If you've ever wondered what a troubled company looks like, look no further than grocer Winn-Dixie's
There's no question the second quarter of fiscal 2004 was bad. Sales were down 6% from the same quarter a year ago. Gross margins, having held steady over the last year at around 30%, slipped three points to 27%, largely because of new pricing policies.
Operating and administrative expenses as a percentage of sales jumped from 26% in last year's second quarter, to 29% in the most recent quarter. This included a $36 million non-cash charge for asset impairment, and a $21 million non-cash reserve for worker's compensation insurance. Absent these (hopefully) one-time charges, operating and administrative expenses were actually down 2.8% from the prior year's quarter.
Yet, in many respects, the second quarter of fiscal 2004 was an improvement from the first quarter. Sales jumped 33% sequentially, though operating and administrative expenses were up 42%, including the impairment and insurance reserve. Cash from operations was up 14% to $20.7 million, thanks in part to a $53.5 million reduction in inventories. It's certainly not enough to generate free cash flow, but it's a move in the right direction. The company's cash conversion cycle remains under one month, and with last year's debt reduction, Winn-Dixie generated enough operating cash flow to finance interest payments.
Of course, marginal improvements are meaningless if Winn-Dixie can't find a competitive advantage as it faces down Wal-Mart
Does Winn-Dixie stand a chance in the face of Wal-Mart? Do you think Winn-Dixie is a win-win or lose-lose investment? Talk it over on the Winn-Dixie discussion board.
Fool contributor Chris Mallon tries to find value where others see junk, and he owns shares of Winn-Dixie through his private investment partnership.