Print

Email story

Comment

Email editor

Winn-Dixie losses, doubts grow

Stock plummets after another bad earnings report, causing speculation about bankruptcy and restructuring.

By MARK ALBRIGHT
Published February 11, 2005

Stock in Winn-Dixie Stores Inc. took its deepest dive in four years after the struggling supermarket chain reported another big loss and said it "may not have adequate liquidity to operate" if suppliers "substantially" tighten credit terms.

Analysts Thursday began suggesting bankruptcy proceedings lurk in the future for the Jacksonville grocer unless Winn-Dixie's new management team quickly finds a formula to stop a years-long slide in sales, market share and traffic.

Hired two months ago as Winn-Dixie's third CEO in three years, Peter Lynch outlined some short-term steps to shore up the company's sales and profitability by punching up its meat and produce offering. He was confident the company can weather the cash crunch, but investors clearly voted with their feet.

After Thursday's 36 percent stock collapse, Wall Street valued the chain, which had 80,000 employees and sales of $12-billion in 2004, at a paltry $320-million.

Some analysts said investors - 33 percent of Winn-Dixie shares are held by short sellers - are trading based on Winn-Dixie's liquidity rather than the company's earning power.

Winn-Dixie's stock closed Thursday at $2.25, down $1.25. That's a fraction of the stock's 52-week high of $8.42. Winn-Dixie's debt ratings with Moody's Investor Services have sunk to seven levels below investment grade.

"The chances of the company having to restructure are extremely high," Sean Egan, managing director of independent bond-rating firm Egan-Jones told Bloomberg News.

"Steps are being taken to shrink the company and strengthen remaining operations," wrote Meredith Adler, a Lehman Brothers analyst. "But we are highly skeptical that these will do anything but delay an inevitable demise."

"It's going to slowly get worse, if not quickly," said Evan Mann, a bond analyst at Gimme Credit.

The Jacksonville company disclosed in a conference call that it had obtained a waiver that expires June 29 from the banks holding its revolving credit account. Winn-Dixie sought the waiver after its cash flow recently slipped below a required ratio in a revolving credit line used for working capital.

The company said it subsequently has lowered its inventory levels to normal after it bought more products than it could sell for the Christmas holidays. The outstanding revolving debt was lowered to $100-million, from a high of $275-million. The banks lowered Winn-Dixie revolving debt ceiling by $100-million.

Debt analysts are watching carefully to see if vendors tighten credit terms.

"Once the vendors start questioning liquidity and they start to go to cash terms, then they are sunk," Mann said.

"We saw some discrete (credit) tightening by just a reasonably limited number of vendors, but not in the last several weeks," said Bernard Nussbaum, Winn-Dixie chief financial officer.

Asked if any vendor has put the company on C.O.D. terms, he replied: "I don't believe anyone has."

Winn-Dixie reported a loss of $399.7-million, or $2.84 a share, which was a wider loss than the same quarter a year ago when the company lost $79.5.-million, or 57 cents a share. Revenues declined to $3.08-billion, down from $3.23-billion.

Winn-Dixie, which has languished for most of the past decade, has been confronted more than any other U.S. grocer with the onslaught of Wal-Mart into the food business. Its 1,049 stores are deployed in 12 states where Wal-Mart has opened or plans to open more supercenters than any other region of the nation.

"The brand has been tarnished," Lynch said. "This company has not capitalized on its competitive advantages."

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

[Last modified February 11, 2005, 00:51:12]