Winn-Dixie Stores, Inc. F3Q10 (Qtr End 03/31/2010) Earnings Call Transcript

| About: Winn-Dixie Stores, (WINN)

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

F3Q10 Earnings Call

May 11, 2010 8:30 am ET

Executives

Eric Harris - Director of Investor Relations

Peter Lynch - Chairman, CEO, and President

Bennett Nussbaum - Senior Vice President and Chief Financial Officer

Analysts

Meredith Adler – Barclays Capital

Chuck Cerankosky – Northcoast Research

Scott Mushkin – Jefferies & Company

Karen Short – BMO Capital

Jonathan Feeney – Janney Capital Markets

Damian Witkowski – Gabelli

Operator

Welcome to the third quarter fiscal 2010 Winn-Dixie Stores earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Eric Harris, Director of Investor Relations. Please proceed, Sir.

Eric Harris

Thank you. Good morning and thank you for joining us to discuss Winn-Dixie's financial results for the third quarter of fiscal 2010. Joining me this morning are Peter Lynch, Chairman, CEO, and President, Bennett Nussbaum, Senior Vice President and Chief Financial Officer, and Eric Harris, Director of Investor Relations. As usual, Peter and Bennett will begin with some prepared remarks and afterwards we will open up the call for a question and answer session.

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 will also 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 schedule of our press release we issued yesterday which is available on the Investor Relations section of our website, www.Winn-Dixie.com. Today’s call will be available for replay on the Investor Relations section of our website later today. I will also be available after today’s call for additional questions.

I will now turn the call over to Peter Lynch.

Peter Lynch

Thanks Eric. Good morning everyone and thank you for joining us. As you saw from our press release our results this quarter were generally in line with our expectations as we continue to navigate many of the same challenges we have experienced over the past several quarters.

For the quarter identical store sales declined by approximately 2.2% compared to the prior period. Although this is an improvement of 70 basis points from the second quarter much of the change is attributable to an increase in food inflation. To give you a frame of reference, our identical store sales this quarter were positively impacted by 20 basis points of inflation compared to 80 basis points of deflation in the prior quarter.

Despite small gains and recovery on a national level, consumer confidence in the southeast remains relatively low. As you would expect, customers are taking fewer trips to the store which was the primary reason why our transaction count declined 3.4% during the quarter. We continue to be very focused on marketing and merchandising initiatives tailored to meet the shopping needs of our customers. These programs are one of the reasons behind the 1.2% improvement in basket size we experienced across the chain.

Our year-one offensive remodels generated a weighted average sales increase of 6.3% during the third quarter excluding the grand reopening phase. Transaction count and basket size each increased by 3.1% during the period. The sales lift we experienced in our remodels represents a sequential improvement of 140 basis points from the second quarter of fiscal 2010. In addition, we are pleased these stores continue to outperform the base significantly.

Moving on to gross margin. The gross margin rate declined 50 basis points compared to last year mainly because we were not able to pass through all of the cost increases or in some cases retain the benefit of cost decreases as effectively as last year. This impact which is the result of economic conditions and competitive pressures was experienced primarily in the deli and meat categories. As we have said in the past we are committed to maintaining an appropriate balance between sales and gross margin. We will continue to exercise discipline with respect to our promotional offerings.

We believe our focus on maintaining this balance, reducing overall expenses and remaining prudent with our capital will keep us on track to meet our short-term and long-term financial targets.

Now I would like to touch briefly on our remodel plans for the remainder of fiscal 2010. As we mentioned last quarter we expect to complete 60 remodels by the end of fiscal 2010. Following the completion of those 60 stores we will have remodeled 230 stores which is about 45% of our entire store base since the inception of our program. Over the long term we continue to believe we must have a clean and attractive environment to offer our customers the fresh and local shopping experience that allows us to compete effectively and drive increased sales as the economy recovers.


That said, we are evaluating various factors and analyzing how many and adjust the remodel program for next year. This includes the appropriate number of stores, which markets would be most effective and the appropriate levels of capital spend per store. We intend to continue to be very prudent with the use of our capital with an eye towards both optimizing both return on investment and preserving liquidity.

Before turning the call over to Bennett I will review our outlook for the remainder of fiscal 2010. We continue to expect adjusted EBITDA will be at the low end of our previously issued guidance range of 140-160. Our guidance reflects our belief that the challenging competitive and economic environment will continue in the fourth quarter. That said, we believe we can continue to deliver on the bottom line through a combination of strategic merchandising, selective promotional pricing and prudent expense control. We also remain focused on executing our strategic initiatives to help us achieve sales growth over the long-term.

I have a high level of confidence in our strategy and in the team and I believe we are positioning the company for sustainable future growth as market conditions improve. With that I will turn it over to Bennett to review the financial results in more detail. Bennett?

Bennett Nussbaum

Thank you Peter and good morning everyone. Before we open the call up for Q&A I will briefly run through a few key items for the quarter.

I will begin with operating and administrative expenses. The company’s operating and administrative expenses decreased by roughly $10.1 million for the quarter and $18.5 million year-to-date. The decrease during the quarter and year-to-date is due primarily to lower utility rates and reductions in payroll and payroll related expenses. We continue to expect O&A in fiscal 2010 to be flat with last year excluding self-insurance reserve adjustments. In fact, we expect our cash O&A which includes depreciation, amortization and share based compensation to be lower than last year.

As we noted last quarter we are continuing our program to control expenses particularly given the current economy. However, we will not compromise on priorities such as customer service and other improvements at the store level which are necessary to enhance the shopping environment and drive sales.

Moving on to adjusted EBITDA and EPS, for the quarter adjusted EBITDA was $50 million compared to $57.5 million for the same period of fiscal 2009. Year-to-date adjusted EBITDA was $103.3 million compared to $120.0 million in the year-ago period. When making year-over-year comparisons, however, you should note that adjusted EBITDA for the first 40 weeks of fiscal 2009 included a benefit of approximately $4.4 million due to store related sales which was net of store related inventory losses and other costs.

The company reported net income of $20.9 million or $0.38 per diluted share for the third quarter of fiscal 2010 compared to net income of $16.6 million or $0.30 per diluted share in the same period last year. Net income for the 40 weeks was $14.9 million or $0.27 per diluted share compared to net income of $30.4 million or $0.56 per diluted share in the year-ago period. When making year-over-year comparisons it is important to note the following items; First, net income for the second quarter of last year included a gain of $22.4 million which was $13.8 million net of tax or $0.25 per diluted share and was due to favorable resolution of the company’s insurance claim related to hurricanes that occurred in fiscal 2006.

Second, net income in fiscal 2009 includes a group federal income taxes. As you know, net income from fiscal 2010 does not include federal income tax expenses due to the company’s adoption of SFAS 141R. Under SFAS 141R reversals of our deferred tax asset valuation allowance now reduce income tax expense rather than intangible assets.

Next let me comment briefly on the final distribution of the shares held in reserve. As we have previously announced the reserve shares are being used to resolve unsecured pre-petition claims under the company’s plan of reorganization (NYSE:POR) which was instituted in accordance with our emergence from Chapter 11. Under the POR these claims must be settled with shares, not with cash. However, as we have discussed previously these shares have been included in our shares outstanding since we emerged from bankruptcy so the share distribution is not dilutive nor will it have any other impact on our financial statements. We anticipate making the final distribution of approximately 6.8 million shares before the end of the fourth quarter fiscal 2010.

Moving on to CapEx and liquidity, as of the end of the third quarter Winn-Dixie had approximately $696.6 million of liquidity comprised of $512.8 million of borrowing availability under our credit agreement and $183.8 million of cash and cash equivalents. We continue to maintain a healthy balance sheet with no debt other than about $30 million in capital lease obligations. We were pleased we were able to maintain a healthy balance sheet by generating higher cash flow from operations due primarily to adjusted EBITDA and optimizing cash from working capital.

As we move forward we will continue to focus on improving the management of our inventory. We will continue to implement programs and better systems designed to minimize back room inventory, optimize the level we carry in our stores and warehouse and enhance the training of our associates in this area. We continue to expect capital expenditures for fiscal 2010 to be approximately $200 million which includes about $120 million for store remodels and about $80 million for retail store maintenance, IT systems, new stores, logistics and other expenditures.

We anticipate our capital expenditures for fiscal 2011 will not exceed this year’s level. We currently have no borrowings under our credit facility and we do not anticipate having any borrowings under our credit facility for fiscal 2010.

Now let me hand it back to Peter.

Peter Lynch

Thanks Bennett. As we have discussed, the environment remains challenging. However, we continue to perform in line with our expectations and execute our initiatives which we believe will draw customers into our stores and assure they have an enjoyable shopping experience. I want to thank all of our associates and the team here for their hard work and dedication which has kept us moving in the right direction. I remain very confident in our long-term plan which will enable us to compete effectively over the long-term.

Operator, we are now ready for Q&A.

Question and Answer Session

Operator

(Operator Instructions) The first question comes from the line of Meredith Adler – Barclays Capital.

Meredith Adler – Barclays Capital

You mentioned the fact it is challenging right now to pass along higher costs for things like dairy and meat. How long do you think that will last?

Peter Lynch

As I said before it is dairy and meat which typically are very promotional items for our competitors and I believe in this environment that is short-term and that won’t last forever. Short-term and is basically on meat and dairy right now.

Meredith Adler – Barclays Capital

I was wondering if you could talk a little bit about what is happening on the packaged good or center store items. I think they had started to turn deflationary. Is that true? How successful have you been in managing any profit for that area?

Peter Lynch

Right now we have seen very, very little movement. It is basically flat in center store. So as a result of that our [penny] profits are just fine.

Meredith Adler – Barclays Capital

Maybe you could just talk a little bit about the remodels you have accomplished so far I think you have said in the past you have been most successful in the somewhat more affluent areas. Could you talk a little bit about what that means for the stores that might not be in those affluent areas? How do you approach them? Is there a way you can make customers happy without spending a lot of money? Are the returns even worthwhile to invest in those areas?

Peter Lynch

I think what I have said in the past particularly over this past year is in this year we are in today we have seen the affluent, the mature suburbs and the resort areas being a good opportunity for upside on the remodels this year. Prior to that when we started this program off we were doing all of the different areas we operate in and quite frankly doing very well in the majority of them. The experience we are having is in today’s environment with the recession and we are seeing very good returns there.

At the same time we have a Save-Rite format that we have been looking at the last couple of years and fine tuning it. We have done phase II of it right now and we will continue to monitor that but that might be an opportunity for us in some of the other stores through this challenging environment we have here. It is more than just the affluent that have been pretty good for us this year. Again, in the very beginning as we started the program the majority of the different neighborhoods we operate in were doing very well but recently the affluent, mature suburbs and the resort areas have started to pick up and have done well.

Meredith Adler – Barclays Capital

I will end with a question about liquidity. Assuming you don’t spend any more than the $200 million you spent this year. Is there any reason to believe that you will be a net borrower in 2011?

Bennett Nussbaum

We haven’t discussed our plan with our board for next year but I would have to say right now it is more likely than not. Fiscal 2011 it is more likely than not we will not be a net borrower at year-end.

Operator

The next question comes from the line of Chuck Cerankosky – Northcoast Research.

Chuck Cerankosky – Northcoast Research

When you are looking at the spend right now any signs on a company-wide basis there is a trade up beginning among consumers?

Peter Lynch

I think the only place you see a little bit of that trade up coming back is in the affluent markets and a little bit in mature suburbs. The remainder of it still seems to be kind of subdued with transactions down and spend down as well.

Chuck Cerankosky – Northcoast Research

How about in prepared foods? What is that telling you?

Peter Lynch

Again it resembles what is happening in the affluent markets. Those have rebounded and particularly with the opening of our Covington Store which is in Louisiana which is a very affluent market we have seen the prepared foods pick up again. I think the affluent areas have gone through the shock of last year and are getting back to more normalized times. Some of the other markets are still slow in the upturn.

Chuck Cerankosky – Northcoast Research

Do you think there is a chance for gross profit margins to look a little better as this trading up becomes more widespread?

Peter Lynch

Obviously if trading up becomes more widespread and you start to sell more prepared items there is margin expansion. I think as we look into next year as we look into this fourth quarter it is going to be a slow tick up. We don’t see a rapid rebound. We see it moving positively but slowly.

Operator

The next question comes from the line of Scott Mushkin – Jefferies & Company.

Scott Mushkin – Jefferies & Company

I was going to ask a question maybe a little bit long-term here. Where do you go strategically? You have done honestly a remarkable job keeping things relatively stable over the last 18 months. It seems the store productivity issues and the low market share issue remain. I am trying to understand how you solve these or are they solvable if the economy stays kind of subdued here?

Peter Lynch

I don’t think the economy is going to stay subdued forever. However, I do think it is a slow pick up. I have always said the issues around Winn-Dixie were an issue with the brand and the fact the brand had been tarnished and I have always said that the more you grow the base of remodel stores the more the word is going to get out that Winn-Dixie is the place to shop. That has continued. We were doing pretty good until this year when we got the bump in the road with the Great Recession. I firmly believe our continued focus on our fresh and local strategy, our continuing to focus to remodel those stores and continue to get the branding message out there long-term will grow the market share of this company.

Let’s face it, this year the transaction counts for just about everybody in the industry the economy has turned that thing upside down. Transaction count has been affected by a lot of things. This past quarter for example for us there was a little bit of an Easter overlaps. We lost a few footsteps. The remodels, we haven’t completed as many so far this year. In fact we have about 10 less than prior year and they are being completed later so we have lost some footsteps there which we will pick up as we move forward. I have always said we continue to not over promote in a down market. When you do that you risk losing some cherry pickers but that is traffic.

Also the end of the month is no longer a one-week experience it is a two-week experience which takes traffic count down as well. I think a lot of what you are seeing today is influenced by this economy and traffic count. I think what we are doing with the brand is rock solid. I really believe what we are doing with our strategy of fresh and local over the long-term will produce market share increases and drive us right back to where we were headed before this recession entered.

Scott Mushkin – Jefferies & Company

You look at a market like Orlando where I think you are right around 10 share. Is there anything you can do to kind of jump start that? Is there any acquisitions? Would you consider making some small acquisitions? How do you get the market share in a market like Orlando up so the relevance of the company is more significant in the local markets?

Peter Lynch

We have said we will always look at everything. We are not going to over pay for anything. As you know there are still some competitors out there which probably would like to exit the market at some point in time. We are going to look for opportunities. If we can get those at the right price they are clearly an opportunity to increase market share and we consider everything.

Scott Mushkin – Jefferies & Company

I think one of the best things you announced was the remodels doing a little bit better. Do you have a top couple of reasons why that is the case?

Peter Lynch

I think you have a little bit more of an uptick in the affluent areas and mature suburbs. A lot of these were done in those types of neighborhoods. So that kind of reiterates what I have been saying about a pick up there. We have had a few in our Hispanic markets which have done extremely well. Basically we just think the format we are doing is right on track. It is the one consumers want. When you add the thing up we are 6.3% on IDs. Company was negative [2.2] so if you added that on it is [8.5]. You put the deflation/inflation change from the last quarter versus where we were a year ago you are basically back to the 10%. There are just things in this environment that have taken that number down. So it has gotten better. We feel very good about it. In the markets that I have talked about that have been very good they are responding very well. Again, we think in the long-term this thing is right on track.

Scott Mushkin – Jefferies & Company

Was there a particular market you were doing a lot of remodels in this quarter?

Peter Lynch

No, we kind of spread them out this quarter so they are a little bit under the radar screen.

Operator

The next question comes from the line of Karen Short – BMO Capital.

Karen Short – BMO Capital

Following on the rural or the patterns in different markets you are seeing that rural is still struggling. I guess that is consistent with what Wal-Mart is saying. I am curious, it is not really that relevant for you but do you have any comments on why Ingles and Weis seem to be doing fairly well? What is going on in your markets in rural versus theirs? They seem to have recovered or held on pretty well.

Peter Lynch

I will be honest with you, I am not that familiar with both of those markets and I haven’t followed those guys that closely. I think it would be inappropriate for me to comment.

Karen Short – BMO Capital

Looking at sales can you talk about the cadence of sales throughout the third quarter and then maybe make some comments on what you are seeing so far in the fourth quarter?

Peter Lynch

As we indicated the sales got a little bit better in the third quarter although as we indicated in the script and in the release that deflation had now moved to inflation and that helped us if you put the two together by about 100 basis points. So we still see this inflationary/deflationary context continuing the same into an inflationary mode. We still see challenges in the fourth quarter with the environment. The environment has not gotten better. As you know Florida still has a very high unemployment rate. The housing market is still off. I think until we start to see those things rebound we are going to be challenged in this environment.

Karen Short – BMO Capital

To clarify when you talk about inflation are you talking about product costs or retail?

Peter Lynch

We are talking about product costs and when we can we move the pricing along to get some inflation. As I said before, two of the areas that are very promotional where there are some increases we have not had the ability to pass those along. I think that is a short-term event.

Karen Short – BMO Capital

So would you characterize the competitive environment is like stably challenging or has it gotten any worse? Can you elaborate on that?

Peter Lynch

I used to call it rational. I can tell you we are not in a pricing war down here but it has gotten a little bit more challenging on the ability to pass some costs along in promotional products such as meat and some of the dairy categories. So it probably ratcheted up a notch or so. It is not crazy with a pricing war but as you would expect in this environment retailers are trying to grab sales. Front page items like meat items are the ones you have to be very careful on. Again I think that is short-term and I think that all balances out over time. But you have this little bit of a headwind right now.

We will get through this thing. Think about it, Karen. We probably had about the most difficult year last year we have ever had. We got into July and all of a sudden sales just went upside down on us. But think about that. Our sales went upside down but this company had the ability to meet that challenge, adjust some expenses where we needed to, still build in some pretty good gross margin and come out pretty good for the year. Just imagine what this company can do as we start to get a little bit of a tailwind and things starting to help us.

I think we are going to be much better prepared as we go into 2011. We have seen some tough times. We are prepared for more tough times but if the good times happen it is nothing but upside because then the dollars just flow to the bottom line.

Karen Short – BMO Capital

On the timing of the share distribution is this like one day all shares go to the original creditors or is it kind of a dribble where they get passed out over a six week period? Can you maybe just help me understand and kind of gauge the impact on what your stock might do?

Bennett Nussbaum

The shares are essentially all distributed on a single day. They are mailed out to the various people who got the distribution initially in the emergence.

Peter Lynch

So what they want to do with them and the timing of that. As we said before this will happen sometime before the end of the fourth quarter.

Karen Short – BMO Capital

Will you actually put out a notice to let us know when you have done the mailing?

Peter Lynch

Yes we will have a notice out there when we have done the mailing.

Operator

The next question comes from the line of Jonathan Feeney – Janney Capital Markets.

Jonathan Feeney – Janney Capital Markets

I wanted to follow-up a little bit on this meat and dairy competitiveness specifically. I know you don’t disclose this in such granular detail fully but was there any substantial difference in the gross margin trend between perishables as a whole and maybe meat and dairy specifically? Do you have the overall gross margin trend for all products? Is there any big difference there?

Peter Lynch

We don’t get into that granularity between perishables or non-perishables. What you can take from my conversation is there is pressure on meat. Costs have gone up and retailers have been holding back on moving on that on promotional retail. Obviously there was some pressure in the meat department.

Jonathan Feeney – Janney Capital Markets

Just one follow-up, looking at some of these manufacturers and upstream distributors they face an incredible amount of pressure from retailers. Are you able to, to use a crude term, exploit the pain upward by sourcing milk and dairy [cheaper] to any great extent in here?

Peter Lynch

We look at all types of opportunities to take our costs down. I think we do a very good job at negotiating with vendors to get the lowest cost. I would also say to you I think at Winn-Dixie we have been in an environment where we work with our vendors to provide an environment that is going to work for both of us. I think in so doing there are lots of opportunities that afford themselves and it is a very, very positive environment we have. We do everything we can do to get the costs down but we are also I think very strategic with our vendor partners to make sure we develop long-term plans that are going to help the categories, help the companies, move forward and I think there is benefit at Winn-Dixie and we will continue with that posture.

Operator

The next question comes from the line of Meredith Adler – Barclays Capital.

Meredith Adler – Barclays Capital

I would like to talk just a little bit about expenses. Maybe you could talk about whether if you feel like this environment continues very weak for more than a year do you have an opportunity to continue to cut expenses and then maybe how much of the cuts are building in efficiencies so when you get an economic recovery you will see nice leverage?

Peter Lynch

As I think I indicated when I was talking to Scott we did a very good year last year of getting through these tough times. As we prepare for 2011 we are still looking at a challenging environment and understand we need to have an appropriate balance between quite frankly overhead and sales. We think there are more efficiencies there we can build in and if need be we will have the opportunity to work on these efficiencies. As you indicated those are longer lasting because once you make those they stay with you. There is an opportunity there.

Meredith Adler – Barclays Capital

I would like to follow-up a little bit on inventory. From what Bennett said earlier some of the improvement, not all of the improvement has come from inventory yet. Any sense about the timing? I think you gave us a good idea of what areas you were approaching, back room inventories, safety stock. How long does that take? Do you need new technology to be able to improve inventory management?

Bennett Nussbaum

A couple of things. First of all the way inventory comes out is over time. You have to improve your training, give people better data and give them better tools. That speaks to your question on technology where one way we get it out is by giving people better information which we have done. Now we are providing them, we have had in the pipeline some computer tools, some analytic tools that are coming on board and that will enable us to continue to see advances in inventory controls.

Meredith Adler – Barclays Capital

So do you see that as being a 24 month process? A 36 month process?

Peter Lynch

We had a good year on inventories this year and I expect we will also make some improvements over Fiscal 2011. As we get through fiscal 2011 we will see how much is left for fiscal 2012.

Meredith Adler – Barclays Capital

My final question is about Save-Rite. That is actually a format that you have had in place for awhile. Can you talk about whether you are happy with the profitability and the return or is more fine tuning needed?

Peter Lynch

We only have probably about 12 of these stores out there today. Our emphasis in the beginning was really on the conventional stores we had. But as we saw the economy get challenged we did some work on one store. The returns were okay. Not great. We fine tuned that in a second store we just grand re-opened about a month ago and we are seeing much more positive results there. So I think there is an opportunity with this going forward but we still have a little bit more time to fine tune the model.

Operator

The next question comes from the line of Chuck Cerankosky – Northcoast Research.

Chuck Cerankosky – Northcoast Research

In looking at the operating expense line it was an impressive number only up 5 basis points ad down in dollars. The store level staffing is that an area that can be further fine tuned as Peter mentioned or have you sort of hit as low as you want to go in managing that number and you have to look at other components of operating expenses?

Bennett Nussbaum

One of the main tenets we have here is we have to improve our customer service. You may recall even when we were in bankruptcy we added about $60 million of store labor back in which unheard of for a company in bankruptcy. We are very careful not to cut labor just to cut money out of the system. Our store labor is efficiently managed and we have some very good tools with which we manage our store labor. But we will not cut that just to reduce expenses if it impacts our customer service.

Peter Lynch

I want to reiterate that because that is one of the core principles we have here at Winn-Dixie. Part of the problem that got the company in trouble was they were cutting too many hours out of the stores. I am not going to say we don’t try and leverage as sales go down because any good company needs to do that but we need to keep the basic, core fundamentals in those stores as we move forward. The stores are kind of sacred ground. We want to continue to put better people in the stores, continue to train people and make sure we have better customer service out there. That is not a place we go to cut but it is a place we go to leverage.

Operator

The next question comes from the line of Damian Witkowski – Gabelli.

Damian Witkowski – Gabelli

I want to follow-up on the promotional environment on meat and dairy. I assume dairy means milk. Based on historical experience, milk in particular has been very volatile in cost over the last few years. You said you don’t think the promotional environment will last and is a short-term phenomenon but could you define what short-term means? Is it one quarter? Two quarters? Based on historical experience.

Peter Lynch

Typically it is about two quarters. As you get into it people have to see the numbers for the quarter and then they adjust the following one. So it is typically about a two quarter experience between the beginning and the end.

Damian Witkowski – Gabelli

Are you surprised by the categories that your competitors are now using to drive traffic or has this historically been the norm?

Peter Lynch

Not surprised at all. In our industry the categories have been relatively the same for the past 30-40 years I have been in the business. Obviously if you look at the meat it is the driver on the front page of everybody’s ad. Milk is always something; milk and eggs. People look at those things all the time. The other drivers you see a lot are the Coke and Pepsi of the world that drive footsteps but not typically profitable footsteps but footsteps. It is the same things. Again, people are concerned about driving sales but you get your report card at the end of the quarter and you make adjustments going into the next one. So probably about a six month deal.

Damian Witkowski – Gabelli

Traffic numbers have been declining. What gives you confidence when the economy does turn and again I think it is going to take time and it is going to be a slow recovery but that people do come back? If you didn’t shop at Winn-Dixie today when the environment was bad what makes you come back to Winn-Dixie when things improve?

Peter Lynch

We do an awful lot of surveys with consumers and we continue to hear as we get them back into the stores they like the environment and they like the shopping experience. The fact we haven’t let up. We have been going hard on this thing even during this tough time and continue to do 60 remodels this year so as the base continues to expand on the stores we have fixed up and as we continue to talk about the brand I am very optimistic that as this economy turns there is great upside here for us.

Damian Witkowski – Gabelli

From what you can tell today the people who are walking away where are they going? Are they going somewhere else because of price mainly?

Peter Lynch

What we are finding is they are buying less in a lot of cases because they are making fewer shopping trips. From day one I always said Wal-Mart is not the people we are going to compete with. Some consumers might have gone there but I think when the economy returns and the husband, wife or one of them is back to work again it doesn’t become convenient. So we are in convenient locations. As the economy rebounds there is the opportunity for the consumer to shop us.

I think right now they are travelling around. They are trying to find the best ways to make ends meet. As I said before we are impacted by this last quarter there was a little bit of an Easter thing. Our remodels are coming later this year than they did a year ago. We are not as promotional with some items that would generate traffic. As a result we don’t generate those extra footsteps. The end of the month is now a two-week process versus a one-week and there is less transactions during that time. It is not just impacting us but impacting everybody. We need this economy returned to rationalize that environment.

Operator

The next question comes from the line of Karen Short – BMO Capital.

Karen Short – BMO Capital

Did you give what you think your LIFO will be for the full-year?

Bennett Nussbaum

Right now we are looking at LIFO for full-year as being about $4 million.

Karen Short – BMO Capital

Do you have any preliminary thoughts on LIFO for next year?

Bennett Nussbaum

We are looking right now, and again we haven’t discussed our full planning with our board but we are looking at about 0.5% inflation. That is our best guess right now.

Eric Harris

Please note that LIFO number Bennett gave you is an estimate. We do a true up at the end of the quarter so that number could vary slightly based on the amount of inventory we actually have on hand when we finish up our true up.

Karen Short – BMO Capital

I also just have a question on private label in general. Your penetration is pretty high but your market share is not that high. I am wondering why there seems to be a disconnect. I guess I tend to think of high private label penetration associated with pretty strong brand equity and strong market share. Either in your case your customer is just that much lower income for the demand for the lower price points is greater? Or is it because your market share doesn’t really accurately reflect the confidence customers have in your brand. I am wondering if you could talk about that a little bit.

Peter Lynch

I think it goes back to Winn-Dixie even prior to my getting here did a pretty good job of private label. I think you remember they used to manufacture a lot of different products and they created some good brand equity with some of these private label products. So we have a [mint] of going even in the old Winn-Dixie. The new Winn-Dixie then stepped this process up and we re-labeled every one of the products we had out there. We brought more products on. We have engaged with [Topco] and had a really ramped up process. I think between what was here before I got here and what we have done since we have been here has really made private label a great experience for the consumer. I think that is why we have probably a better penetration than what we think.

Karen Short – BMO Capital

Could you just give us an update on the Fuelperks program? What markets it is in, where it would be rolling out next and things like that?

Peter Lynch

Obviously we are not going to tell you the next one because our competitors would love to hear that. We have been in Panama City and we have been in Jacksonville. Our experience has been very, very good. I saved $1.50 a gallon last week when I filled up my car. So that makes my head turn. So it is a good thing and we think it is going to be a good process going forward. We are going to do more of the company but again I don’t want to tip our hat to the competitors. So all I can tell you is we have another one coming soon.

Operator

Ladies and gentlemen that is all the time we have for questions. I would now like to turn the call over to Mr. Peter Lynch for closing remarks. Please proceed, Sir.

Peter Lynch

Again I would like to thank everyone for joining us today on the call. We look forward to speaking with you again to discuss our earnings results for the fourth quarter. If any of you have additional questions Eric Harris is always available for your calls. So again thank you and thank you for joining us.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect and everyone have a great day.

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