Winn-Dixie Turnaround Continues

Winn-Dixie Stores Inc. (WINN - Snapshot Report) reported fiscal fourth-quarter results earlier this week. The company swung to a net profit of $9.4 million from a net loss of $5.5 million in the year-ago quarter. Earnings per share came in at 17 cents, which missed the Zacks Consensus Estimate by a penny.

Winn-Dixie is one of the leading food retailers in the U.S. and currently operates 515 grocery locations, including more than 400 in-store pharmacies, across Florida, Alabama, Louisiana, Georgia and Mississippi. The Jacksonville, FL-based company’s sales posted a slight growth of 1.4% year over year to $1.72 billion. This was driven by a 1.6% rise in identical-store sales, mainly due to a favorable shift in the timing of Easter holidays, partially offset by higher sales of generic drugs compared to branded ones.

The company, which emerged from bankruptcy protection in November 2006, is remodeling its stores in the midst of its turnaround strategy, an effort which seems to be paying off. By July 15, the company had completed remodeling all 51 stores in Jacksonville, taking the total number of stores remodeled to 170 at the end of fiscal 2009. The company intends to remodel about half of its stores by the end of fiscal 2010 and almost the entire chain by fiscal 2013.

Winn-Dixie’s gross profit grew 10% year over year to $500.4 million, while margin expanded 230 basis points (bps) to 29.2%, primarily due to favorable product mix and reduced promotional activities. However, operating and administrative expenses, as a percentage of sales, rose 60 bps year over year to 27.9% mainly on account of higher payroll, advertising expenses and utility rates.

Nevertheless, driven by improved gross margins, operating income came in at $18.9 million, compared to an operating loss of $6.4 million in the same period last year, while operating margin improved to 1.1% from negative 0.4%. Earnings before interest, taxes, depreciation and amortization (EBITDA) more than doubled to $44.5 million from $17.2 million in the year-ago quarter.

Cash and equivalents at the end of the quarter was $182.8 million, compared to $201.3 million in the year-ago period. The company generated $199.6 million of cash from operations during fiscal 2009 and deployed about $216.9 million towards capital expenditure.

Earlier this month, rival Whole Foods Market Inc. (WFMI - Snapshot Report) posted fiscal third-quarter earnings of 24 cents per share, beating the Zacks Consensus Estimate by 26.3%, or 5 cents. The company recorded a 2% year-over-year growth in sales to $1.9 billion despite a 3.8% decline in identical-store sales.

Meanwhile, Winn-Dixie continues to expect identical-store sales for the year ending June 2010 to grow by 1% to 2%, and EBITDA to range between $150 million and $160 million. The Zacks Consensus Estimate (derived from 4 covering analysts) on the company’s earnings for this fiscal year is currently pegged at 44 cents per share, which has climbed 5 cents over the past 2 months.