Winn-Dixie Stocks Collapse on Widening Loss

Winn-Dixie Stores Inc. (WIN) Thursday reported a wider quarterly loss that triggered a 32-percent drop in its share price, casting new doubts about the future prospects of the once-venerable grocer.

The supermarket chain, founded in 1925, posted a fiscal second-quarter loss of $399.7 million, or $2.84 a share, compared with a loss of $79.5 million, or 57 cents a share.

The latest results left analysts wondering how soon Winn-Dixie — which fell to the No. 16 U.S. grocer by industry journal Supermarket News (search) from No. 12 last year — can turn the corner.

Its shares, which have essentially become a one-way bet for short-sellers — the contrarian investors who profit when the stock slides — fell $1.14 to $2.36 in New York Stock Exchange (search) trading, and were the NYSE's top decliner. The plunge put the stock at its lowest level in at least 24 years.

"The brand has been tarnished. It can be fixed," newly installed Winn-Dixie Chief Executive Peter Lynch told analysts in a conference call.

For many years Winn-Dixie held an unrivaled grip on markets across the southern United States and the Bahamas. But underinvestment in its stores alienated customers as rival chains set up shop in its core regions, according to analysts.

Lynch, a former Albertsons Inc. executive, was named CEO two months ago. He said Winn-Dixie had lost touch with it customers, trying to do too many things all at once.

"I believe there are some things we can do and need to do to get the company right on track to profitable sales," he said, citing motivating staff, strengthening ties with suppliers and improving its perishable offerings.

But not everyone seemed convinced that things were on the right track. One analyst, speaking on condition of anonymity, said Winn-Dixie could well file for bankruptcy protection.

"It's obvious that whatever they're doing isn't working. This could definitely go into bankruptcy," the analyst said.

A company spokesman did not immediately return calls seeking comment on that opinion.

Despite a 10-month restructuring and its push to improve store operations to draw more customers and cut costs, Winn-Dixie has continued to struggle.

The Jacksonville, Fla.-based grocer blamed poor sales on conditions of its stores, and competitors invading its turf and sponsoring aggressive promotions.

Lynch added that he expected sales to show some improvement at the close of the fiscal fourth quarter, ending in June.

Second-quarter sales fell to $3.07 billion from $3.22 billion in the prior year. Identical store sales, which exclude new or replacement stores — a key measure of supermarket performance — fell 4.9 percent in the quarter due to less customer traffic.

Besides grappling with sales, the grocer also said it faced increasing needs that drew down cash over the second quarter. But, Winn-Dixie said that despite its performance, its lenders granted it a waiver to allow up to $100 million of additional borrowing.

The company also said it now expected restructuring charges and losses between $230 million and $265 million, significantly below initial expectations of $275 million to $400 million, as the number of stores sold exceeded expectations.

About $205 million of those losses were incurred through the end of the second quarter. Winn-Dixie said as of Wednesday, it had closed 135 of the 156 stores it planned to eliminate.