Winn-Dixie Hopeful on Sales Growth

JACKSONVILLE, Fla. Winn-Dixie Stores returned to the practice of quarterly chats with the financial community for the first time in nearly two years last week, reporting a loss since emerging from Chapter 11 late last year, but expressing optimism about sales performance and potential. I believe the upside potential for our company is tremendous, Peter Lynch, president and chief executive officer,

JACKSONVILLE, Fla. — Winn-Dixie Stores returned to the practice of quarterly chats with the financial community for the first time in nearly two years last week, reporting a loss since emerging from Chapter 11 late last year, but expressing optimism about sales performance and potential.

“I believe the upside potential for our company is tremendous,” Peter Lynch, president and chief executive officer, told analysts in a conference call reviewing the 16-week fiscal second quarter, which ended Jan. 10.

Winn-Dixie reported overall earnings of $286.8 million for the period, generated nearly exclusively by non-cash items related to its emergence from Chapter 11 on Nov. 15. Those items included $188.2 million in discharged liabilities and $144.8 million related to “fresh start” accounting, and were recognized in the eight weeks prior to Nov. 15.

In the eight weeks since emerging, Winn-Dixie lost $10.8 million on sales of $1.16 billion. Sales for the full quarter totaled $2.2 billion.

Investors appeared disappointed in the news, sending Winn-Dixie stock down by more than 7%. However, Chuck Cerankosky, an analyst for FTN Midwest Research, Cleveland, said the report sounded promising.

“I was pleased to see them focusing on the areas they were focusing on, and I think Peter Lynch is an outstanding manager going back to his days with Albertsons,” said Cerankosky, who is not covering the stock but participated in the call.

Lynch lauded the company's identical-store sales performance, which increased by 3.5% when excluding stores that had seen extraordinary gains in the wake of Hurricanes Katrina and Wilma. “We believe this sales trend compares quite favorably to many of our competitors,” Lynch said, adding that he expected positive identical-store sales through the end of the fiscal year.

Overall sales were down by 0.5% in the quarter but up by 1.8% year-to-date.

Lynch said Winn-Dixie has completed five store remodels and expects to complete between 18 and 22 by the end of its fiscal year. Most of these, he said, would be “defensive” remodels to counteract new store activity or remodels among competitors. Where possible, the company will look to cluster those remodels in specific geographies.

The remodels themselves, at an average cost of $1.5 million to $2 million per store, promise “a dramatic departure from the pinks and the turquoises which you used to see out in the stores,” Lynch said, as well as a layout that simplifies what he called “convoluted” routes through the store.

He reiterated plans to position Winn-Dixie in the same “quadrant” as its Florida-based competitor, Publix Super Markets.

While acknowledging Publix's strength in those areas, Cerankosky agreed with Lynch. “I don't believe Publix precludes Winn-Dixie from having success,” he said. “There are plenty of markets, such as Denver, where similarly positioned retailers, like Kroger and Safeway, and Target and Wal-Mart, exist together.”