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Friday, November 13, 1998
Winn-Dixie Stores Inc.
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Phone: 904-783-5000
Website: www.winndixie.com
Price (11/12/98): $38 3/4
HOW DID IT FIND TROUBLE?
For decades the largest supermarket chain in the Sunbelt had gone by the tagline, "The Beef People." It was a self-promotional credit to Winn-Dixie's pride over its meat department. So it's fitting that over the past year shareholders have one simple question to ask of the company: Where's the beef?
In an era where grocer consolidation is rampant, where is the suitor for Winn-Dixie? In a sector where investors forgive the perpetual low margins in exchange for steady sales and earnings production, why has net income been taken to the butcher?
Increased competition in the company's core markets has forced the chain into aggressive marketing tactics and those costs have cut already thin profits into even leaner slices of the revenues ham. The fiscal mess is apparent. Clean up, Aisle Four.
BUSINESS DESCRIPTION
Every day, more than two million shoppers check off their shopping lists at Jacksonville, Florida-based Winn-Dixie. The company owns 1172 namesake supermarkets scattered over 14 states, primarily in the southeastern U.S. In sum, the grocery stores represent just over 50 million square feet.
FINANCIAL FACTS
Income Statement
12-month sales: $13,752 million
12-month income: $165.7 million
12-month EPS: $1.11
Profit Margin: 1.2%
Market Cap: $5762.1 million
Balance Sheet
Cash: $23.1 million
Current Assets: $1747.2 million
Current Liabilities: $1521.4 million
Long-term Debt: $12.8 million
Ratios
Price-to-earnings: 34.9
Price-to-sales: 0.4
HOW COULD YOU HAVE SEEN IT COMING?
The folks at Winn-Dixie have always had competition. Fellow Florida-based grocer Publix has always been a worthy rival, and as the company has expanded as far north as Ohio and Virginia, the chain has come up against other well-entrenched chains. But with larger companies like Albertsons <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> growing further into Winn-Dixie's turf, the costs of remaining competitive have been stifling.
The deterioration was far from instant. Earnings had fallen in each of the past two years despite sales inching higher. So even before the company started out fiscal 1999 with a horrendous showing in the September quarter, the margin erosion had been par for the course.
The company had given no indication of a turnaround, quite the contrary, and investors who heeded the signs of a grocer aggressively cutting prices and couponing to maintain its share in the marketplace knew that the best strategy was to stay away.
WHERE TO FROM HERE?
Just last month Winn-Dixie had to recall 1.5 million pounds of its self-branded frankfurters for fear of meningitis-causing bacteria contamination. Figures. The stock has been a dog, but not a hot dog.
What's at stake here? The company has a prestigious record of increasing its dividends over 54 consecutive years. In July the company did not increase the payout for the start of the fiscal 1999 period. The company saw the uncertainty of the quarter well before the analysts did. Wall Street, despite that telltale signal that the company was nervous about a record that stemmed back to the days of World War II, figured the company had its margin battle under control. The earnings estimates of $0.28 a share were a shade shy of the $0.32 the company had reported the year before.
But three months later the company reported earnings of just a dime a share. As net margins have contracted to 0.6% from 1.6%, the dividends, which are paid out monthly rather than quarterly, may very well be reduced if the company does return margins back to historic levels.
Winn-Dixie continues to close or remodel underperforming units while preferring to open its larger Winn-Dixie Marketplace prototype stores. Will size matter? Sure, it may be able to better compete with the vast Albertsons offerings or play to the aesthetics that Publix strives for, but will the company be worthy of its ticker symbol?
-Rick Aristotle Munarriz
([email protected])
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