WINN-DIXIE LOSES $100M, UPGRADES REMODEL EFFORT

Jon Springer

JACKSONVILLE, Fla. -- As more details emerged last week regarding Winn-Dixie Stores' strategic plans, analysts said they expect a slow turnaround that will depend in part on the ability of the retailer to continue paying for the changes it needs to make.

In a conference call here discussing the most recent fiscal year in which Winn-Dixie lost $100.4 million overall, Frank Lazaran, president and chief executive officer, revealed additional details of the strategic plan he unveiled in January, saying store repositioning efforts under way in the Miami area are more than twice as expensive as the makeovers that have improved performance in 331 stores that were already remodeled. That effort involved adding improved lighting and signs, installation of new produce bins and new interior paint, at a cost of approximately $225,000 per store.

In addition to what Lazaran called an "upgraded makeover," Winn-Dixie plans to introduce new product offerings and merchandising catering to local tastes, as well as new training, recruitment and management initiatives, to all of its 92 stores in the Miami-Fort Lauderdale area. These moves are designed to position Winn-Dixie as a "neighborhood market" competing on convenience, quality customer service and price, Lazaran said. Changes have taken place in eight stores so far with an additional 10 to be completed at the end of this month, and represent an investment of around $560,000 per store. Winn-Dixie expects to roll the changes to all Miami-area stores by next March.

Analysts told SN the moves sound promising, but added they felt overall trends will need to improve for Winn-Dixie to continue the program throughout the chain. "The store base needs a lot of attention," said Jason Whitmer, analyst for FTN Midwest Research, Cleveland. "The significant thing to me is that there's some question about the near-term liquidity. They'll still need the business to materially improve or get more funding."

Winn-Dixie as of June 30 had $448.5 million, comprised of $56.8 million in cash and $391.7 million of borrowing availability under a revolving credit facility, said Bennett Nussbaum, Winn-Dixie's chief financial officer. Winn-Dixie can add to this total through the sale of assets discontinued as part of its restructuring, he added.

"The overwhelming story for securities is maintaining liquidity," said Bryan Hunt, fixed-income analyst for Wachovia Securities, Charlotte, N.C. "We figure their current liquidity is enough to carry them for another 24 to 30 months."

Wachovia, which owns more than a 1% stake in Winn-Dixie, arranged a recently announced credit facility with the supermarket company.

Declining sales and charges from the restructuring effort led to a loss of $22.7 million for Winn-Dixie during its fiscal fourth quarter ended June 30.

For the fiscal year, Winn-Dixie lost $100.4 million, or $1.70 per share, on sales of $10.6 billion. Excluding discontinued operations, the company reported a loss of $2.1 million, or 1 cent per share, for the quarter and losses of $50.8 million, or 36 cents per share, for the year. The quarterly loss included a $12.8 million restructuring charge related to the turnaround strategies.

Sales of $2.6 billion during the quarter -- which contained an extra week -- increased 3.5%, vs. the same period a year ago, but yearly sales fell by 3.6%. Comparable-store sales decreased 4.4% for the quarter and 6% for the year. The sales decline was caused by competitive openings and a decreased emphasis on promotions in the second half in an effort to improve margins, said Nussbaum. He added that price reductions during the second quarter did not result in increased tonnage.

"This was another challenging quarter in what has been a difficult year for Winn-Dixie," said Lazaran. "That said, I believe we are doing the right things to improve our competitive positioning and operational performance. We took steps toward that goal during the quarter."

Lazaran said same-store sales declines have been less than the chain average -- around 2% -- among the 331 stores that received makeovers during the fiscal year. He added that the continuing stores showed two quarters of gross margin improvement. The company achieved around $15 million of its planned $100 million annual expense reductions during the fiscal year.

"The good news is that the cash flow from the continuing operations has stabilized, and that the stores they have re-imaged are not as negative. It goes to show small improvements can go a long way," Hunt said.

Winn-Dixie as of last week had exited 32 stores as part of its rationalization plan, including 13 in non-core markets. The company expects to exit from 124 additional stores by the end of April 2005, Lazaran added. In addition, Winn-Dixie plans to either close or sell its Lexington, Ky., distribution facility, and close or sell the Dixie Packers, Cracklin' Good Bakers, Cracklin' Good Snacks and Montgomery Pizza manufacturing facilities by April 2005.

The company sold nine stores in the greater Cincinnati area and closed stores in Alexandria, Ky., Dillon, S.C., Lumberton, N.C., and Troutville, Va., during the fourth quarter.

4TH-QUARTER RESULTS

Qtr Ended* 6/30/04; 6/25/03

Sales: $2.6 billion; $2.5 billion

Change: 3.5%

Comp-store: -4.4%

Net Income: -$22.7 million; $62.5 million

Change: NA

Inc/Share: -1 cent; 44 cents

Fiscal Year** 2004; 2003

Sales: $10.6 billion; $11.0 billion

Change: -3.6%

Comp-store: -6%

Net Income: -$100.4 million; $239.2 million

Change: NA

Inc/Share: -71 cents; $1.70

* Quarter was 13 weeks in 2004, vs. 12 weeks in 2003.

** Fiscal year was 53 weeks in 2004, vs. 52 weeks in 2003.

Excluding discontinued operations, loss was $2.1 million for the quarter, or 1 cent per share, and $50.8 million, or 36 cents per share, for the fiscal year.