Winn-Dixie Stores (WINN)

Q2 2010 Earnings Call

August 31, 2010 8:30 a.m. ET

Executives

Eric Harris - Director of Investor Relations

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

Analysts

Scott Mushkin – Jefferies & Company

Alex Bisson - Northcoast Research

Meredith Adler – Barclays Capital

Susan Anderson - Citigroup

Glenn Gawronski - JP Morgan

Andrew Wolf - BB&T Capital Markets

Karen Short – BMO Capital

Presentation

Operator

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Good day ladies and gentlemen and welcome to the fourth quarter 2010 Winn-Dixie Stores earnings conference call. [Operator instructions.] I would now like to turn the conference over to Eric Harris, director of investor relations. Please proceed.

Eric Harris

Good morning and thank you for joining us to discuss Winn-Dixie's financial results for the fourth quarter of fiscal 2010. Joining me this morning are Peter Lynch, chairman, CEO, and president; and Bennett Nussbaum, senior vice president and chief financial officer; and Dan Portnoy, senior vice president and chief merchandising and marketing officer.

Before we begin, I 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 at www.Winn-Dixie.com. Today’s call is being recorded and a transcript will be archived. A replay of the 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.

Finally, let me also remind you that 2010 fiscal year was a period comprised of 53 weeks, whereas fiscal 2009 was a 52-week period. The extra week, which took place in the fourth quarter, affects all year-over-year comparisons, so please keep that in mind as we go through our discussion.

As usual, Peter and Bennett will begin with some prepared remarks, and afterward we will open the call up for your questions.

And now, let me turn it over to Peter Lynch.

Peter Lynch

Thanks Eric. Good morning everyone, and thank you for joining us to discuss our fourth quarter and year-end results for fiscal 2010. As you saw from the press release we issued yesterday, identical sales in the fourth quarter decreased by approximately 5.2%, driven by a decrease in transaction count of 4.2%, and a decline in basket size of 1%.

Clearly, we are operating in a very difficult economic and competitive environment, one of the toughest I've seen in my career. Prolonged recession, coupled with intensifying competition and price-sensitive consumers is putting significant pressure on our top line.

As conditions became more promotional in the fourth quarter, our sales began to deteriorate. We made the decision not to respond with the same promotional offerings as our competitors in order to preserve our profitability. We held the line on margins, and met our guidance through effective management of promotional activity and cost control.

However, this action cost us sales. I want you to know that no matter how tough the environment, this type of sales decline is not acceptable to us, and we have already implemented several adjustments to our promotional practices in order to grow sales. While these adjustments will negatively impact our profitability in the first quarter, we believe they are necessary in order to improve our top line results and recapture market share.

In the first 8 weeks of fiscal 2011, they have helped us generate a sequential improvement in our id sales of 200 basis points from the fourth quarter of fiscal 2010. In addition, we believe the improvement would even be higher were it not for the impact of the Gulf oil spill. While only about 15 of our stores have been affected, we believe right now the oil spill may cost us about 50 basis points of sales in the first quarter.

The good news is we expect the impact of the spill to lessen as we move forward throughout the year.

The bottom line is, we still have a lot of work to do, but the current sales trend has significantly improved compared to the fourth quarter. We also have additional sales initiatives we are implementing in fiscal 2011 to build on the improvement so far in the first quarter.

I can't talk about all of them for competitive reasons, but one example is our expanded fuelperks customer incentive program, which continues to generate positive responses and is a great opportunity to drive incremental sales. Another is a new computer generated order program, CGO, that will drive sales by reducing out of stock items and lowering inventory in the stores over time. The program helps streamline the ordering system and has proven to be very useful in helping us meet the specific needs of each store.

We are currently rolling out the program across the entire chain and expect it to be completed by the end of the year. As we move throughout the year, we will continue to implement these and other initiatives to further improve current sales trends. I am firmly committed to making whatever adjustments are necessary to position us to achieve sustainable and profitable sales growth over the longer term.

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