Winn-Dixie: Solid Earnings Pave the Way for Buyback

May.17.11 | About: Winn-Dixie Stores, (WINN)
Winn-Dixie (NASDAQ:WINN) crushed earnings estimates by more than fourfold when it posted earnings of 42 cents versus estimates of 10 cents, thanks to a gross margin improvement and a deferred tax benefit of $9.7 million. The tax benefit will be ongoing as the company works its way through its $769 million net operating loss carryover, allowing it to offset future earnings for federal income tax purposes. With only one quarter remaining to report in its 2011 fiscal year, the supermarket operator maintained its EBITDA range of $100 to $130 million.
Analysis of the top line: WINN’s sales of $1.60 billion were unchanged, as the grocer saw its same store sales drop 0.5% due to competitive pressures. Although its basket size increased 1.3%, a 1.7% reduction in its transaction count proved to be hampering. It appears that the folks trading in after hours looked at the report as a non-event, as the shares rose only 2% on miniscule volume in extended hours trading. I suspect we could get an additional pop after more details emerge during the conference call, especially if one or more analysts decide to upgrade, or "antsy" shorts start to cover.
Looking forward: The company’s cash hoard swelled 60% on a sequential basis from $108.5 million to $173.5 million, a result of its EBITDA contribution of $55.2 million, as well as $11 million in proceeds from its Chek Bottling operations sale. Management cut its capital expenditure budget another 13% from $132 million to $117 million and currently has 17 transformational remodels in progress, with two scheduled to be completed within the next month. The fact that WINN’s cash is going up and its capex is going down could be a sign it is finally planning a much-needed stock buyback program or regular cash dividend.
Disclosure: I am long WINN.