Winn-Dixie Remodels Drive Sales Gains, Fast Returns

ELLIOT ZWIEBACH

JACKSONVILLE, Fla. — Winn-Dixie Stores said last week its first three transformational remodels are averaging sales per square foot of $475 on an annualized basis, with a payback of three-and-a-half years compared with original projections of five years.

The chain's average is just under $300 per square foot, analysts told SN.

According to Peter Lynch, chairman, president and chief executive officer, the perishables mix at the transformational remodels averages about 38%, compared with 30% at other stores.

Each of the transformational remodels costs approximately $5.5 million, Lynch said, “and the returns have been so good that, clearly, the amounts we're spending right now justify themselves.”

The first three transformational remodels — all opened prior to June 29, the end of the chain's fiscal year — are located in Covington, La.; Margate, Fla.; and Mobile, Ala. Two more have opened this summer — here and in Apopka, Fla.

Lynch said the chain plans 15 more transformational remodels in fiscal 2012 — 11 of which are already under construction, with a timeframe of five to six months per location. The company sees opportunities for similar remodels at more than 100 additional locations, he added.

Chuck Cerankosky, managing director for Northcoast Research, Cleveland, told SN the transformational remodels “are great-looking stores, and while it may not be possible to generate the same returns at every store, there are still a lot of locations to pick from — and if Winn-Dixie can keep generating the same kinds of revenues it's generating now, those remodels could produce very positive numbers going forward.”

Lynch said none of the 15 stores scheduled for transformational remodels this year involve expanding the box, though the chain is picking up 2,500 to 3,500 square feet per unit by moving its liquor stores outside the four walls to a separate location in each shopping center, he noted.

Of the 234 Winn-Dixie stores that have undergone traditional remodels since 2007, weekly sales have risen approximately 10% when adjusted for competitive openings, Lynch said — with financial returns averaging 16.5% after adjusting for competitive openings and an overall payback period of approximately six years, Bennett Nussbaum, senior vice president and chief financial officer, added.

Lynch and Nussbaum made their remarks during a conference call with industry analysts to discuss financial results for the fourth quarter and fiscal year that ended June 29.

Net income for the 12-week quarter fell 47.8% to $7.3 million, compared with a 13-week quarter a year ago, with income from continuing operations dropping 65% to $5.6 million, while sales fell 3.8% to $1.6 billion. As reported in early August, identical-store sales, adjusted for the extra week, rose 3.2%.

Basket size for the quarter was up 3.9% and transaction count was down 0.7%, the company reported.

For the 52-week fiscal year, the company experienced a loss of $70.1 million, compared with net income in the prior 53-week year, with a loss of $29.8 million from continuing operations; sales fell 1.4% to $6.9 billion. Adjusted ID sales, as previously reported, declined 0.1%.

Basket size for the year was up 1.3%, and transaction count was down 1.5%.

Laurence B. Appel, senior vice president, retail operations, said Winn-Dixie has launched a “Neighborhood Butcher” program that guarantees employees are available to answer consumer questions about meal solutions, recipe information and preparation assistance; and a “Service Excellence” department with a specialist in each of its 21 districts dedicated to ensuring guest hospitality.

Appel said the company is also refining its scheduling to align store labor with consumer shopping patterns.

Meredith Adler, managing director for Barclays Capital, New York, said that, despite the chain's ability to make tremendous strides in execution and efficiency, its brand image remains tarnished, “and it is not attracting as many new customers as it would like, even though ratings from existing customers keep rising.”

Improving in-store service should help resolve that issue, Adler said. However, it would not have been possible even three years ago, she noted, but now that store personnel understand “what service and a good shopping experience mean to customers, [the company] is on its way to making that level of care a reality.