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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