WINN-DIXIE LOWERS ESTIMATES, CUTS DIVIDEND

MARTIN SCHNEIDER

JACKSONVILLE, Fla. -- Winn-Dixie Stores sent a strong signal last week that its long-running effort to attract new business is bearing little fruit.

It also lowered earnings estimates and startled investors by slashing its dividend payments that many thought to be sacrosanct.

The retailer is lowering its estimated range of earnings per share for the first quarter ended Sept. 19, 2001, from 24 to 30 cents per share to 15 to 18 cents per share. For the same quarter last year, the company earned 7 cents per share as reported, or 11 cents per share excluding non-recurring charges.

The company also lowered its estimated range of earnings per share for the current fiscal year from $1.60 to $1.75 per share to $1.05 to $1.20 per share, and stated that it expected earnings per share for the second quarter to be between 27 cents and 33 cents per share.

Winn-Dixie cited uncertainties, which include the timing of achieving the full benefits of the its restructuring, difficulties to increase customer count and the possible economic impact of the tragedies of Sept. 11 as reasons behind the decreased estimates and changes in its dividend-payment structure.

The company not only plans to sharply reduce the payment, but to pay it quarterly in arrears instead of monthly in advance.

Rick McCook, senior vice president and chief financial officer, said, "The ability to consider the declaration of dividends quarterly in arrears will assure a more financially sound company and will provide additional time for the anticipated benefits of our completed restructuring to be fully achieved.

"Future dividends will be paid at a financially prudent level, which we anticipate will be approximately 20 cents per share on an annualized basis, which would be 5 cents per share quarterly starting in the second quarter, if our earnings projections are met. With our new dividend policy, the company also will have the flexibility to give more emphasis to capital stock appreciation vs. dividend distributions. To the extent future dividends are not paid at historical levels, the company can use the cash flow to reduce debt and/or reinvest in the business to foster growth of sales, earnings and cash flow," McCook said.

Winn-Dixie's annual dividend prior to the cut was $1.02, which was the company's long-standing payout.

Jack Murphy, vice president, Credit Suisse First Boston, New York, told SN that Winn-Dixie's restructuring plan and high levels of competition in its markets are most likely the cause of the decreased estimates.

"The company has spent a lot of money, but is still stuck with a poor image and a lot of bad real estate, especially with a lot of Wal-Mart supercenter competition in their operating area," Murphy said.

"They also slashed their dividend by 80%, which most investors thought was untouchable. That will really alter the shareholder base, and may be a signal that the company does not have the financial resources to pay the type of dividends shareholders have come to expect," Murphy added.

Jonathan Ziegler, managing director, Deutsche Banc Alex. Brown, New York, said, "The decrease is a big surprise, and the market is reacting to that surprise."

In the days following the announcement, Winn-Dixie stock dropped to just over $12 per share, a 60% drop from its 52-week high.

The company also released details of a new advertising campaign set to break this week.

"During the past year, we have brought our expenses under control by becoming more efficient operators, and we also are taking better care of our customers. We are, however, lagging behind our projected time frame for creating new customers, which is adversely affecting our sales and profits. To address this, we will launch our new advertising campaign on Oct. 3 and also take other aggressive actions which should accelerate the building of our customer base and our sales and profits," said Al Rowland, Winn-Dixie's president and chief executive officer.

The company's new ad campaign, which will roll out in 14 states, communicates its new "Real Deal" brand position, which involves "real good food, from real good people, at a really good price."

Rowland said, "We want to be the friendliest supermarkets in the neighborhoods we serve. Real good people offering real good food at a real good price is what we're all about. That's our key marketing message and commitment to our customers. It's also the approach that will help grow our business."

According to the company, the campaign is based on consumer research in which shoppers described Winn-Dixie as familiar, down-to-earth, approachable, comfortable, sensible and price competitive.

The campaign follows a series of yearlong operational changes, new store layouts and retrofits at more than half of the company's 1,150 supermarkets.

According to Ziegler, "Winn-Dixie will never be able to get down to the Wal-Mart price level, but they do come below most other grocers. If they can use the campaign to increase the customer base and offset some of the competition from Wal-Mart, then the campaign can be a great benefit. We will have to wait and see."