fewer store remodels (17 basis points).

ShopKo's SG&A expenses as a percent of net sales for the second quarter of
fiscal 2005 were 20.4 percent compared with 19.8 percent for the same period
last year, primarily due to the decline in sales (144 basis points) and
merger-related expenses (33 basis points), partially offset by the gain on the
sale of fixed assets for the three Colorado stores (43 basis points), a decrease
in store payroll (32 basis points) and other various individual immaterial
variations that in the aggregate comprise the remainder of the difference.
Pamida's SG&A expenses for the second quarter of fiscal 2005 were 21.6 percent
of net sales compared with 21.1 percent for the second quarter last year. The
increase was driven by the decline in sales (31 basis points), an impairment
associated with a store to be closed (29 basis points) and higher payroll due to
pharmacy growth (17 basis points), partially offset by lower net advertising
costs (31 basis points).

Consolidated SG&A expense dollars for the first half of fiscal 2005 increased
0.1 percent to $324.4 million from $323.9 million for the same period last year.
SG&A expenses as a percent of net sales for the first half of fiscal 2005 were
22.5 percent compared with 21.4 percent for the same period last year. The
increase in SG&A as a percent of net sales for the first half of fiscal 2005 was
primarily attributable to the decline in sales (105 basis points), partially
offset by a reduction in preopening expenses associated with fewer store
remodels (14 basis points).

ShopKo's SG&A expenses as a percent of net sales for the first half of fiscal
2005 were 21.0 percent compared with 19.9 percent last year, primarily
attributable to the decline in sales (147 basis points) and merger related fees
(27 basis points), partially offset by a decrease in store payroll due to lower
sales (25 basis points), the gain on the sale of fixed assets for the three
Colorado stores (22 basis points) and lower preopening expenses associated with
fewer store remodels (14 basis points). Pamida's SG&A expenses as a percent of
net sales for the first half of fiscal 2005 were 22.5 percent compared with 22.2
percent last year. The increase was driven by higher payroll due to pharmacy
growth (24 basis points) and the store building impairment mentioned above (15
basis points) partially offset by lower net advertising expenses (20 basis
points).

                                       18

<PAGE>

DEPRECIATION AND AMORTIZATION EXPENSE:

Consolidated depreciation and amortization expenses were $20.6 million for the
second quarter of fiscal 2005 compared with $21.2 million for the same period
last year. For the first half of fiscal 2005, consolidated depreciation and
amortization expenses were $41.5 million compared with $42.7 million for the
same period last year. As a percent of net sales, consolidated depreciation and
amortization expenses were 2.8 percent for the second quarter of fiscal 2005
compared with 2.7 percent for the same period last year. Consolidated
depreciation and amortization expenses as a percent of net sales for the first
half of fiscal 2005 were 2.9 percent compared with 2.8 percent last year.


INTEREST EXPENSE:

Interest expense for the second quarter of fiscal 2005 was $7.0 million compared
with $8.6 million for the same period last year. For the first half of fiscal
2005, interest expense decreased $2.8 million or 16.2 percent to $14.4 million
compared with the same period last year. The decrease in interest expense for
the second quarter and first half of fiscal 2005 was primarily due to reduced
inventory levels, higher cash flows provided by operating activities, proceeds
from the sale of three Colorado stores and reduced capital spending versus last
year.


INCOME TAXES:

The Company's effective income tax rate for the second quarter and first half of
fiscal 2005 was 38.5 percent compared with 39.0 percent for the second quarter
and first half of fiscal 2004. The decrease in the Company's effective tax rate
is due to a lower state income tax rate, net of federal benefits.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the appropriate application of certain accounting policies, many of
which require management to make estimates and assumptions about future events
and their impact on amounts reported in our financial statements and related
notes. Since future events and their impact cannot be determined with certainty,
the actual results will inevitably differ from our estimates. Such differences
could be material to the financial statements.

Management believes that its application of applicable accounting policies, and
the estimates inherently required therein, are reasonable. Management
periodically reevaluates these accounting policies and estimates in the
preparation of the financial statements and makes adjustments when facts and
circumstances dictate a change. The Company has identified certain critical
accounting policies, which are described below.

Merchandise inventory. The Company's merchandise inventory is carried at the
lower of cost or market on a last-in, first-out (LIFO) basis utilizing the
average cost method of accounting. The valuation of inventories at cost requires
certain management judgments and estimates, including among others, the
assessment of shrinkage rates, obsolescence and the impact on inventory values
of using the lower of cost or market valuation method. In valuing the inventory,
the Company undertakes physical inventories at least annually at its stores and
distribution centers and adjusts inventory values regularly to reflect market
conditions and business trends. The Company estimates losses of inventory due to
shrinkage based upon historical experience by store and by merchandise
department, which are then verified by physical inventory counts.

                                       19

<PAGE>

The Company's experience has been that there is little fluctuation or risk in
the estimate of obsolescence or lower of cost or market reserve because (i) of
the Company's inventory turnover rate, (ii) a large percentage of our inventory
is returnable to our vendors for cost and (iii) the Company is able to receive
vendor support monies if product is sold below expected prices. The
non-returnable inventory goes through a markdown process that liquidates the
inventory, generally at prices in excess of cost.

Restructuring Reserve. In connection with the reorganization plan announced in
the fourth quarter of fiscal 2000 to close 23 ShopKo retail stores, a
distribution center, and to downsize its corporate workforce, the Company
incurred a pre-tax charge of $125.0 million related to inventory and property
write-downs, lease termination and property carrying costs, and employee
separation and other costs. The inventory and fixed asset write-down reserves
were recorded in the fourth quarter of fiscal 2000, and the Company closed all
23 stores and the distribution center in fiscal 2001. The Company utilized all
of the employee severance reserve prior to fiscal 2002. Of the 24 properties
initially covered by the restructuring reserve, twenty were disposed of in
subsequent years, leaving four remaining leased properties covered by the
restructuring reserve as of the beginning of fiscal 2005.

During the second quarter of fiscal 2005, no additional leases were terminated.
As of July 30, 2005, the remaining reserve for lease termination and related
property carrying costs, as well as other costs, was $12.7 million. For balance
sheet reporting purposes, the portion of the reserve for the lease termination,
property carrying and other costs to be paid in the next 12 months is reported
in accrued expenses ($1.8 million) as a current liability and the remainder
($10.9 million) is recorded in other long-term obligations at July 30, 2005.

The Company believes the reserves are adequate, and continues to negotiate lease
terminations with landlords. However, due to the Company's inability to
terminate the leases or to sublease the four locations, the level of reserves
could prove to be inadequate and additional charges may be required. The Company
will continue to evaluate the adequacy of the amounts reserved as it proceeds
with the termination of the leases.

Vendor Allowances. The Company records vendor allowances and discounts in the
income statement when the purpose for which those monies were designated is
fulfilled. Allowances provided by vendors generally relate to inventory recently
sold and, accordingly, are reflected as reductions of cost of sales as
merchandise is sold. Vendor allowances received for advertising or fixturing
programs reduce the Company's expense or cost for the related advertising or
fixturing program. The Company recognizes vendor allowances based on the
provisions of EITF No. 02-16.

Impairment of Long-Lived Assets. In accordance with SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", the Company evaluates long-lived
assets whenever events or changes in circumstances indicate the carrying value
of an asset may not be recoverable based on projected future undiscounted cash
flows attributable to that asset. The measurement of possible impairment is
based on the ability to recover the balance of assets from expected future
operating cash flows on an undiscounted basis. Impairment losses, if any, would
be measured by comparing the carrying amount of the asset to its fair value,
determined based on appraised values or the present value of the cash flows
using discount rates that reflect the inherent risks of the underlying business.
Our impairment loss calculations require management to apply judgment in
estimating future cash flows and asset fair values, including forecasting useful
lives of the assets and selecting the discount rate that reflects the risk
inherent in future cash flows.

Stock Based Compensation. As discussed in the Company's fiscal 2004 Annual
Report on Form 10-K, as amended, the Company follows Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees", which does not
require recognition of expense for

                                       20

<PAGE>

stock options when the exercise price of an option equals, or exceeds, the fair
market value of the common stock on the date of grant.

In December 2004, the FASB issued SFAS No. 123R "Share-Based Payment" ("SFAS
123R"), which requires the Company to expense all share-based payments to
employees, including grants of employee stock options, in the financial
statements. The grant-date fair value of employee stock options and similar
instruments will be estimated using an option-pricing model adjusted for any
unique characteristics of a particular instrument. In April 2005, the SEC
amended the compliance dates for SFAS 123R from fiscal periods beginning after
June 15, 2005 to fiscal years beginning after June 15, 2005. The Company will
continue to account for share-based compensation using the intrinsic value
method set forth in APB No. 25, until adoption of SFAS 123R on January 29, 2006.
The pro forma impact on the 13 week and 26 week periods ended July 30, 2005 of
expensing unvested stock options is disclosed, as required under FASB Statement
No. 123, "Accounting for Stock-Based Compensation" in Note C to the unaudited
Condensed Consolidated Financial Statements ("SFAS 123"). The impact of SFAS
123R is not expected to be materially different than the impact of SFAS 123.

Income Taxes. The Company provides deferred income tax assets and liabilities
based on the estimated future tax effects of differences between the financial
and tax bases of assets and liabilities based on currently enacted laws. The tax
balances and income tax expense recognized by the Company are based on
management's interpretation of the tax laws of multiple jurisdictions. Income
tax expense also reflects the Company's best estimates and assumptions
regarding, among other things, the level of future taxable income,
interpretation of the tax laws, and tax planning. The Company pays income taxes
based on tax statutes, regulations and case law of the various jurisdictions in
which it operates. At any one time, multiple tax years are subject to audit by
the various taxing authorities.


RECENT PRONOUNCEMENTS:

On July 14, 2005 the Financial Accounting Standards Board issued a proposed
interpretation of FASB Statement No. 109 regarding the Accounting for Uncertain
Tax Positions. This proposed Interpretation would require the Company to
recognize in its financial statements, the best estimate of the impact of a tax
position only if that position is probable of being sustained on audit based
solely on the technical merits of the position. The Company has not yet
determined the impact of this proposed interpretation.


LIQUIDITY AND CAPITAL RESOURCES:

The Company's liquidity requirements are met primarily by cash generated from
operations, with remaining funding requirements provided by short-term and
long-term borrowings. Cash provided by operating activities was $52.3 million
for the first half of fiscal 2005 compared with cash provided by operating
activities of $2.3 million for the same period last year. The Company finances a
significant portion of its operations through vendor financing. As of July 30,
2005, accounts payable totaled $230.1 million, a decrease of $29.9 million,
compared with $260.0 million at the end of the second quarter of fiscal 2004.
The Company currently maintains favorable terms with its vendors, however these
terms could change based on the Company's future operating performance.

As of July 30, 2005, the Company had $150.7 million of long-term debt
outstanding, consisting of $99.7 million of Senior Unsecured Notes and
approximately $51.0 million of long-term notes payable. The Senior Unsecured
Notes have maturity dates in March 2022. A more detailed description of these
Senior Unsecured Notes is contained in Note D of the Notes to Consolidated
Financial Statements in the Company's fiscal 2004 Annual Report on Form 10-K,

                                       21

<PAGE>

as amended. Subject to certain limitations set forth in our Amended Secured
Credit Facility, proceeds of the Facility or funds from other sources may be
used to retire or repurchase Senior Unsecured Notes. Payments due under the
Senior Unsecured Notes could be accelerated in the event the Company defaults on
any debt obligation in excess of $25.0 million.

On June 30, 2005, the Company commenced an offer to purchase any and all of its
outstanding Senior Unsecured Notes in connection with the Merger Agreement.
Holders who tender their Senior Unsecured Notes are deemed to consent to certain
proposed amendments to the indenture governing the Senior Unsecured Notes, which
will eliminate substantially all of the restricted covenants and certain events
of default in the indenture. As of August 16, 2005, holders of a majority in
principal amount of the Senior Unsecured Notes had tendered their Senior
Unsecured Notes into the Offer and provided the requisite consents to amend the
indenture governing the Senior Unsecured Notes. The Company executed a
supplemental indenture, which eliminated substantially all of the restrictive
covenants and certain events of default in the indenture governing the Senior
Unsecured Notes. The Offer is scheduled to expire on September 15, 2005 at 9:30
a.m., New York City time, unless further extended or earlier terminated by the
Company. The consummation of the Offer is subject to specified conditions,
including the consummation of the Merger, the absence of any material adverse
change with respect to the Company or the financial markets, and other customary
conditions. The Merger is currently scheduled to close in the Company's third
fiscal quarter.

In addition, the Company had $40.0 million outstanding under its Amended Secured
Credit Facility at the end of the second quarter of fiscal 2005 compared with
$118.8 million outstanding at the end of the second quarter of fiscal 2004.
During the third quarter of fiscal 2003, the Company entered into the Amended
Secured Credit Facility, which is secured by the Company's inventory and
accounts receivable. The Amended Secured Credit Facility provides for revolving
credit borrowings of up to $450.0 million, bearing interest at the bank's base
rate plus a margin of 0.0% to 0.25% or the Eurodollar rate plus a margin of 1.5%
to 2.0%, depending on borrowing availability under the facility. The Company had
$341.8 million in availability at the end of the second quarter.

The Amended Secured Credit Facility terminates August 19, 2007, and limits the
payment of dividends, new indebtedness, repurchases of common stock, and capital
expenditures, and requires the Company to meet financial performance covenants
relating to borrowing availability and minimum operating cash flows as defined
therein. The consequences of failing to comply with the various covenants and
requirements range from increasing the interest rate, to restrictions on cash
management, to default and acceleration of the debt. The indebtedness under the
Amended Secured Credit Facility can be declared immediately due and payable in
the event other Company debt in excess of $10.0 million is accelerated. As of
July 30, 2005 and for the second quarter of fiscal 2005, the Company was in
compliance with all covenants in the Amended Secured Credit Facility.

                                       22

<PAGE>



The following schedule sets forth the Company's contractual obligations and
commercial commitments as of July 30, 2005 (in thousands):

<Table>
<Caption>
CONTRACTUAL OBLIGATIONS (1)                                   Less than 1                                        After
                                                 Total            year         2-3 years       4-5 years        5 years
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>             <C>             <C>             <C>
Long-Term Debt (2)                                $ 150,651       $   1,515       $   5,662        $  2,950       $ 140,524
Capital Lease Obligations (3)                        91,293           6,342          12,118          12,076          60,757
Operating Leases (4)                                176,383          19,171          35,197          29,519          92,496
Total Contractual Cash Obligations                  418,327          27,028          52,977          44,545         293,777
----------------------------------------------------------------------------------------------------------------------------
</Table>


         (1)      The schedule excludes obligations of $40.0 million outstanding
                  under the Amended Secured Credit Facility, which are
                  classified on the balance sheet as short-term debt, as well as
                  $29.0 million of outstanding documentary letters of credit and
                  $20.7 million of standby letters of credit as of July 30, 2005
                  (which reduce availability under the Amended Secured Credit
                  Facility)
         (2)      Interest payments (in millions) due on long-term debt for less
                  than 1 year are $14.5, 2-3 years are $28.1, 4-5 years are
                  $27.4 and after 5 years are $114.5.
         (3)      Capital lease obligations represent the total minimum future
                  obligations, net of $62.9 million of interest. Interest
                  payments (in millions) due on capital lease obligations for
                  less than 1 year are $7.9, 2-3 years are $14.2, 4-5 years are
                  $11.7 and after 5 years are $29.1.
         (4)      Operating leases are the aggregate future payments for
                  operating leases as of July 30, 2005, including closed stores.

The Company believes that the Amended Secured Credit Facility, and expected cash
from operations together with continued favorable vendor credit terms, will
provide sufficient liquidity to finance continuing operations, including planned
capital expenditures, for fiscal 2005. However, if the Company's operating
results were to deteriorate significantly for any reason, or if the Company were
to require significant additional capital for unexpected events, the Company
could suffer liquidity problems, which would materially adversely affect its
results of operations and financial condition.

The Company spent $5.5 million in the second quarter and $8.3 million in the
first half of fiscal 2005 on capital expenditures compared with $21.0 million
and $31.4 million in the second quarter and first half of fiscal 2004,
respectively. The decrease in capital expenditures is primarily due to $13.0
million related to the expansion of the Omaha distribution center and $7.9
million in store remodeling activity during the first half of fiscal 2004. In
the first half of fiscal 2005, the Company opened three new Pamida stores, had
store remodeling activity in both divisions and invested in its technology
infrastructure by replacing the optical center system in ShopKo. The Company
expects capital expenditures of up to $35 million for the fiscal year.


INFLATION:

The Company does not believe that inflation has had a material effect on the
results of operations during the periods presented. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.


FORWARD-LOOKING STATEMENTS AND RISK FACTORS:

Certain statements contained in Item 2, "Management's Discussion and Analysis"
and elsewhere in this Form 10-Q are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements discuss, among other things, expected growth, future revenues,
product development, debt reduction, capital expenditures and deployment plans
and future operating and financial performance. The forward-looking statements
are subject to risks and uncertainties, which could cause actual results to
differ materially from those discussed in such forward-looking statements. These
risks and uncertainties include, but are not limited to: 1.) the impact of
accounting pronouncements as described herein; and 2.) the following which are
more fully discussed in the Company's fiscal

                                       23

<PAGE>

2004 Annual Report on Form 10-K, as amended, for the fiscal year ended January
29, 2005: a.) significant debt levels; b.) continued availability of vendor
financing; c.) failure to achieve the expected benefits of reorganizations; d.)
inability to execute future expansion plans; e.) failure to remodel existing
stores on schedule or within budget; f.) quarterly performance fluctuations -
most notably the highly seasonal nature of the business; g.) competition; h.)
U.S. and international political unrest and extended economic slowdown; i.)
general economic conditions and weather; j.) smooth functioning distribution
network; k.) labor conditions; l.) anti-takeover provisions in the Company's
organizational documents; m.) pending or future changes in laws or regulations
and n.) pending or future litigation. These and other risks and uncertainties as
may be indicated in subsequent filings with the Securities and Exchange
Commission, are incorporated herein by reference. These forward-looking
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions, which may, or may not come to fruition. In
addition, the Company does not undertake any obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.



ITEM 3:           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


For information as to the Company's Quantitative and Qualitative Disclosures
about Market Risk, please see the Company's fiscal 2004 Annual Report on Form
10-K, as amended, for the fiscal year ended January 29, 2005. There have been no
material changes in the Company's quantitative or qualitative exposure to market
risk since the end of fiscal 2004.



ITEM 4:           CONTROLS AND PROCEDURES

(a)      Evaluation of Disclosure Controls and Procedures

         The Company maintains a set of disclosure controls and procedures
         designed to ensure that information required to be disclosed by us in
         the reports filed under the Securities Exchange Act of 1934, as amended
         (the "Exchange Act"), is recorded, processed, summarized and reported
         within the time periods specified by the SEC. The Company carried out
         an evaluation, under the supervision and with the participation of the
         Company's Disclosure Committee and the Company's management, including
         the acting members of the office of the Chief Executive Officer, which
         includes the Chief Financial Officer, of the effectiveness of the
         design and operation of the Company's disclosure controls and
         procedures pursuant to Rule 13a-15 promulgated under the Exchange Act.
         Based upon that evaluation, the Co-Chief Executive Officers including
         the Chief Financial Officer concluded that the Company's disclosure
         controls and procedures are effective as of the end of the period
         covered by this report.


(b)      Changes in Internal Control

         There have been no significant changes in the Company's internal
         control over financial reporting identified in connection with the
         evaluation discussed above that occurred during the quarter ended July
         30, 2005 that have materially affected, or are reasonably likely to
         materially affect, the Company's internal control over financial
         reporting.

                                       24

<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1:           LEGAL PROCEEDINGS

Following the Company's April 8, 2005 announcement that it had signed the Merger
Agreement to be acquired by an affiliate of Goldner Hawn, six putative class
action lawsuits challenging the proposed merger were filed in Circuit Court for
Brown County, Wisconsin. These six lawsuits were consolidated under the caption,
In re the Company Shareholder Litigation, Case No. 05-CV-677, and the Company,
each member of the Company board of directors and Goldner Hawn were named as
defendants. The consolidated complaint alleges, among other things, that the
Company and its directors breached their fiduciary duties to the Company's
shareholders by negotiating the proposed merger at a price that the plaintiffs
allege to be inadequate, by supporting the merger rather than effecting a
recapitalization and by failing to disclose all material information concerning
the merger agreement, the transactions contemplated thereby and the background
of and reasons for the merger. In addition, the consolidated complaint alleges
that Goldner Hawn aided and abetted the directors' breach of their fiduciary
duties. The consolidated complaint seeks, among other relief, rescission of the
proposed merger, an injunction requiring disclosure of all material information
and preventing completion of the proposed merger, and compensatory damages. The
Company believes the litigation is without merit and plans to defend against it
vigorously. The litigation is proceeding, however, and on August 16, 2005 the
plaintiffs filed a motion seeking a preliminary injunction. The hearing on the
motion was held on September 1 and September 2, 2005. Following oral argument,
the court denied the plaintiffs' motion, allowing the Company's shareholders to
vote on the proposed merger.

                                       25

<PAGE>

ITEM 6:           EXHIBITS

         (a)      Exhibits.

                           4.1.3 Second Supplemental Indenture dated as of
                           August 16, 2005, between the Company and U.S. Bank
                           National Association, as Trustee, with respect to the
                           2022 Indenture, incorporated by reference to the
                           Registrant's Current Report on Form 8-K dated August
                           16, 2005.

                           31.1 Certification of Brian W. Bender, Senior Vice
                           President, Chief Financial Officer, Co-Chief
                           Executive Officer*, pursuant to Rule 13a-14(a) under
                           the Securities Exchange Act of 1934, as amended.

                           31.2 Certification of Michael J. Hopkins, President,
                           Pamida Division, Co-Chief Executive Officer*,
                           pursuant to Rule 13a-14(a) under the Securities
                           Exchange Act of 1934, as amended.

                           31.3 Certification of Paul G. White, Senior Vice
                           President, Chief Merchandising Officer, Co-Chief
                           Executive Officer*, pursuant to Rule 13a-14(a) under
                           the Securities Exchange Act of 1934, as amended.

                           32.1 Statement of Brian W. Bender, Senior Vice
                           President, Chief Financial Officer, Co-Chief
                           Executive Officer*, pursuant to 18 U.S.C. ss. 1350.

                           32.2 Statement of Michael J. Hopkins, President,
                           Pamida Division, Co-Chief Executive Officer*,
                           pursuant to 18 U.S.C. ss. 1350.

                           32.3 Statement of Paul G. White, Senior Vice
                           President, Chief Merchandising Officer, Co-Chief
                           Executive Officer*, pursuant to 18 U.S.C. ss. 1350.


* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.

                                       26

<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                 SHOPKO STORES, INC. (Registrant)


Date: September 8, 2005                 By:     /s/ Brian W. Bender
                                                -------------------
                                 Brian W. Bender
                                 Senior Vice President, Chief Financial Officer
                                 Co-Chief Executive Officer*
                                 (Duly Authorized Officer of Registrant and
                                 Principal Financial Officer)


* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.






                                       27
<PAGE>



                                  EXHIBIT INDEX
                               SHOPKO STORES, INC.
                                   10-Q REPORT

<TABLE>
<CAPTION>
Exhibit
Number                               Exhibit
-------                              -------
<S>                  <C>

31.1                Certification of Brian W. Bender, Senior Vice President,
                    Chief Financial Officer, Co-Chief Executive Officer*,
                    pursuant to Rule 13a-14(a) under the Securities Exchange Act
                    of 1934, as amended.

31.2                Certification of Michael J. Hopkins, President, Pamida
                    Division, Co-Chief Executive Officer*, pursuant to Rule
                    13a-14(a) under the Securities Exchange Act of 1934, as
                    amended.

31.3                Certification of Paul G. White, Senior Vice President, Chief
                    Merchandising Officer, Co-Chief Executive Officer*, pursuant
                    to Rule 13a-14(a) under the Securities Exchange Act of 1934,
                    as amended.

32.1                Statement of Brian W. Bender, Senior Vice President, Chief
                    Financial Officer, Co-Chief Executive Officer*, pursuant to
                    18 U.S.C. ss. 1350.

32.2                Statement of Michael J. Hopkins, President, Pamida Division,
                    Co-Chief Executive Officer*, pursuant to 18 U.S.C. ss. 1350.

32.3                Statement of Paul G. White, Senior Vice President, Chief
                    Merchandising Officer, Co-Chief Executive Officer*, pursuant
                    to 18 U.S.C. ss. 1350.

</TABLE>

* The office of Chief Executive Officer is comprised of three executive
officers, each serving as Co-Chief Executive Officer.


                                       28