Though they may not win, they don't quit. No matter what followers of Winn-Dixie (NYSE:WIN) might think about the company or the stock, they must at least give management credit for not giving up without a fight. Despite a brutal overall environment for supermarkets, management continues to try to turn this struggling Southern supermarket chain around.
The struggles continue. Sales from continuing operations for its second quarter totaled $3.1 billion for the 16-week quarter, down 4.7% over last year. Identical store sales (akin to same-store sales) were down 4.9% and mark the sixth consecutive quarterly decline. Making matters even worse, this result reverses what had seemed to be a gradually improving trend in those identical store sale declines.
The company blames results on greater competition and a disappointing holiday season. And that "greater competition" is precisely the problem for Winn-Dixie. Competing supermarkets such as Kroger (NYSE:KR), Publix, and Food Lion aren't just going to roll over and quit. What's more, there seems to be nothing stopping the expansion of "superstore" concepts from the likes of Wal-Mart (NYSE:WMT) and Target (NYSE:TGT).
Though the company continues to make progress on its restructuring efforts -- completing two-thirds of its upgrades in the Miami area and having completed more than 85% of planned store closings -- it may turn out to be too little, too late.
Aggressive investors tempted into thinking that Winn-Dixie's book value of approximately $2.60 a share offers a "floor" should remember a couple of points. First, the company continues to lose money on both an accounting basis and a cash-flow basis. Second, accrued wages, debt, and borrowings at quarter's end outstripped cash and trade receivables by more than 3-to-1.
Winn-Dixie may prove to be a sad case study in the difference between a value stock and a value trap. Genuine value stocks often reflect either companies that are unknown, or companies that have suffered a setback but have a real chance of recovery that the market isn't appreciating.
Value traps, on the other hand, are companies where the valuations look "cheap" but the business (or even the entire industry) is in such bad shape that a recovery to prior levels is unlikely at best.
Though Winn-Dixie management isn't raising the white flag yet, I can't see any reason to own this stock until identical store sales improve. Even then, investors would have to ask themselves whether they really want a piece of a business in an industry with razor-thin margins that has to fight against Wal-Mart and Target every day.
Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
