Winn-Dixie Struggles to Raise Q4 Sales, Profits; Plans More 'Transformational' Remodels

Winn-Dixie Stores, Inc.’s net sales for the 13-week fourth quarter ended on June 30, 2010, were $1.7 billion, an increase of $30.1 million, or 1.8 percent, compared with the year-ago period, which the company attributed to the additional week in fiscal 2010. On a comparable 12-week basis, identical store sales from continuing operations, which exclude stores that opened or closed during the quarter, dropped 5.2 percent for the fourth quarter from last year.

According to Jacksonville, Fla.-based Winn-Dixie, fourth-quarter ID-store sales suffered because of higher competitive activity, as well as the company’s decision to preserve gross margin rate through disciplined promotional practices. During the quarter, transaction count and basket size fell 4.2 percent and 1.0 percent, respectively. Another factor negatively affecting ID-store sales was a higher percentage of generic vs. branded pharmaceutical items sold.

Net income for the fourth quarter was $14.0 million, or 25 cents per diluted share, compared with net income of $9.4 million, or 17 cents per diluted share, for the year-ago period.

“We were able to meet our financial guidance for the fiscal year through effective management of our promotional activity and by continuing to exercise discipline with respect to our overall expenses,” noted Winn-Dixie chairman, CEO and president Peter Lynch. “However, the economic and competitive environment remained very difficult in the fourth quarter.”

Added Lynch, “In fiscal 2011, we are focused on improving sales by strategically adjusting our promotional practices in select categories .… As we move through the year, we will continue to implement additional initiatives to further improve current-year sales trends and to position us to achieve sustainable and profitable sales growth over the long term.”

Gross profit for the fourth quarter was $508.4 million, or 29.1 percent of net sales, vs. $500.4 million, or 29.2 percent of net sales, in last year. Winn-Dixie attributed a 10-basis point decline in gross profit mainly to an increase in retail cost inflation in meat and dairy, which was not fully reflected in its retail pricing because of competitive activity.

For the 53 weeks of fiscal 2010, net sales were $7.2 billion, a decrease of $119.2 million, or 1.6 percent, as compared with last year. On a comparable 52-week basis, ID-store sales from continuing operations, which exclude stores that opened or closed during the year, fell 2.9 percent from last year, as a result of a decline in transaction count and basket size of 2.3 percent and 0.6 percent, respectively.

Gross profit for the 53 weeks of fiscal 2010 as a percentage of net sales came to 28.5 percent, the same as fiscal 2009. Other operating and administrative expenses were $2.0 billion for the 53-weeks of fiscal 2010, a decrease of $3.3 million vs. the 52 weeks of fiscal 2009.

Net income for the 53 weeks of fiscal 2010 was $28.9 million, or 52 cents per diluted share, vs. net income of $39.8 million, or 73 cents per diluted share, last year. Winn-Dixie explained that the $10.9 million decrease in net income was because of a prior-year gain on an insurance settlement of $22.4 million ($13.8 million net of tax, or 25 cents per diluted share) that didn’t recur in fiscal 2010 and lower gross profit as a result of a decline in sales, though it was partially offset by lower tax expense due to a change in accounting rules.

Since the advent of its remodeling program in the second half of fiscal 2007, Winn-Dixie has remodeled 230 stores as of the end of fiscal 2010, thereby upgrading about half of its store base in adherence to a “fresh and local” strategy. For fiscal 2011, the company plans to remodel 22 stores, including 17 locations that will include features from two new stores opened during fiscal 2010 in Covington, La., and Margate, Fla., both of which offer expanded and upscale fresh departments.

According to Lynch: “Our transformational Covington and Margate stores have generated great excitement and have provided key insights that we are incorporating into our fiscal 2011 and future remodel plans. We believe the improvements and added features of these stores have substantially enhanced our ability to attract new customers. In fiscal 2011, we will use the Covington and Margate format for the majority of our remodels because we believe they offer the potential to achieve higher returns than our previous remodels and will significantly improve our brand image.”

The company expects capital expenditures in fiscal 2011 to be about $158 million, of which about $80 million is for the store remodeling program. The other $78 million will go for retail store improvements and maintenance, IT systems, new stores, warehousing and transportation.

Winn-Dixie operates 514 retail grocery locations, including over 400 in-store pharmacies, in Florida, Alabama, Louisiana, Georgia and Mississippi.