Winn-Dixie Cautious Despite Q4 Recovery

JACKSONVILLE, Fla. — Winn-Dixie Stores here last week posted a turnaround fourth quarter — swinging to a profit from a year-ago loss — but issued a cautious report about the start of fiscal 2010.

Peter Lynch, Winn-Dixie's chief executive officer, confirmed the company's previously issued guidance for the current fiscal year, which began June 25, but said that current sales trends were “a bit softer” than the company had hoped, citing competitive activity and the weak economy.

“If this sales trend continues, we could be at the lower end of our sales guidance,” he told analysts in a conference call discussing results for fiscal 2009. “It's no secret that we are operating in a very competitive marketplace in a difficult economy, and our customers are continuing to search for value. We have seen a sharpening of the pencil on promotional spend across the industry.”

The company just last month had increased its sales and earnings guidance for current fiscal year, which ends next June 30, projecting same-store sales gains of between 1% and 2% and adjusted EBITDA of between $170 million and $180 million. In the first eight weeks of fiscal 2010, identical-store sales were “slightly positive” when adjusted for the hurricane-related sales gains in the year-ago period, the company said last week.

Meredith Adler, a New York-based analyst with Barclays Capital, estimated that IDs are actually down about 1% for the eight weeks on an unadjusted basis.

“Things are getting tougher, so we expect sluggish sales and little growth in EBITDA for the near term,” she wrote in a report last week, but noting that the company's strong balance sheet and solid cash flow “give it time to achieve a turnaround.”

She said she expects to see increased promotional activity from the company during the current fiscal year, although she does not expect that will drive strong sales gains.

The company recently completed remodeling all 51 stores in its Jacksonville region to kick off a new, market-by-market remodeling effort, and the company said customers responded positively.

Lynch noted that Publix Super Markets also responded to Winn-Dixie's marketwide remodeling effort — by selectively lowering prices on a limited number of items.

“What they have done is they've zoned their circulars in the Jacksonville area,” Lynch told investors in a conference call discussing fourth-quarter results. “It's not a lot of items; it's a few. But they fired a round over the bow to let us know that they knew what we were doing.”

He stressed that the chain was not in midst of a “price war,” however.

“A price war is when retailers go out and drop thousands of prices in the Center Store, across the store,” he said. “What we have down here is a natural reaction to a slowing of the economy, where retailers will go out and they'll fine-tune the front page of their ads, to be a little bit more competitive, and try to drive some sales.”

A Publix spokeswoman declined to comment specifically on its marketing tactics in the Jacksonville market, but told SN it has been aggressive in offering value for customers across all its markets.

“No one knows the Publix business better than Publix,” said spokeswoman Maria Brous. “Regardless of who the competition is, we stay focused on the customer.”

In the recently ended fourth quarter, Winn-Dixie reported $9.4 million in net income, vs. a loss of $5.5 million a year ago, citing improved gross margins.

Gross margin as a percentage of sales was 29.2% in the quarter, up 230 basis points over year-ago results.

Sales in the 12-week quarter, which ended June 24, were up 1.4%, to $1.7 billion, and identical-store sales were up 1.6%.

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