Winn-Dixie Annual Meeting - November 9th

[JEast]

November 9th, 2011

If anyone has some point that they would like addressed, please advise and I will attempt to get clarification.
I will be attending this year's meeting.

Cheers
JEast

[beerbaron]

If you could get a breakdown of the sales per square foot of their complete remodels stores that would be great. Especially the Martgate one, which Publix is putting up a fight.

BeerBaron

[Parsad]

Ask them why they are spending so much on capital expenses for 2012, when their shares are languishing at 45% of book value?  Due they understand how equity, earnings and cash will all be accretive if they buy back shares at such prices using their operating cash flow, instead of blowing it on high levels of capital expenditures?  Cheers!

[beerbaron]

Can they explain why they are still using EBITDA as a valuation metric and why is the officers salaries tied to it?

Incentives that incorporates Depreciation into the picture would bring ROIC on the forefront of management.

BeerBaron

[JEast]

At today’s annual meeting, I had the opportunity to talk to the CEO Peter Lynch and two directors along with several company representatives.  As best I could tell and outside employees and directors, I was one of only two shareholders present.  (Read as little institutional interest)  The other shareholder was representing The Humane Society of the United States about the ethical treatment of farm animals.  (Nice guy as we chatted briefly)

On the Margate store  -  this store along with a few others is the reason for the new store remodel plans by the company.  Based on the performance of these stores after the remodel, the payback period is estimated at roughly 5-6 years.  The company is also going to open 15-17 new stores (not remodeled) based on this store design.

As for share buybacks, there are (3) three issues.

• Last year there was no interest from shareholders about any repurchases.  This however has now changed and there is more interest from the shareholder base.
  
• Credit covenants only allow about $33m in share buybacks per fiscal year, and I recall around $9m per quarter.  Hard to make a dent with such little firepower.
• Both the CEO and Directors are aware of the stock price and interest from the shareholder base to initiate a repurchase program.

Based on my observation, Winn Dixie is still pulling itself out of the hole due to years of under reinvestment at stores and talent.  The directors and management are attempting to make a shift change in the culture to build back the brand.  It is still early, but I will have to side with the management team for now as several initiatives appear to be working, but just have not flowed to the bottom line yet.  Winn Dixie is in a very difficult Florida market with the dominant player Publix running #1.  Not to mention that both Wal-mart and Target are competitors in the market place also. 

I am confident that a share repurchase program will be discussed at the upcoming board meeting along with subsequent meetings.  However and given the challenges, I suspect only a 55/45 chance in favor of a share buyback over the next 6 months.


Cheers
JEast

Disclosure: Long WINN

[ragnarisapirate]

• Credit covenants only allow about $33m in share buybacks per fiscal year, and I recall around $9m per quarter.  Hard to make a dent with such little firepower.

Hard to make a dent!? $33 million in repurchases is roughly 10% of the company at present prices... That's a pretty big number. Even if they drove up the share price by 100%, it would still be a decent return of capital.

[Parsad]

Thanks very much for the notes James!  I think that if they spent $30M a year in share buybacks when the stock is trading at half of book, it will make a significant dent over a few years...completely accretive.  Especially when you compare that to the ROIC from building new stores or remodelling old ones.  Cheers!

[JEast]

Maybe a little tough on my making a dent comment.  I am conditioned to strong management and directors that can buy back 20% of shares outstanding when available.  The roughly maximum of 2% of shares outstanding per quarter (depending on the share price) would make a dent, but only over time.

I stressed that there should be more of a balance of both cap ex and buybacks given the share price and ROIC opportunities available.  I would much prefer cap ex around 70-80m and not 120m with max share buybacks.  Irrespective, some positives are happening but which will take another 12-24 months.


Cheers
JEast

[Parsad]

Maybe a little tough on my making a dent comment.  I am conditioned to strong management and directors that can buy back 20% of shares outstanding when available.  The roughly maximum of 2% of shares outstanding per quarter (depending on the share price) would make a dent, but only over time.

I stressed that there should be more of a balance of both cap ex and buybacks given the share price and ROIC opportunities available.  I would much prefer cap ex around 70-80m and not 120m with max share buybacks.  Irrespective, some positives are happening but which will take another 12-24 months.


Cheers
JEast

Yeah, I think capex should be around 70-80m.  They are spending nearly $200m on store improvements in the next 12 months according to their last filing.  That is absurd with the stock trading where it is.  Can management tell us that $50m or even $75m of those expenses are going to generate anything remotely close to a near 50% accretive benefit from share buybacks? 

Just plain silly, and this is a grocery/retail management making that explanation, rather than a shareholder-friendly view that a value investor would provide.  This is unfortunately how most business people think.  Their belief is that share buybacks should either not occur at all, or they should occur at any price, rather than viewing share buybacks as exploiting market ineffciencies on occasion, where it would benefit the corporation as a whole.  Cheers!

[beerbaron]

Thanks JEast. I kinda tilt toward Parsad here buybacks would be good. The new remodels stores will bring profitability back but the ROIC will not be 20% like their target on the long term. Those new remodels stores have an expected life of what 7-9 years? So if they manage to remodels all their stores by 2016 then they have to start over again later. That is quite capital intensive! I think the CEO's incentive pay should be based on net earnings not on EBITDA. Get the ROIC to an acceptable level.

BeerBaron