Winn-Dixie Does an Earnings Two-Step

By Chris Jones
August 25, 2009 | Comments (8)

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If we're smart, we'll learn to take reversals of fortune like the one Winn-Dixie (Nasdaq: WINN) experienced today with a grain of salt.

Between yesterday afternoon and this morning, shares of Winn-Dixie traded in a huge range, rising by more than 4% last night but losing those gains to drop as much as 9% within the first hour of trading today.

Shares hit new 52-week highs in after-hours trading yesterday after the company announced solid fiscal-fourth-quarter and fiscal-year results. Then, just as quickly, investors sent shares plummeting this morning after management's before-the-bell earnings conference call. The selling continued when markets opened, putting a damper on a would-be day of celebration for the company.

Cost-cutting in conjunction with Winn-Dixie's remodeling strategy helped the official supermarket of the Jacksonville Jaguars and New Orleans Saints beat analyst estimates by a penny to post a fourth-quarter profit of $9.4 million and $0.17 per share. Same-store sales grew by 1.6% and total revenue landed at $1.72 billion. Given that the company emerged from bankruptcy just two years ago, sustained profitability and sales growth are quite meaningful results for the grocer.

What happened?
The supermarket business is notoriously competitive, as Winn-Dixie faces competition on two fronts. Other grocery specialists, including Publix, Ingles (Nasdaq: IMKTA), and Kroger (NYSE: KR), constantly put pressure on margins. Meanwhile, superstores such as Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and even Costco (Nasdaq: COST) also lure away potential customers. In addition, while remodeling stores makes sense to try to retain and attract customers, a company has to draw the right balance to maintain profits. But nothing in the announcement changed what investors should already have known on those fronts.

The real answer?
What I think precipitated the move is a difference in tone between the earnings release and the conference call; 2009 has been a great success for the company, and in yesterday's press release, management reiterated 2010 guidance and pointed to positive signs during the first eight weeks of the new fiscal year.

Yet in this morning's conference call, Winn-Dixie's  president and CEO suggested that the new fiscal year is actually off to a somewhat rocky start. Its summer and weekend sales have been relatively soft, and during the earnings conference call, the president and CEO gently pointed investors toward the lower end of next year's guidance.

So as I see it, the market got ahead of itself last night when it saw that the grocer had topped earnings. Then, when management wasn't as glowing with its forward-looking statements, investors panicked. Yet even after the haircut, Winn-Dixie is weighing on the expensive side at more than 30 times trailing earnings. Investors should keep their eyes peeled for better bargains.

Disagree? Share your thoughts below in the comments section, and explain your take on investors' change of heart regarding Winn-Dixie's shares.

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Fool contributor Chris Jones owns no shares of any company mentioned in this article. The Fool owns shares of Costco, which is a Motley Fool Stock Advisor selection. Costco and Wal-Mart are Motley Fool Inside Value recommendations. Try any of our Foolish newsletter services free for 30 days. The Motley Fool's disclosure policy gives jaguars a wide berth, but wants to be in that number when the Saints come marching in.

Comments from our Foolish Readers

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  • Report this Comment On August 26, 2009, at 7:17 AM, jfcontreras wrote:

    They dit it on purpose. Remember,as the CEO lynch said::: you can´t give the competition the tools for counteratacks...Stock Shares in the after hours jumped again to the night before´s prices. THIS SHARE ´S VALUE SHOULD POINT OUT TO 25 0R 30 BUCS A SHARE. Its as simple as how can you grow in a recession like this? The results are outstanding, Imagine when the economy recovers...

  • Report this Comment On August 26, 2009, at 12:25 PM, yankeeclippa wrote:

    Winn Dixie days are all but numbered, they are never going to be able to grow sales in the southeast region. Stores that have been remodeled have shown very small year over year increases. A 9 million dollar profit with 500 stores is pathetic. Publix and Walmart will continue to keep WD in check and not allow them to grow top line or bottom line. Avg store nets 18,000.00 a quarter,roughfly 1300 a week. With ever increasing costs and no way to increase sales, the company will begin to cut costs, ie labor at the stores, and the stores will rapidly lose any gains they made. Lynch was not lying, their first quarter is off to a rocky start because of the competition lowering prices, which they can afford to do, WD can't. I think Lynch will begin to look for an exit strategy for himself because he see's the writting on the wall, just like Shelly Broader of Sweet Bay.

  • Report this Comment On August 26, 2009, at 12:33 PM, yankeeclippa wrote:

    Anyone who thinks WD will see a 30 dollar stock price just doesn't have a firm grip on what is taking place in the food retailers space. Industry is ripe for consolidation, too many players, so eventually the weak will die. WD is just existing in this space, trapped in the middle, hoping the competition fumbles, don't count on it.

  • Report this Comment On September 02, 2009, at 4:17 PM, haha2009 wrote:

    yankee...all you have done in your comments is two things, 1) proven you can do basic math and 2) blatantly associated yourself with WD's competition. Unfortunately for you, Publix is privately held and you aren't able to demonstrate your mathematical abilities once more. Seriously, don't waste your time and everyone else's with your ridiculous elementary post.

    Haha

  • Report this Comment On September 09, 2009, at 11:41 PM, yankeeclippa wrote:

    If my post was elementary and u think the stock will hit 30, than put your money where your mouth is and buy the stock now. My comparison to Pub and Walmart, (I did know pub is privately held), was to simply point out what i think is obvious, that the comp is strong. U are right, I don't shop WD, and I consider myself an average consumer, so if I don't shop it, why would anyone else? On the flip side, u sound like a fan of WD, so stick to your guns and move on the stock. Your opinion of my post lacks any factual evidence that would prove otherwise. Next time u decide to retort, have something more to say than the dribble u wrote above. Y

  • Report this Comment On September 09, 2009, at 11:42 PM, yankeeclippa wrote:

    Haha

  • Report this Comment On September 10, 2009, at 12:06 PM, haha2009 wrote:

    Actually, I moved out of the southeast 12 years ago and now live in Texas where I shop at HEB, by far the best grocer I have seen. I'm interested in the space and check the various companies stock...along with many other industries.

    I only wrote the post because you took a shot at the first comment above, thinking you are so smart.

    BTW I did move on the stock, back when it was at 9.

  • Report this Comment On September 10, 2009, at 5:52 PM, yankeeclippa wrote:

    I don't think I took a shot at jfcont, my comments weren't personal, (like yours were about me), I was just trying to give some insight on why I think the stock hittin 30 was impossible. Your first post didn't mention that u bought at 9, obviously I struck a nerve, I hope u make a fortune. WD's first quarter is coming to a close this month, lets see if anything I said comes true, should be interesting.

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