Winn-Dixie exceeds analyst expectations, long-term objectives 'on track'

JACKSONVILLE, Fla. Winn-Dixie reported positive third-quarter results Monday, significantly exceeding analyst expectations, though analysts remained conservative around Winn-Dixie’s performance, citing concerns over increased competition in a recession economy.

The company’s longer-term objectives, including its store remodeling program and focus on store brands, are “on track,” Peter Lynch, the grocer’s chairman, CEO and president, reported. And it’s those longer-term objectives — tweaking both the Winn-Dixie shopping experience and its store brand presentation — that Lynch said gives him confidence in the grocer’s continued good performance in spite of market challenges.

“We are now a full two years into the [remodeling] program, and have now completed phase 1, or the test phase, of the remodel program. In phase 1 we selectively remodeled over 120 Winn-Dixie locations in various [market areas] across our entire footprint in all of our formats,” he told analysts during a conference call held Tuesday morning. “In the course of the first phase, we were able to test certain aspects of the program and make refinements where needed.”

As of the end of the third quarter of fiscal 2009, Winn-Dixie had completed 127 store remodels, 74 of which were still within their first year of operation. Of the 74 first-year store remodels, 47 are considered by the company to be offensive remodels. Year-to-date, those 47 stores had a 10% weighted average sales increase compared to the same period in the prior fiscal year, excluding the grand re-opening phase and adjusted for the Easter holiday shift. The sales increase resulted from increases in transaction count and basket size of 4.5% and 5.3%, respectively.

“Regarding sales in the defensive [remodels], they are performing at or better than our expectations, and we feel very good that the money that we’ve invested in these defensive stores have protected our marketshare and prevented these stores from having sales erosions that would not be tolerable,” Lynch said.

Now Winn-Dixie moves into phase 2 of its remodeling program, with plans to remodel roughly half of its stores by the end of fiscal 2010 and substantially all of its stores by the end of fiscal 2013.

The remodel program is also not capital intensive, certainly not exceeding allocations, Winn-Dixie reported. As of April 1, Winn-Dixie had approximately $661.6 million of liquidity, comprised of $484.3 million of borrowing availability under its credit agreement and $177.3 million of cash and cash equivalents. “Based on our strong cash position and our preliminary review of our capital plan for next year, we anticipate that in fiscal 2010 we will again have no borrowings under our credit facility,” Lynch said.

Another positive is the chain’s corporate brand program, which improved to a penetration rate of 21.8%, an increase of 110 basis points compared to the same period in the prior fiscal year. To date, Winn-Dixie has completed packaging and label redesigns for more than 2,000 private label products, and plans to have redesigned substantially all of its line of private label products, which consists of approximately 3,000 items, by the end of calendar year 2009.

Winn-Dixie Stores on Monday reported net income of $16.6 million, or $0.30 per diluted share, for the third quarter of fiscal 2009, up 10.7% from the same period in 2008. The profit well exceeded analyst expectations of $0.12 per share.

Net sales were $1.7 billion, up 0.2%.