Winn-Dixie: Third Quarter Earnings Preview

May.11.11 | About: Winn-Dixie Stores, (WINN)
Winn- Dixie (NASDAQ:WINN) is expected to report its third quarter fiscal 2011 earnings after the market close on Monday, May 16. Analysts are forecasting earnings of 10 cents on sales of $1.62 billion, amounting to a 74% earnings decrease (from 38 cents) on a 4% sales reduction ( from $1.69 billion).
After doing some rapid “cocktail napkin” crude math, the Southeastern grocer could beat estimates handily, coming in at 18 cents or 80% higher than estimates. Last year, the chain beat expectations in the same quarter by 52%, so there is a sort of “track record” established. Surprisingly, this can be done without a revenue beat, provided the company is able to maintain its most recent quarterly gross profit margin of 27.70% (year over year 70 basis point reduction) and be flat on its operating and administrative costs of 27.10% (a 140 basis point sequential drop).
If WINN is able to either beat or raise guidance, its stock could easily rally 20%, punching through its major overhead resistance area of $7.35 to quickly challenge double digits. In the unlikely scenario it misses expectations, pressure to either sell the company or change directions will likely engulf the organization.
Disclosure: I am long WINN.