WINN-DIXIE MAY UNVEIL PLAN TO RETRENCH ASSETS 2004-04-26 (1)

ELLIOT ZWIEBACH

JACKSONVILLE, Fla. -- Winn-Dixie Stores here is likely to announce asset sales and multiple store closings later this week when it releases third-quarter results as part of a move to focus its efforts on stores in its core operating areas in Florida and the Deep South, industry observers told SN last week.

To raise money to revamp its stores and upgrade its customer image, observers said they expect Winn-Dixie to sell its dairy facilities and possibly some combination of stores outside Florida, Louisiana, Mississippi and Alabama, with handfuls of underperforming stores in those states also likely to go up for sale.

Winn-Dixie officials declined to disclose what they will announce when results for the third quarter ended March 31 are released Friday. Winn-Dixie operates nearly 1,100 stores in 12 states and the Bahamas.

At the time it announced second-quarter financial results in late January -- a same-store sales decline of 6.8% and an $80 million net loss -- Frank Lazaran, president and chief executive officer, said the company was conducting "a comprehensive review of our entire business model" involving brand positioning, expense reduction, image makeover, process re-engineering and asset rationalization, with plans to announce "many significant decisions" by the time of its third-quarter earnings report.

Industry sources told SN Wall Street expects Winn-Dixie to add clarity about those decisions this week. Most also said they expect further financial disappointments from the third quarter.

However, the company's stock price has been rising, they noted, because of widespread speculation the company may disclose major restructuring efforts this week.

Bryan Hunt, an analyst with the Charlotte, N.C., office of Wachovia Securities, New York, said Winn-Dixie needs to raise $200 million or more "so it can aggressively dress up 700 stores over the next 18 months.

"It has the potential to raise $150 million to $200 million if it sells off the three or four dairy facilities it still operates and another $200 million to $250 million if it were to sell 300 stores in non-core markets, "which would give it ample liquidity to fix what ails it. "But even after you spend the money upgrading the stores, Winn-Dixie will still have image problems after years of catering to customers only on the basis of convenience, which has resulted in a serious loss of market share. So if the company is planning to invest all that money in remodeling and remerchandising, why not change the banner on the stores at the same time, as Delhaize is doing with Kash n' Karry in Florida?" Hunt said.

Another observer told SN, "I think it's highly likely the company will announce plans to cut back to a core group of stores in Florida, Louisiana, Mississippi and Alabama. It also looks like the company is moving closer to selling off its dairy facilities and then using that money to refocus its efforts in fewer markets than it's in now."

That could mean selling approximately 200 stores in Ohio, North Carolina, South Carolina, Tennessee, Virginia and Kentucky, Hunt said, "which would enable Winn-Dixie to pull in its reins to its nucleus. It makes a lot of sense for the company to condense itself down to one region."

Gary Giblen, senior vice president and director of research for C L King Associates, New York, said he expects Winn-Dixie to announce the shutdown of at least 75 stores. "When I asked on the last conference call what kind of spread there was between profitable and unprofitable stores, the company said there wasn't much divergence," he said. "But with a new chief financial officer [Bennett Nussbaum] in place, maybe the company will spin it a bit more and indicate it will try to sell the stores where it's losing money, which may be the bottom 20%, to make the rest of the stores look better."

According to Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., "Winn-Dixie has made no secret it's going to downsize, so why not downsize the markets where it is struggling most, which is basically most of its markets other than Florida? I've heard it's trying to get out of its leases and is very active about trying to downsize, and I think it's fair to assume something could happen reasonably soon because the company is losing money."

Wolf said he's also aware of speculation the company might seek to exit the Atlanta market, where it has already converted its conventional supermarkets to the Save-Rite price-impact format.

One point of speculation that is not likely to occur is a move to take Winn-Dixie private by the Davis family, which owns approximately 41% of the chain's stock, one industry observer told SN. "You need positive cash flow to get the financing to take the company private, but Winn-Dixie has negative cash flow," he pointed out.

The company has also reportedly sought to sell itself to private investors, though it has apparently found no takers, observers said.