Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Winn-Dixie Stores, Inc. (NASDAQ:WINN)

F4Q09 Earnings Call Transcript

August 25, 2009 8:30 am ET

Executives

Sheila Reinken – VP of Finance and Treasurer

Peter L. Lynch –President and Chief Executive Officer

Bennett L. Nussbaum – Chief Financial Officer

Analysts

Analyst for Scott Mushkin - Jefferies & Co.

Meredith Adler - Barclays Capital

Alex Bisson – Northcoast Research

Simeon Gutman - Canaccord Adams

Bruce Vassar - Advisory Research

Karen Short – BMO Capital Markets

Andrew Wolf – BB&T Capital Markets

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2009 Winn-Dixie Stores Earnings Conference Call. (Operator instructions) I would now like to turn the presentation over to your host for today’s call Sheila Reinken, Vice President of Finance and Treasurer.

Sheila Reinken

Good morning everyone and thank you for joining us to discuss Winn-Dixie's financial results for the fourth quarter of fiscal 2009. My name is Sheila Reinken; I am Vice President of Finance and Treasurer. Joining me this morning are: Peter Lynch, Chairman, CEO, and President; Bennett Nussbaum, Senior Vice President and Chief Financial Officer; Dan Portnoy, Senior Vice President and Chief Merchandising and Marketing Officer; and Eric Harris, Director of Investor Relations.

Before we begin, let me remind you that the information presented and discussed today includes forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our SEC filings.

Today’s call also will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to GAAP financial measures can be found in the schedules of the press release we issued yesterday, which is available on the Investor Relations section of our Web site, www.WinnDixie.com.

Today’s call is being recorded and a transcript will be archived. A replay of the call will also be available on our Investor Relations section of our Web site later today.

As usual, Peter and Bennett will begin with some prepared remarks and afterward we will open up the call for your questions. Now it is my pleasure to turn the call over to Peter Lynch.

Peter L. Lynch

Good morning and thank you for joining us to discuss our fourth quarter and year end results for fiscal 2009. As you have seen from the press release we issued yesterday, Winn-Dixie had another excellent quarter, rounding out a strong fiscal year.

Even with all the challenges posed by the economy, we were able to produce improvements in both identical store sales and gross margin and an outstanding 61% improvement in adjusted EBITDA compared to fiscal 2008.

I am very proud of these results, which reflect the hard work, dedication, and strong execution by the entire team. These results add to my confidence that we have the right strategy in place and we are making significant progress towards our goal of rebuilding the Winn-Dixie brand.

Now, let me run through some of the key financials for the quarter and the year.

Adjusted EBITDA was $44.3 million in the fourth quarter, an increase of $34.7 million compared to the same period last year. This significant increase was driven primarily by better management of our promotional activity and an improvement in product mix, including higher sales of our corporate brands.

We also recorded a LIFO benefit in the fourth quarter as compared to a LIFO charge in the same period last year.

For fiscal 2009 adjusted EBITDA was $164.2 million compared to $101.8 million in the prior year. The yearly increase was driven mainly by the same components that improved our fourth quarter results, which I just discussed.

We also had great success with our merchandising and marketing programs during the fiscal year, which enabled us to drive higher sales and gross profit margin.

In addition, our associates put forth an impressive team effort during hurricanes Gustav, Ike, and tropical storm Fay, which took place during the first half of fiscal 2009. Their hard work and dedication enabled us to reopen stores more quickly so that we could better serve our customers, particularly during this time of need. Because of that effort, Winn-Dixie benefits from better sales and adjusted EBITDA in the fiscal year.

Moving on to sales. In the fourth quarter we generated identical store sales increase of approximately 1.6%. We estimate that the fourth quarter identical store sales were impacted positively by approximately 140 basis points due to the timing of the Easter holiday. For the fiscal year, identical store sales increased 1.2%.

Gross margin as a percentage of net sales was 29.2% in the fourth quarter, an improvement of 230 basis points compared to last year. This significant improvement in gross margin was due primarily to product mix changes as well as reduced levels of promotional activity. Gross margin was also impacted by a $3.3 million LIFO benefit in the fourth quarter. This compares to an $8.6 million LIFO charge in the fourth quarter of fiscal 2008.

For fiscal 2009, gross margin was 28.5%, an increase of 130 basis points compared to last year. The yearly improvement was attributable mainly to product mix changes, lower warehouse and transportation costs, and a decrease in our annual LIFO charge. Overall, we were very pleased with these results and we are looking forward to another successful year in fiscal 2010.

Now let me update you on our store remodeling program. We remodeled a total of 75 stores in fiscal 2009 and we are currently on track to remodel half of our stores by the end of fiscal year 2010 and to complete substantially all of our stores by 2013.

At the end of the fourth quarter of fiscal 2009 the company had completed 170 store remodels since the inception of the program, or approximately one-third of our store base.

As we mentioned last quarter, our strategy has been to complete selective remodels in various markets across our entire footprint in all of our formats. Going forward, we intend to follow primarily a market-by-market approach. We will remodel stores to fill an entire market before moving on to the next. In the case of those stores in the market that we have already remodeled, we are taking steps to ensure [audio break] so we can present our fresh-checked every day image to all of our customers across a given market.

On July 15, 2009, we announced that we had completed remodels and upgrades on all 51 of our stores in the Jacksonville, Florida, market. This market is comprised of Winn-Dixie locations in north Florida and south Georgia. We are just a little over a month into the Jacksonville launch, which is the first market we have completed to date. As we move from Jacksonville into other markets we expect to apply our experience and continually fine-tune our efforts to maximize the return on our investment.

Now I would like to give you an update on our corporate brands program. One of the ways we build long-lasting relationships with our customers is by working with them to find new ways to economize on their grocery bills. This is especially important during these economic times. We are pleased to offer a wide range of corporate brand products that are an affordable solution for many families feeling the pinch of the recession.

For the fourth quarter of fiscal 2009 we improved our corporate brands penetration rate to 21.8%, which is an increase of 70 basis points compared to the fourth quarter of last year on the categories that we measure. We are continuing to make excellent progress towards meeting our goal of having substantially all of the company's line of corporate brand products, which consist of approximately 3,000 items on the shelf with redesigned packaging by the end of calendar 2009.

Before I turn the call over to Bennett, I want to comment briefly on our guidance for fiscal 2010, which remains unchanged from what we provided in July. I would also like to discuss some initial trends we are seeing in the first quarter of the year.

As we noted in the press release we issued last night, for the first eight weeks of fiscal 2010 identical store sales were slightly positive when you adjust for the benefit of hurricane-related sales in the same period of last year. Candidly, that run rate is a bit softer than we had hoped but we are only about eight weeks into the fiscal year and we think that it would be premature to adjust our annual sales expectations at this time.

However, if this sales trend continues, we could be at the lower end of our sales guidance. It is no secret that we are operating in a very competitive marketplace in a difficult economy and our customers are continuing to search for value. As you might expect in this environment, we have seen a sharpening of the pencil on promotional spend across the industry.

With that said, tough competition is not new to us and was one of the many factors we considered when we provided our financial guidance in July. As far as Winn-Dixie is concerned, we will continue to be strategic and price competitive, we will employ a targeted approach with respect to our promotional activity, and we will not over-invest in promotions simply to chase sales.

As we move through the fiscal year we will continue to monitor market conditions carefully but we feel confident that we can make whatever adjustments may be necessary to meet our adjusted EBITDA expectations for the 2010 fiscal year.

With that, I will turn it over to Bennett to review the financial results in more detail.

Bennett L. Nussbaum

Before we open up the call for Q&A, I will briefly run through a few key items for the quarter. I will begin with capex and liquidity. As of the end of the fourth quarter, Winn-Dixie had approximately $662.0 million of liquidity, comprised of $479.0 million of borrowing availability under our credit agreement and $183.0 million of cash and cash equivalents. We are especially pleased that we were able to invest about $220.0 million in our business over the last 12 months while still ending the year with a strong cash balance.

We expect our capital expenditures to total approximately $220.0 million in fiscal 2010, of which approximately $130.0 million will be spent on our store remodeling program. The initial $90.0 million of our capex for fiscal 2010 will be used for retail store improvements and maintenance, IT systems, new stores, logistics, and back-up generators.

We currently have no borrowings under our credit facility. We do not anticipate having any borrowings under our credit facility for fiscal 2010.

Moving on to other operating and administrative expenses, the company's other O&A expenses for the fourth quarter were approximately $477.8 million, an increase of $17.2 million compared to the same period last year. Note that we had a self-insurance reserve benefit of $6.5 million in the fourth quarter of fiscal 2009 compared to a self-insurance reserve benefit of $10.3 million in the same period last year.

Excluding the self-insurance reserve change, O&A increased by $13.4 million compared to the same period last year. The $13.4 million increase is due primarily to higher payroll, advertising expenses, higher depreciation and amortization and an increase in utility rates.

For fiscal 2009 the company's operating and administrative expenses were approximately $75.0 million higher than last year. Note here that we have a self-insurance reserve benefit of $15.1 million in fiscal 2009 compared to a self-insurance reserve benefit of $25.8 million in the same period last year.

Excluding the self-insurance reserve change, O&A increased by about $64.3 million compared to fiscal 2008. Several items contributed to this $64.3 million increase, which are detailed in our 10-K filing. They include the following: higher compensation and related expenses due primarily to retail labor, higher depreciation and amortization related primarily to our store remodeling programs, an increased utility cost due to higher rates, and hurricane-related expenses.

Now I will briefly comment on our interest expense and income taxes. For fiscal 2009 net interest expense was $5.0 million as compared to net interest income of $3.1 million in fiscal 2008. The increase in net interest expense for fiscal 2009 was primarily related to lower interest income due to lower rates of return during fiscal 2009 as compared to fiscal 2008. Interest income was $2.1 million and $8.7 million for fiscal 2009 and fiscal 2008 respectively.

Our financial statement effective tax rate of 47.4% and 50.8% for fiscal 2009 and fiscal 2008 respectively differs from our statutory rates primarily due to permanent items and the impact of our prior-year tax return provision adjustment reported in each of the second quarters of both fiscal years. Of course, we are not a cash taxpayer, due to our net operating loss carry forward.

I would also like to draw your attention to a footnote in our adjusted EBITDA guidance reconciliation table on the last page of the press release we issued yesterday. The footnote explains why, under SFAS 141 R, we do not expect to book federal income tax expense in fiscal 2010.

Now let me hand it back to Peter.

Peter L. Lynch

Before opening the call to questions, I just want to express how proud I am of the excellent results this company achieved in fiscal 2009. I owe a big thanks to all of our associates and our vendor partners for their commitment to this turnaround strategy and for working so very, very hard every single day. I want to thank you all again for joining us this morning and for your interest and your support.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Analyst for Scott Mushkin - Jefferies & Co.

Analyst for Scott Mushkin - Jefferies & Co.

Just a question on the Jacksonville relaunch, and I know it's early, but can you give us some color on what you're seeing with what the customer response has been like to the promotional marketing, etc. that you're doing.

Peter L. Lynch

It's very, very early. We're just a few weeks into this launch right now and I think it would be premature to jump any numbers but I can tell you overall I'm pleased with that launch. The customers have responded very well, and quite frankly, one of the things that I think we've really benefited from was really getting back into training all of our associates in a lot of the customer service aspects and that's played a big benefit for us.

But once again, it's just way too early in this thing to start to give you some numbers. And as we move into the future I will give you some more points on how it's achieving. But we've launched it and we're now into our second DMA and starting on our remodels program at this point in time.

Analyst for Scott Mushkin - Jefferies & Co.

On generic drugs, it seems like, as far as what I can find from your other public competitors, it seems like you're getting a better benefit on generics. It seems like it's getting better. Are you seeing more generic substitutions or is there something specific at Winn-Dixie that we should pay attention to?

Peter L. Lynch

I don't know whether we're not consistent with the industry or not. I think the whole industry has moved toward more and more generics and that trend has continued with Winn-Dixie. So yes, we're seeing more generics, but I think that's an industry trend.

Analyst for Scott Mushkin - Jefferies & Co.

That was a quick search through some transcripts this morning so maybe I may have missed that.

And on deflation, can you give us color on what you're seeing in the dairy aisle and fresh produce?

Peter L. Lynch

Deflation has continued in both dairy and fresh produce. It's more pronounced, I think, in the dairy than it is in produce, but those are the two areas where we've seen the deflation. And I think the team has handled it very well.

Analyst for Scott Mushkin - Jefferies & Co.

Do you see any turn? Is there anything on the margin as we get into late August? There has been some speculation as we head into September that the comparisons get a little easier, that you could see some firming in those commodities and just asking if you're seeing any of that.

Peter L. Lynch

Not beginning to see a whole lot of that right now.

Operator

Your next question comes from Meredith Adler - Barclays Capital.

Meredith Adler - Barclays Capital

Could you talk about whether there's been any response from your competitors in Jacksonville. This might be the first time that you guys are really sort of making trouble, shall we say. Is Publix comfortable with that?

Peter L. Lynch

We did see a response from Publix and what they have done is they've zoned their circulars in the Jacksonville area. So for an example, if assorted pork chops in the chain for Publix as $1.69, they might have zoned it for the Jacksonville area at $1.49. So it's not a lot of items, it's a few. But they fired a round over the bough to let us know that they knew what we were doing.

Meredith Adler - Barclays Capital

Do we see that as a positive, that they are taking you seriously?

Peter L. Lynch

My ego feels good that they're taking us seriously, but obviously competitive pressure will make us do different things. It's a natural response to what we did.

I think the important thing is by launching an entire DMA, I think the benefits that we got were significant and although we will fine-tune some things for the next one, by being able to focus your intention in one area, really getting out there and making sure you get the right people in the stores, training your people, and sending a consistent message to the consumers out there, I think there is a huge benefit.

The risk you always have is how are your competitors going to respond. I think Publix responded appropriately and we will fine-tune the way we do this thing going forward.

Meredith Adler - Barclays Capital

Actually, I was just wondering whether you are seeing any indication that Publix is picking up the promotional activity in other markets, sort of trying to anticipate what you are doing.

Peter L. Lynch

I haven't seen anything else in the other markets, but they clearly focused in on this one market here in Jacksonville.

Meredith Adler - Barclays Capital

Could you talk a little bit about this sort of following on the last question about deflation. Are you seeing it in any other categories? I think somebody mentioned meat on some conference call and then what's kind of your more broad view about inflation for your fiscal 2010? Dry groceries still slightly inflationary, I think, but maybe you could run that through for us.

Peter L. Lynch

It's clearly in the two categories we mentioned and much of it was in dairy. Dairy has got the largest amount of deflation and we've also had some in produce. Beyond that, there has not been a lot. And we continue with our projections on inflation about 1.5% for the current year that we're in.

Meredith Adler - Barclays Capital

And so the guidance that you've given out for sales, that assumes that level of inflation, right?

Peter L. Lynch

Yes, it does.

Meredith Adler - Barclays Capital

And I'm also assuming that the guidance you gave for sales is including the negative impact from hurricane comparisons.

Peter L. Lynch

Yes, it does.

Operator

Your next question comes from Alex Bisson – Northcoast Research.

Alex Bisson – Northcoast Research

Could you talk a little bit about pharmacy, specifically two things. One, what do the script counts look like in traffic and how does that place within your overall promotional plan?

Peter L. Lynch

Regarding pharmacy, script counts are up. As I indicated before, the generic mix continues to be up. So scripts are up, generics are up.

As far as pharmacy plays into our promotional activity, as I have said in the past, pharmacy is a key component to our strategy going forward. We firmly believe that one, a pharmacy customers is the one that sticks around, stays around, and buys more. So we are always trying to make sure that we keep those customers and reach out to them for more business. So we think pharmacy is a key areas in pharmacy is making sure that you've got the right people behind the counter and I think we've done a lot of work in making sure that our pharmacists are really out there taking care of the customer.

The customer really needs that approach regarding pharmacy and I think we're doing a much, much better job at it here at Winn-Dixie today.

Alex Bisson – Northcoast Research

If I'm not mistaken, you are the only ones with a loyalty card in Jacksonville and I'm just curious, have you been successful in leveraging that card to bring in new customers, specifically in a market like this, especially in a market like Jacksonville, since you're really gone through the remodel program?

Peter L. Lynch

In most of the markets we operate we are the only one with a loyalty card. We think that brings us tremendous knowledge of our customer base. I think in the past Winn-Dixie had done just an okay job with that. I can tell you today that the team is working very, very hard to mine that date, to clearly understand what is going on with the consumer.

I think this is not only important in our neighborhood approach and our DMA approach, but I think with the challenges of this economy today, to clearly understand the shopping patterns of our customers, what they're doing and what they're to doing, gives us a little bit of an advantage, so I think the card is a big plus and we're doing more mining of data and talking to our customers more specifically one-on-one than we've ever done before.

Alex Bisson – Northcoast Research

Where was traffic in the quarter? And basket, as well?

Peter L. Lynch

Traffic was slightly up and basket was just about flat.

Operator

Your next question comes from Simeon Gutman - Canaccord Adams.

Simeon Gutman - Canaccord Adams

Can you talk a little bit about the guidance with respect to the ID guidance and your EBITDA guidance? You comments kind of implied that even at slightly positive, you can still hit the low end of the range. Can you talk about some sensitivities there? I guess I'm a little surprised at this early stage of the year you would even suggest that. Yes, you might be a little bit below but there's still a long way to go for the year.

Peter L. Lynch

One of the things I always want to maintain is making sure that we've got clarity and transparency with all of our shareholders. So our numbers and our guidance is what we put together and based on the model we're working on, we didn't want to change that guidance at this point. It's only been eight weeks into the year.

However, I thought it was important to let you know that for the first eight weeks, they have been soft, although we had a great Fourth of July. But the rest of the summer has been soft. And I'm concerned about trends on the weekends and I'm concerned about trends at the end of the month. It seems to be harder and harder for the consumers to come up with some extra change at the end of the month.

So I'm not changing the guidance although I'm suggesting that if this continues it could put us at the lower end. And I didn't change it because as you said, it's way too early into the year, but I thought it was important to give you transparency into what we've seen for the first eight weeks.

Simeon Gutman - Canaccord Adams

As far as where you're seeing this, maybe just an end-of-the-month phenomenon, and July Fourth, that's been broad-based geographically?

Peter L. Lynch

Yes. The Fourth of July was a home run in all of our markets. And this end of the month, we started seeing it last year but it seemed to be a little more pronounced during this past summer.

Operator

Your next question comes from Bruce Vassar - Advisory Research.

Bruce Vassar - Advisory Research

I had a question regarding defensive store remodels. You have provided data on how the offensive remodels have done and I'm wondering if you can provide any data to give kind of a benchmark of understanding how the defensive remodels have done.

Peter L. Lynch

What I can tell you is that they were positive during the quarter but I'm not going to get into any deeper than that.

Bruce Vassar - Advisory Research

Can you give any more data specifically around what you mean by positive?

Peter L. Lynch

Positive reflects that the sales were positive during the quarter. I have got to be careful how deep I get into these with our competitors. They're listening to these comments very, very closely and I want to make sure that I don't put us at a competitive disadvantage.

The defensive remodels were positive and they were also positive when we launched our DMA, in Jacksonville.

Bruce Vassar - Advisory Research

When you say positive, what are you reflecting, that sales went up versus a prior period? I'm just trying to get a handle what you mean by positive.

Peter L. Lynch

Sales went up versus prior year and they were ahead of where the company was for the quarter.

Bruce Vassar - Advisory Research

And when you say sales went up for the prior year, do you mean they went up—

Peter L. Lynch

Identical store sales, this year over last year, they were positive, and they were more positive than the company was.

Bruce Vassar - Advisory Research

For the defensive remodels?

Peter L. Lynch

Correct.

Bruce Vassar - Advisory Research

And is that just for the stores that were within the first year after a defensive remodel or is that for the whole basket of defensive remodels?

Peter L. Lynch

That's for the first year.

Operator

Your next question comes from Karen Short – BMO Capital Markets.

Karen Short – BMO Capital Markets

Turning to the remodels, I'm wondering how many actual markets like the Jacksonville market you will have completed by the end of fiscal 2010?

Peter L. Lynch

Right now we will definitely complete at least one and probably start up a second.

Karen Short – BMO Capital Markets

And can you give us a sense of how many stores the additional market would include?

Peter L. Lynch

No, I think I would be tipping my hat to my competitors at this point in time. They would be able to figure that one out.

Karen Short – BMO Capital Markets

And following on the remodel question, can you provide more color on what you're seeing in terms of sales lift for the year two remodeled stores, the offensive?

Peter L. Lynch

As we said, in the past 50 offensive remodels in year two, in this past quarter, and for the year, remain positive. I don't think we've gotten any deeper than that.

Karen Short – BMO Capital Markets

Just looking at the basket a little bit, can you give us a sense of what the split is between promoted and non-promoted items within the basket and talk about it now versus what it might have been like at the beginning of the calendar year and then versus a year ago, just to get a sense of how much more promotional it's gotten?

Peter L. Lynch

I don't have the exact numbers on how more promotional in the basket. I can tell you that promotional items have gone up in the past year but I don't have the exact number off the top of my head, but we will be happy to have Eric get back to you on that one.

Karen Short – BMO Capital Markets

And just on the competitive landscape, can you remind me, how many super-stores are you competing against now and do you have a forecast of how many competitive openings you're going to have?

Peter L. Lynch

I don't know exactly how many super-centers today. I can tell you, though, that they are continuing to increase. Next year, as we look at the competitive activity out there.

Karen Short – BMO Capital Markets

What is your LIFO expectations for fiscal 2010?

Bennett L. Nussbaum

For fiscal 2010 we are looking at about $10.0 million.

Karen Short – BMO Capital Markets

Can you explain what happened with the NOL balance? You suddenly have this $807.0 million versus $543.0 million. I noticed that you talk about the state income tax NOL now and your balance is $807.0 million.

Bennett L. Nussbaum

Previously we just talked about our federal NOL. Basically it says we're in similar shape on state taxes, that we don't expect to be a cash taxpayer for a long time.

Karen Short – BMO Capital Markets

But you've always had this additional $300.0 million.

Bennett L. Nussbaum

That's correct.

Operator

Your next question is a follow-up from Meredith Adler - Barclays Capital.

Meredith Adler – Barclays Capital

I was wondering whether you think you're being helped by Winn-Dixie's sort of long term just having good prices. Do you think that that is still a benefit to you?

Peter L. Lynch

I think that still is a benefit to us that's been out there. I think there's two things from the past that have helped us. One is that overall pricing image and two, the fact that we're the beef people and have a great line of beef products out there. So I think those are two images from the past that continue to help us.

Meredith Adler – Barclays Capital

And did your customer research say that if the customer who knew you had good prices went into a store that had been remodeled and the service was better, that they are conscious of the changes that it's kind of a new Winn-Dixie?

Peter L. Lynch

The customers are very conscious of the changes. In fact, I've said it before that I've had a number of customers call me and say they had walked into the store and had to walk out and look at the front of the store and sign to see if it really was a Winn-Dixie because the changes were that significant. So they are very conscious of the changes and some of the comments are they're glad we've kept some of the things of the past, but more importantly, they really enjoy the changes we've made regarding fresh and local as we move forward to the future.

So I know our customers have been very pleased, not only the existing ones but the new ones that we're getting as well.

Meredith Adler – Barclays Capital

And I would like to go back to Karen's question about the offensive remodels. I don't know you don't want to give a specific number but are you happy with what's happening in year two and do you believe that the remodels are getting a decent return?

Peter L. Lynch

I know the remodels are getting a decent return. Paybacks of five years or less. We have learned some new things when we did our DMA launch in Jacksonville regarding training and I'm very, very pleased with this. I think the amount of training we've been able to do with our stores that have been remodeled and they're in the second and third year has provided us with additional sales lift.

So I think we've found something to provide us with more lift as we go forward. Again, these are learnings we are doing for the Jacksonville DMA but this has pleased me quite a bit and I think it's a big opportunity for us with the stores in year two and year three as we go down the road. And we're going to use the tactics that we used in the Jacksonville DMA throughout the organization to see if we can get more lift in year two and year three remodels.

Meredith Adler – Barclays Capital

Does that mean you'll go back to the 170 stores, any of them that are going into year two, and implement some of that and not wait for the whole DMA to be taken care of?

Peter L. Lynch

Yes, I think we're going to target specific DMA's or markets to implement some of this training that we developed for the Jacksonville market. I think it's significant and I think it can really help us for the future.

Operator

Your next question comes from Andrew Wolf – BB&T Capital Markets.

Andrew Wolf – BB&T Capital Markets

Peter, I appreciate your candor on sales, the recent softening in sales. Is it more, do you think, competitive driven? I thought that for some reason Florida, maybe because things were so bad in the economy, that the competitive environment wasn't necessarily as intense as it was nationally. But is this recent softening more, do you think, driven by some recent increase in what your competitors are doing or is it more that the consumer behavior you talked about, with people running out of money at the end of the month or not shopping as frequently on the weekends. Do you think it's more the financial condition of your customers or more driven by something new going on in the marketplace with your competitors?

Peter L. Lynch

I think it's predominantly caused by the financial conditions that exist out there, however, what also contributes to it is the fine-tuning of promotional activity on the front pages of our competitors' ads.

Let me be more specific. What's happened here in Florida in the markets that we exist in, I think you've all ready, for the first time since World War II, Florida has actually lost population. So there's a little bit of shrinkage of the pie. But I believe it's going to come back.

Two, I think what you really have to focus on for retail food for turnarounds, not just us but everybody in the industry, will be two key components. What's happening with housing and what's happening with unemployment. Last year what we saw, the first half of the year was a lot of noise regarding the economy and what was going to happen. It was the second half where this unemployment thing started to really impact. And as you know, Florida is higher than the national average on unemployment.

So I think the key indicators out there for when it's going to stop and turn around and the key indicators that are affecting us today are both this unemployment number and the lack of the ability for people to sell houses. As you know, when they could sell their house up north they could buy a house down here in Florida. So that whole trend has to get going.

But what's happened, and I want to be very clear on this point, in the markets that Winn-Dixie operates in, we do not have a price war. Price war is when retailers go out and drop thousands of prices in the center store, across the store. What we have down here is a natural reaction to the slowing of the economy, where retailers will go out and they will fine-tune the front page of their ads to be a little bit more competitive out there and try and drive some sales.

So I think the biggest thing is what's happened with the economy and the financial impact to our consumers, but at the same time we've got a little bit of this fine-tuning with our competitors on the promotional activity, which would be a natural reaction to a slow market.

Andrew Wolf – BB&T Capital Markets

And to follow up, also, on the remodels, I think you've been saying about 50/50 the split between offensive and defensive, or you comment on what this year's group was and also, has that changed, or will it change as you switch to a DMA approach?

Peter L. Lynch

What we've been saying in the past is typically been around 80/20. I think this year it's moved a little bit higher on the defensive, so maybe closer to a 75/25. But that's about the shift that we've had.

Andrew Wolf – BB&T Capital Markets

And moving to a DMA approach is not necessarily going to alter that much?

Peter L. Lynch

No, that probably won't alter that much. Again, I think the positives on doing a DMA approach override the negatives. The negative is you give your competitor a target to shoot at. The positives are all the good things that we're able to do with the media, with our associates, with the customers, getting a consistent message out there. So I think the DMA approach is the right one. I think the only negative is really what Meredith talked a little bit about and others, about the fact that it gives your competitors a target to shoot at.

Andrew Wolf – BB&T Capital Markets

On gross margin, you cited benefit and mix. And I have to assume most of that, you're getting a lot of that from entire chain-wide merchandising, like local and fresh that you've been talking about, but is there any of that or much of that that is just specific to remodels, so that as you do more remodels there should be some more positives in the mix shift?

Peter L. Lynch

Obviously there is a lot more in the mix shift when you do a remodel because we're spending a lot of the capital on that fresh side of the store. So that naturally drives them over there. But also a lot of the mix shift helped us with the private label. That's increased during the year. That's giving us some bit of margin opportunity.

And I also told you before, I think we've got great transparency into our numbers and I believe this team here is very, very focused on driving the appropriate type of margin and balancing that out with the appropriate amount of sales.

Operator

Your next question is a follow-up from Karen Short– BMO Capital Markets.

Karen Short– BMO Capital Markets

Do you have a sense of the timing of the remodels in 2010?

Peter L. Lynch

At this point in time we will have 75 complete by the end of the year and probably, like last year, the majority in the second half.

Karen Short– BMO Capital Markets

On your store closures, did they all take place in the fourth quarter? I'm assuming they did. And if you could talk a little bit about the store closures, where the stores were. Obviously you said that the leases were expiring. But also, can you just clarify were they taken out of the comps in both periods, or how did that work?

Bennett L. Nussbaum

We closed six stores at or about the end of lease last year. One was in the January/February time frame and five were in the May/June time frame, right at the end of the year. Those stores are out of the comp numbers for both years. And fundamentally, as Peter said many times, we are always looking at our store base for stores where the neighborhoods have changed or there are other reasons why we don't want to renew a lease. And in this instance we had several leases to come up towards the end of the year and the capital investment to remodel those stores and re-upping the lease made it a better economic decision just to let them go. They were generally speaking, much lower-volume stores.

Operator

There are no further questions in the queue.

Peter L. Lynch

Thanks again to everyone for joining the call today. We look forward to speaking with you again to discuss our earnings results for the first quarter of fiscal 2010.

Operator

This concludes today’s conference call.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Winn-Dixie Stores, Inc. F4Q09 (Qtr End 06/24/09) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts