ANALYSTS WEIGH IMPACT OF WINN-DIXIE'S ASSET SALES

ELLIOT ZWIEBACH

JACKSONVILLE, Fla. -- Plans by Winn-Dixie Stores here to dispose of 156 locations in the South, Midwest and Mid-Atlantic regions may not be as easy to accomplish -- or as financially productive -- as the company said it anticipates, industry analysts told SN last week.

The timing of store closures and asset sales will be slow, Bryan Hunt, an analyst with Wachovia Securities, Charlotte, N.C., said, "[and] projecting proceeds from asset sales in the current environment could prove hazardous with Bruno's Supermarkets and Bi-Lo on the market."

However, he said asset sales and improvements in working capital could generate $150 million to $225 million in one-time cash, while restructuring and rationalization projects could add $60 million to $80 million in pretax savings and reduced head-count and purchasing opportunities could give Winn-Dixie another $60 million.

Gary Giblen, senior vice president and director of research for C L King Associates, New York, also said he thinks potential buyers looking for opportunities in areas Winn-Dixie is abandoning may be more interested in buying stores operated by Bruno's and Bi-Lo, "which are in better shape and have a better customer image than Winn-Dixie. Ahold is selling those stores because of corporate issues, not because of any weakness in their operations, as is the case with Winn-Dixie."

However, he said he is less optimistic about the proceeds Winn-Dixie is likely to receive from asset sales "because there's little interest in the bulk of its stores. Even if chains like Food Lion or Publix Super Markets do acquire some Winn-Dixie locations, they're likely to pay fire-sale prices."

Edouard Aubin, an analyst with Deutsche Bank, New York, expressed a similar opinion. "Winn-Dixie's expectations could be optimistic when you take into account that, of the 190 stores [in Texas and Oklahoma] the company decided to dispose of in 2000 and 2001, roughly 120 are still dark, and Winn-Dixie appears to be paying market rents on a large proportion of its leases."

In a conference call with industry analysts, Frank Lazaran, Winn-Dixie president and chief executive officer, said the chain is optimistic it can find buyers for the stores and other properties. "We believe we have saleable assets," he said, "and we've already begun executing exit strategies, including, in some cases, discussions with third parties for the possible sale of these assets."

Bennett Nussbaum, Winn-Dixie's senior vice president and chief financial officer, said the chain has hired The Blackstone Group, New York, to assist it with asset dispositions. Although noting the company isn't sure how much it will realize from asset sales, "we've taken a mid-point range that Blackstone provided as an estimate of what we'll receive."

Winn-Dixie said it plans to upgrade operations while closing 156 stores, including 45 in core areas across the South and 111 in non-core markets in Ohio, Indiana, Kentucky and Virginia, as well as Greenwood, Miss.; Wilmington and Greenville, N.C.; Myrtle Beach, S.C.; and Memphis and Nashville, Tenn.

The closings will leave Winn-Dixie with 922 stores in Florida, Alabama, Louisiana, Georgia and parts of North Carolina, South Carolina, Mississippi and Tennessee, plus the Bahamas -- "areas where we believe we can compete and win," Lazaran said during the conference call.

"[They are] core market stores [that] are profitable in the aggregate, many of which are in prime locations in fast-growing areas of the South, with five-year population growth rates expected to exceed 7%," he explained. "We believe streamlining our store base to focus on a tighter, stronger geographic footprint will enable us to build on our strengths and capitalize on the advantages we have in the key markets where we compete."

Lazaran said the 922 stores Winn-Dixie will keep generate approximately $10 billion on an annualized basis, while the 156 stores that will be closed have annualized sales of approximately $1 billion. The store closings are expected to reduce the chain's workforce by approximately 10,000 positions, or 10%, he noted.

Besides closing and selling stores, the company's other rationalization plans include selling its distribution centers [Raleigh, N.C.; Louisville, Ky.; and Sarasota, Fla.]; three manufacturing operations and consolidate of its Greenville, S.C. dairy operation.

"Although some of these assets are currently profitable, we believe future capital investment would compete with the capital needed to invest in our stores," Lazaran said. While Winn-Dixie seeks to dispose of assets, it also plans simultaneously to reposition its remaining store base, Lazaran said.

"If we can improve our product offering, appearance and execution, we can improve our average transaction size."

In the conference call in which it announced the store closings, Winn-Dixie also discussed financial results for the third quarter and 40 weeks ended March 31, which showed sales down 5.5% to $2.7 billion for the 12-week quarter and down 5.8% to $8.9 billion for the year to date. Comparable-store sales fell 6.4% in the quarter and 6.6% for the 40-week period.

3RD-QUARTER RESULTS

Qtr Ended: 3/31/04; 4/2/03

Sales: $2.7 billion; $2.8 billion

Change: -5.5%

Comp-store: -6.4%

Net Income: $610,000; $50.6 million

Change: -99%

Inc/Share: 036 cents

40 Weeks: 2003; 2002

Sales: $8.9 billion; $9.4 billion

Change: -5.8%

Comp-store: -6.6%

Net Income: -$77.7 million; $176.7 million

Inc/Share: -55 cents; $1.26