Winn-Dixie: No Southern Comfort


By Pallavi Gogoi Here's irony for you: The movie Because of Winn-Dixie, a heartwarming tale that brings Southern comforts into theaters nationwide opened on Friday, Feb. 18, and the following Monday, its namesake grocery chain filed for bankruptcy protection from its creditors.

The question now: Can the real Winn-Dixie (WIN) come up with a Hollywood-style happy ending like the one in the movie, in which a 10-year-old girl saves a woebegone dog she calls Winn-Dixie after the grocery store in which she found him? The movie, which raked in a respectable $13.2 million in its first weekend, has already given a lift to the novel of the same name by Kate DiCamillo, propelling it back onto children's best-seller lists around the country. And critics are giving the film thumbs up.

BITING NUMBERS. Yet all that hype may have come too late to help Jacksonville (Fla.)-based Winn-Dixie Stores, the supermarket chain that should be basking in the feel-good limelight of free national publicity, probably for the first time in its 90-year history. Instead, after years of unsuccessfully trying to fend off competition from behemoth Wal-Mart Stores (WMT), the grocer took protection from debtors under a Chapter 11 filing with the U.S. Bankruptcy court on Feb. 21.

The venerable chain had been struggling for some time. But its troubles escalated after it reported on Feb. 10 a loss of $399.7 million on sales that dropped nearly 5%, to $3.1 billion, in its most recent quarter ended Jan. 12. The loss figure amounts to five times more than the $79.5 million deficit in the same period last year. Soon after, Moody's and Standard & Poor's downgraded Winn-Dixie's debt, putting the company under a tight credit leash, reducing cash availability, and ultimately forcing it to declare bankruptcy.

"We intend to use this reorganization process to take the actions necessary to position Winn-Dixie for future success," says CEO Peter Lynch, who was hired from rival Albertsons (ABS) in December to turn Winn-Dixie around.

PROTAGONISTS NEEDED. Lynch, like the title character of the movie, may actually have a rescuer waiting in the wings. Winn-Dixie declined to comment on speculation that a private investment firm will take it out of bankruptcy. In the past, however, observers have wondered if the chain's savior will be the Davis Family, the descendants of the founders of Winn-Dixie Stores who collectively own 36.47% of its common stock.

E. Ellis Zahra, president of DDI Inc., an investment company for the Davis family, said in a release he supports the decision to file for bankruptcy. "We firmly believe this is the best option for the long-term health of Winn-Dixie," he said. Zahra didn't return a call seeking his comment on whether the Davis family is considering taking Winn-Dixie private.

Still, Winn-Dixie is a tough sell on Wall Street. Its shares last closed Friday at $1.47 on the New York Stock Exchange and didn't reopen after the filing.

Analysts from Prudential Securities and S&P, among others, have dropped coverage of the company. Winn-Dixie secured $800 million in credit from Wachovia Bank (WB) to help pay for its reorganization and said it will lower operating costs by terminating leases and selling assets. But Goldman Sachs analyst John Heinbockel isn't heartened. "We remain highly skeptical that these moves, encouraging as they are, will deliver an ultimate turnaround of the company," he says in a report.

TASTES "LIKE SORROW." And with Wal-Mart continuing to gobble up market share in the grocery business, prospects aren't good. For now, Winn-Dixie plans to keep open all 920 of its stores in eight states in the Southeast and in the Bahamas.

The movie may contain a clue to the grocer's prospects -- although not in the happy ending. The story of the canine Winn-Dixie takes place in Naomi, Fla., home of the now-defunct Litmus Lozenge Co. Its candy claimed to blend the sweet and the bitter, and taste "like sorrow." It's a slogan Winn-Dixie's 80,000 employees can relate to. Gogoi is a reporter for BusinessWeek Online in New York


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