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Winn-Dixie is market darling

By MARK ALBRIGHT
Published May 16, 2007


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Shares of Winn-Dixie Stores Inc. shot up 37 percent Tuesday after the Florida-based supermarket chain reported its first profit since emerging from bankruptcy in November.

The news surprised Wall Street as evidenced by heavy trading after the chain reported earnings four times higher than analysts expected.

Winn-Dixie shares closed at $27.45 a share, up $7.44 for the day. Much of the action, analysts said, was triggered by short sellers who, after wagering Winn-Dixie stock would decline, headed for the exits to cover their positions.

"We had a good quarter, " said Peter Lynch, chief executive of the Jacksonville chain. "Morale is high among workers who are beginning to see the benefits of their hard work. I feel pretty confident, but one quarter does not win a football game."

Indeed, the company has no long-term debt, but only $573-million in liquidity as Lynch tries to gingerly bankroll the next chapter of the revival through increased sales and short-term revolving debt. As of April 4, Winn-Dixie had $181-million in cash and the ability to borrow $390-million for working capital above that.

"There are few cost-cutting opportunities going forward, so the turnaround is predicated on sales growth and operating leverage only, " wrote Karen Short, an analyst with Friedman, Billings, Ramsey & Co. "Winning back customers with their weaker, dated locations will not be easy."

That's why Lynch is counting on remodeling 75 stores a year to bring back lost customers permanently. That will eat up to $150-million a year for seven years. The first half-dozen test versions of the new look have worked for a few months with 20 more of them slated to be open by late June. But Lynch said he needs 95 remodeled stores up and running within a year before he has the confidence to say he has a winner.

He also eased off promotional spending to fend off competitors in the quarter, a decision that may have to be reversed if rivals react with more aggressive pricing.

After closing 360 stores, eliminating 22, 000 jobs and shrinking the chain to 521 stores in five states, Lynch beefed up customer service training, cleaned up the look of the stores and improved merchandising.

Coming up next are enhanced Winn-Dixie store-brand products. All of them are getting new packaging at a clip of 250 items a quarter. Product specifications are being punched up for both the Thrifty Maid and Winn-Dixie brands. Winn-Dixie also is developing Winn & Lovette, the chain's first premium line of speciality food products such as olives, gelato, ice cream and spiced meats.

Sales in stores open more than a year inched up 1.6 percent even as the volume of transactions slipped. But Winn-Dixie's profitability improved from enhanced margins. Net income was $18-million, or 33 cents a share, up from a loss of $29-million a year ago. Analysts were forecasting income of 7 cents a share. Revenues were $1.68-billion, up from $1.66-billion.

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

[Last modified May 16, 2007, 00:35:52]


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