JACKSONVILLE, Fla. — Winn-Dixie Stores here last week said it would cut back on capital expenditures and the number of store remodels it will undertake this year, but will spend slightly more per store on those remodeling efforts.
In a conference call with analysts discussing second-quarter results, in which sales and net income both declined, the company said it would reduce cap-ex by about $20 million, to $200 million, and undertake 60 remodels, instead of 75. The moves come as returns on lesser remodels have fallen short of goals and the company focuses on major store revamps.
“We believe management is navigating extremely deftly in a tough environment, and while remodel returns are weak, we see no other use of cash except remodels [because the terms of the credit agreement restrict dividends or share buybacks] so we continue to believe management has little choice but to proceed with the remodel strategy,” said Karen Short, a New York-based analyst with BMO Capital Markets, Toronto.
In the conference call, Winn-Dixie said cautious consumer spending pressured basket sizes in the fiscal second quarter, leading to a 2.9% decrease in identical-store sales. Net income of $2.1 million for the 16-week quarter, which ended Jan. 6, was down from $16.1 million in the year-ago period, when the company reaped a net gain of $13.8 million from an insurance settlement. Sales in the quarter fell 3.3%, to $2.2 billion, partly due to six store closures in the last year and a $22 million gain in storm-related sales a year ago.
“It is clear that consumers remain very cautious with their spending, which has influenced our sales across the chain, primarily with respect to overall basket size,” said Peter Lynch, chairman, president and chief executive officer. “However, we increased transactions by 4.1% in our first-year offensive remodels compared to last year, and our customers are continuing to respond positively to the changes we are making.”
He said the company would cut back on capital spending and “selectively remodel” a total of 60 stores in fiscal 2010 “in locations where we believe we can generate the highest return on our investment.”
Through the first two quarters, the company posted a loss of about $6 million, vs. net income of $13.8 million a year ago. Sales were off about 2.8%, to $3.8 billion, and identical-store sales fell 2.3%.