JACKSONVILLE, Fla. — Winn-Dixie Stores kicked off the 2011 fiscal year with heavy losses and sales declines, but officials were confident better days are ahead.
Citing everything from the performance of rival Publix, to election results, to an anticipated rebound from “snowbirds” visiting its home state this winter, Peter Lynch, Winn-Dixie's chief executive officer, maintained trends favored improvements in earnings and sales for the remainder of the fiscal year.
In the fiscal first quarter, which ended Sept. 22, Winn-Dixie Stores reported a loss of $76.8 million, citing expenses incurred in a recent round of store closures and layoffs as well as a 2.3% sales decline compared with the same period last year.
Identical-store sales declined by 2.8% vs. year ago, but improved strongly from the fourth quarter, during which ID sales tumbled by more than 5%, Lynch said. A continuation of this sales trend, combined with ongoing cost-reduction efforts and an easing of promotional spending, should improve earnings for the remainder of the fiscal year, he added.
“In the near term, we believe it's critical to focus on the top line, and the actions we took this quarter were necessary to position us to achieve sustainable and profitable sales growth,” Lynch said in a conference call discussing results. “Our challenge going forward of course will be to maintain the positive momentum of sales, while also improving margins.”
The investment in promotional pricing during the quarter shaved about 80 basis points from Winn-Dixie's gross margins, which were 27.4% of sales in the quarter. That figure was below analyst expectations.
Lynch noted that more affluent shoppers were resuming the shopping patterns they had before the recession — a factor that he said contributed to sales gains at rival Publix Super Markets during a similar period. Publix, which Lynch said tends to draw a more affluent shopper than Winn-Dixie, last week reported a 2.7% comp-store sales increase for the three-month period that ended Sept. 30 (see Page 6).
“We look at that, and it's good news,” Lynch said. “That tells me that customers are coming back, and there's an opportunity to get those shoppers. … We are lagging them a little, and we're catching up now.”
Speaking on Election Day, Lynch was also counting on results to contribute to a “more positive atmosphere” that would bring back more middle-income shoppers. “Where the challenge continues to exist is for people on government assistance; we need to get jobs back to people,” he said. “When those jobs come back, those groups will start to participate in buying more and more often.”
An increase in sales from visitors and winter residents of Florida, beginning around the holiday season, should also help, he said. These “snowbirds” sharply cut back visits and spending when the recession struck two years ago, and rebounded some last year, he said.
Scott Mushkin, an analyst with Jefferies & Co., New York, sounded a note of caution, saying in a research note that “a lot seems to be riding on a more normal snowbird season.”
Lynch said Winn-Dixie would continue with its previously disclosed $80 million store renovation program for fiscal 2011, saying that remodeled stores — which emphasize a “fresh and local” brand positioning — were strongly outperforming the chain as a whole, drawing more shoppers and larger baskets. Winn-Dixie expects to complete 22 remodels during the fiscal year. By year-end, about half of Winn-Dixie's 515 stores will have been remodeled since the company emerged from Chapter 11 bankruptcy four years ago.
“We continue to believe management's execution remains strong in a very challenging environment, and believe the company has no choice but to continue with the current remodel and capex strategy,” Karen Short, an analyst for BMO Capital, said in a research note last week. “In our view, only when the vast majority of the remodels are complete will Winn-Dixie's EBITDA improve, or the company will potentially become a more attractive take-out candidate — and neither scenario will unfold for several years.”
Other sales initiatives include the fuelperks gasoline discount program, and a computer-generated ordering (CGO) system that is improving sales by reducing out-of-stocks, Lynch said. Stores on the CGO program during the first quarter realized ID sales gains of 10 basis points; Lynch said the program would be rolled out across the entire chain by fiscal year-end, and would produce ID improvements of 50 basis points.
Winn-Dixie's quarterly loss included $40.1 million related to discontinued operations at 30 Winn-Dixie stores that closed during the quarter. Continuing operations were adversely affected by a deferred tax expense of $13.3 million, the company added.
* LOSS INCLUDED $40.1 MILLION RELATED TO DISCONTINUED OPERATIONS.
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