Winn-Dixie

(WIN) - Get Report

said it swung to a fourth-quarter profit, despite a decline in revenue, thanks in part to a tax credit. But the company said first-quarter and full-year 2004 earnings will fall well short of analysts' estimates, due in part to pricing competition.

The Jacksonville, Fla., supermarket chain also was downgraded by Merrill Lynch on Friday to sell from neutral on disappointing comparable-store sales. Shares of the company were down 11.7%, or $1.38, at $10.40 Friday morning.

Earnings from continuing operations were $62.5 million, or 44 cents a share, in the quarter ended June 25, compared with a loss of $21.9 million, or 16 cents a share, last year. (Excluding charges, the company had earned $52.8 million, or 37 cents a share, in the prior-year period.) Analysts were expecting EPS of 28 cents for the current period. The company said certain life-insurance issues were settled with the Internal Revenue Service during the quarter, resulting in the reversal of tax reserves totaling $28 million, or 20 cents a share. The company also had an expense of $5 million, or 4 cents a share, for the retirement payments to a former CEO.

"During the fourth quarter we experienced an increase in competitive activity that negatively impacted our identical-store sales," said Chief Executive Frank Lazaran. "Many of our competitors lowered their earnings estimates over the past few months in order to significantly increase their promotional activity. In addition, military troop deployments and general economic conditions contributed to weaker sales in the fourth quarter."

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Sales from continuing operations were $2.7 billion, down 4.5%, the company said. Comparable-store sales decreased 4.5%. Adjusted for the timing of the Easter holiday, comparable sales for the fourth quarter would have decreased 5.5%, Winn-Dixie said. The Easter holiday fell in the fourth quarter of fiscal 2003 and the third quarter of fiscal 2002.

"Most other food retailers' sales and estimates have stabilized or improved. Winn-Dixie is the one still tumbling," said analyst Mark Husson of Merrill Lynch.

"Negative 5.5% comp store sales is a bad number no matter how weak the Florida market is, particularly in light of

Publix's

(PUSH.OB)

positive 1.4% comp in it most recent quarter," said Husson, who also cut his 2004 EPS estimate to 90 cents from $1.30, and his 2005 estimate to $1.10 from $1.55.

Winn-Dixie said it expects to break even in the first quarter. Analysts expect 24 cents a share. For full-year 2004, the company sees earnings of $1 to 1.10 a share. Analysts expect $1.25 a share.