beerbaron Posted February 18, 2011 Share Posted February 18, 2011 *This was written 1 month ago so some information has changed. Especially the new stores openings that will be delayed 3-6 months. Overview Winn-Dixie is a supermarket chain with about 500 stores in South-Eastern US. It’s average square foot per store is about 50 000 per store. In the last 3 years it remodeled 250 new stores an average cost around 1.5M$ each. They also have 3 new window supermarket that they renovated for 4M$. They recently closed 30 stores for a cost around 30M$ and annual savings of 12-17M$. Management has mentioned that they just developed a nice “home-run” concept tested in 3 stores that gives them similar returns to the best groceries in the concept. That mean a number around 430-465$ per square foot. These new store come at a high price tough, around 4M each. Balance sheet valuation Winn-Dixie emerged from Chapter 11 in 2006 as such, they have adopted fresh start accounting when they emerged. Usually the “Property Plant And Equipment” line on the balance sheet is not a very reliable number, but in fresh start accounting, those assets are appraised at fair value. An evaluation of the replacement value could be done using the following assumptions: -The new stores could be valued close to their balance sheet carried value since they were just rebuilt -The non-remodel stores were appraised just 4 years ago so they should also be carried around the same price The replacement value would therefore be north of the following calculation: Assets-Intangibles-Liabilities= 640M$ As a matter of comparison Albertson was sold at 2xBV and 20xEarnings in 2006. It would put Winn-Dixie at a conservative valuation for a takeover between 600M to 1.2B depending on which metric is used. Financial risk Winn-Dixie is debt free and has an outstanding credit agreement of 450M$. Since the company is free cash flow positive it is expected that it can sustain it’s operations in the foreseeable future. Income valuation Of course, we should not value a company like Winn-Dixie solely on the liquidation value but also it’s cash flows. Especially since it’s liquidation value would be a lot less if the cash flows are not there. The calculations are for 2012. Cap EX Since 2006 the company invested 640M$ in the renewal of their store and maintenance of equipment. My approximation of the breakdown is as followed: -270M$ Maintenance -370M$ Remodel As the remodels get rolled the maintenance Cap-Ex should drop further in the future. As a rule of thumb I accept management’s estimation of 80M Maintenance Cap-Ex for the foreseeable future. Revenues Revenues should be smaller in 2011 due to the store closures. Inflation in food as other commodities should also help revenues in the mean time. 2010 Sales were 7,24B$. New remodels and subtracting closed stores should bring us around 7.05B$. (Assumes new 17 stores are running around 430$/sq foot, rest of sales are flat) Margins Margins were incredibly stable at 28.5 in the last few years which would make the gross profit around 2B$ Expenses Expenses should be in the area 1.9B$ if you take into account the (12M$ + reduced headcount savings from closure of the 30 stores) Taxes Win-Dixie has 640M$ in NOL that they can use for at least the next 10 years. Therefore no taxes should be paid any time soon. Free Cash Flow Free Cash flow for Winn-Dixie should be Calculated as followed: Net Income-Maintenance CapEx+Depreciation = 120M$ Looking at operating cash flow should not be relevant since it is self insured. I also prefer to consider Stock options expense in my calculation as I consider it as real expense. Conclusion Winn-Dixie trades at a replacement value right now… like if people were going to stop buying food in the next year. It has yet to show the results of it’s transformation into profits but if the results of the new stores are as good as what management says this could be a huge change of perception in the market. It’s not going into chapter 7 and it might be a well executed turnaround story. It’s clearly an asymmetric risk/reward. Link to comment Share on other sites More sharing options...
claphands22 Posted February 19, 2011 Share Posted February 19, 2011 Hi Beerbaron, Thanks for the write up. I've been interested in the idea for a while. The transformational stores cost around $5M to build and don't have a Publix close by. I am worried they won't able to achieve 450 sales per square feet in competitive markets. I also don't know how important replacement cost is, because at an average 300 sales per square feet - I am not sure anyone would want to replace those assets. WINN is an interesting idea. There is a definitely a cheap call option like quality to it. Any significant increase in SSS would mostly likely have a dramatic increase in PPS. Yet, maybe WINN is just ineffectual player and won't ever see the SSS that everyone has been hoping for. Link to comment Share on other sites More sharing options...
beerbaron Posted February 19, 2011 Author Share Posted February 19, 2011 Hi Beerbaron, Thanks for the write up. I've been interested in the idea for a while. The transformational stores cost around $5M to build and don't have a Publix close by. I am worried they won't able to achieve 450 sales per square feet in competitive markets. I also don't know how important replacement cost is, because at an average 300 sales per square feet - I am not sure anyone would want to replace those assets. WINN is an interesting idea. There is a definitely a cheap call option like quality to it. Any significant increase in SSS would mostly likely have a dramatic increase in PPS. Yet, maybe WINN is just ineffectual player and won't ever see the SSS that everyone has been hoping for. Yeah the jury is still out on WINN. Management has given some very clear informations regarding their new stores. It seems they are running at 475$ per square feet. These are amazing numbers, if they can get similar results with the future one it will start to seriously show in their FCF, the analyst will start telling wonders about the turnover and we get a transformation to a growth stock. I feel the downside is not that bad, how low can asset trade to it's tangible value, to me 0.5x replacement value is a good proxy. Especially in the case of a grocery it's not like food is going away like newspapers are. Ah yes, I'm long WINN. BeerBaron Link to comment Share on other sites More sharing options...
turar Posted February 19, 2011 Share Posted February 19, 2011 How does it compare to SVU as an investment? Link to comment Share on other sites More sharing options...
beerbaron Posted February 19, 2011 Author Share Posted February 19, 2011 SVU is a totally different story the stock is thanked because of their high leverage. When I looked at SVU balance sheet it almost made me shiver as it could become a 0. I spent most of my research time comparing Publix VS WINN and what Publix has made to get all of Winn-Dixie's market in the last 15 years. And the recipe is quite simple, they had good food, good customer service, good locations and good stores. Now, there was two things WINN could have done to counter-act: 1- Become the low cost competitor 2- Increase their level of business to Publix level. Option 1 was tried first and well... they went into bankruptcy. Also, how do you want to be a low cost provider against Wal-Mart? Now they are implementing Option 2 and they proceeded exactly as I would have. When they emerged from Ch. 11 they quickly renovated 250 stores, the stores were not pristine even after renovation but it gave them a chance to slowly change the customer's perception. It's only once the customer's perception starts changing that you can bring in the super high quality stores to further improve the perception. Groceries are not complicated, all things being equal a customer will go to the closest location. Now they are working on making things equal. Regards P.S. Anybody had the chance to visit one of the following stores and comment. These are the list of the 475$ sq foot stores: Mobile, Alabama Covington's, Louisiana Margate, Florida Link to comment Share on other sites More sharing options...
claphands22 Posted February 19, 2011 Share Posted February 19, 2011 That 475 per square foot comes from a 5 million dollar remodel. That's hell-a-expensive. Also, I am highly skeptical they will be able to get those numbers in a more competitive markets. Yes, groceries aren't going the way of the newspapers, but how you sells groceries might. Just like how the Piggly Wiggly started the fire that torched all the ma-and-pa grocery shops (including Warren Buffett's dad), I think the low cost groceries from Target and Walmart are also causing a huge change in the industry. The survivors in similar square foot grocery stores have to appeal to the affluent customer. WINN has it's work cut out for them. For one, WINN is not a status grocery store, WINN = low class, whereas Publix = high class (similar to Target versus Walmart; but this works out for them) Also, the significant competitive advantage of Publix over WINN is their amazing customer service, which has a structural advantage since Publix pays above industry averages, does stock options and is employee owned. I highly doubt WINN will ever be able to compete with Publix in terms of shopping experience because of this structural disadvantage. Yet, WINN is stuck competing against Publix - if WINN had stores against Albertsons I wouldn't be so pessimistic. Yes, WINN has improved the shopping experience but Publix has the highest rating for customer satisfaction in the industry. The absolute level of customer service doesn't matter as move as the relative difference. WINN also has to convince all the old customer who where supplied with a horrible shopping experience for all those years, that they are no longer awful. Check out yelp.com for store reviews. WINN and SVU are two different animals that happened to live at the same zoo. If only WINN had SVU's sales per square feet, and SVU had WINN's balance sheet....lol. They both have a huge amount of possible PPS appreciation but in different ways. SVU just based on the leverage and WINN based on rock bottom sales per square feet. I've read some good SVU articles on seekingalpha Link to comment Share on other sites More sharing options...
beerbaron Posted February 19, 2011 Author Share Posted February 19, 2011 That 475 per square foot comes from a 5 million dollar remodel. That's hell-a-expensive. Also, I am highly skeptical they will be able to get those numbers in a more competitive markets. I totally agree, I used 430 for my calculations as an adjustment for competition. Do the calculation on the ROI tough. @475$ Revenues = 50 000 * 475$ = 23.75M Gross Profit = 23.75M * 0.285 = 6.75M Operating Expenses = 4M CF/Store = 2.75M @430 (more realistic on the long term) Revenues = 50 000 * 475$ = 21.55M Gross Profit = 23.75M * 0.285 = 6.1M Operating Expenses = 4M CF/Store = 2.1M Yes, groceries aren't going the way of the newspapers, but how you sells groceries might. Just like how the Piggly Wiggly started the fire that torched all the ma-and-pa grocery shops (including Warren Buffett's dad), I think the low cost groceries from Target and Walmart are also causing a huge change in the industry. The survivors in similar square foot grocery stores have to appeal to the affluent customer. WINN has it's work cut out for them. For one, WINN is not a status grocery store, WINN = low class, whereas Publix = high class (similar to Target versus Walmart; but this works out for them) Also, the significant competitive advantage of Publix over WINN is their amazing customer service, which has a structural advantage since Publix pays above industry averages, does stock options and is employee owned. I highly doubt WINN will ever be able to compete with Publix in terms of shopping experience because of this structural disadvantage. Yet, WINN is stuck competing against Publix - if WINN had stores against Albertsons I wouldn't be so pessimistic. Yes, WINN has improved the shopping experience but Publix has the highest rating for customer satisfaction in the industry. The absolute level of customer service doesn't matter as move as the relative difference. WINN also has to convince all the old customer who where supplied with a horrible shopping experience for all those years, that they are no longer awful. Yep, customer satisfaction is one of the key point of the turnaroud. I had a hard time evaluating it in different locations (old stores/remodels/High upgrade). I don't really agree with Publix structural advantage. I live in Canada and close to my home, there is a Provigo and an IGA, both are public corporations yet IGA has a customer service 10x the Provigo. I believe it's an enterprise culture. Not something easy to change I agree. Check out yelp.com for store reviews. Thanks, there are no comments on the 3 stores I mentioned. Which is a good thing...I guess. WINN and SVU are two different animals that happened to live at the same zoo. If only WINN had SVU's sales per square feet, and SVU had WINN's balance sheet....lol. They both have a huge amount of possible PPS appreciation but in different ways. SVU just based on the leverage and WINN based on rock bottom sales per square feet. I've read some good SVU articles on seekingalpha Yeah I see it as a turnaroud asymetric risk/reward. Worst come to worst, I lose 30% with the stock trading below 300M mkt cap best case I win 2-3 my bet. Thanks for the comments, very insightfull. BeerBaron Link to comment Share on other sites More sharing options...
BSB Posted February 22, 2011 Share Posted February 22, 2011 Can you shed any light on Leucadia's interest in WINN? Link to comment Share on other sites More sharing options...
beerbaron Posted February 22, 2011 Author Share Posted February 22, 2011 I did not know Leucadia was checking WINN, thanks for flagging it. From what I see they only have 16 000 shares which seems to me like they are putting it on their watch list. It's nice to have some good company tough. I tough about it a little more. I think Leucadia's shares are probably related to the bankruptcy. WINN issued some share to finally settle the bankruptcy last year. Regards BeerBaron Link to comment Share on other sites More sharing options...
claphands22 Posted May 12, 2011 Share Posted May 12, 2011 nutty rise today on no news. are you still in this beerbaron? looking forward to the results on monday Link to comment Share on other sites More sharing options...
Parsad Posted May 12, 2011 Share Posted May 12, 2011 We've been selling today. We bought in at $6.20 a little while ago. In the right hands, this could be something, but I'm not sure somebody will step in. I'll take a nice pop when I can get it. Cheers! Link to comment Share on other sites More sharing options...
beerbaron Posted May 12, 2011 Author Share Posted May 12, 2011 I haven't been selling yet as I have an intrinsic value between 10$ to 14$ in a 18-24 month range. There was no new material information on this company but about 1 week ago they participated in an investor conference and gave a presentation. This seemed like a trigger point as the stock began to move the next day. Nothing specific was said tough... Great minds think alike Parsad, I've bough mine at 6.24$ 6 months ago. You'reprobably smarter tough because you've taken your chips off the table! BeerBaron Link to comment Share on other sites More sharing options...
Parsad Posted May 13, 2011 Share Posted May 13, 2011 Well, we generally sell early unfortunately. I'm sure you will walk away with more by being more patient, but we average in and we average out. In WINN's case, we started buying when it was down already, and it never went down much further. I think if it was run well, it should trade around $10-11...near book. I'm concerned about management, thus we aren't quite as patient. It was just dirt cheap and had great cash flows, so we bought when it had been beaten up badly. All the company needs is to spend less on renovations and capital expenditures, and put the rest back into share buybacks or a dividend. At least until the stock is near book, and then they should just redistribute whatever capital is in excess of normal operating expenditures. Unfortunately, you've got a CEO who thinks he can turn it into the next Albertson's in their heyday, but the market is very different and there is much more competition these days at various pricepoints and in various forms. Their competition isn't just Safeway, Publix, Kroger and Walmart, but Target, Kmart, Whole Foods, you name it. They have a niche, they should protect it with quality service, low prices and focus on the customer experience, while running it as lean as possible. The business will die over time, and all they can really do is keep it afloat as long as possible, and distribute cash out to shareholders through buybacks or dividends. But they can prolong that timeframe by doing the little things right. Blowing wads of cash into more renovations is just a losing proposition, as the return on capital won't be adequate. Same thing Sears should have done right from the get go. Eddie should have sold alot of the retail space when prices were good and redeployed those assets. Instead, he held on to them and the commercial market turned, while the underperforming stores continued killing the well-performing stores. Cheers! Link to comment Share on other sites More sharing options...
claphands22 Posted May 13, 2011 Share Posted May 13, 2011 The investor conference, that makes sense. Parsad, we share similar thoughts on WINN's management..too much emphasis on turning around the company, and not enough emphasis on returning capital to the shareholders. Since both of you follow this company...I'd like to share some of my anger for Peter making it seem Dan Portnoy was leaving because of family reasons, as if he had quit on his own...THEN, they give him a hefty severance package (http://www.sec.gov/Archives/edgar/data/107681/000119312511053307/dex101.htm) as if he was fired. Now, what this says to me is, Peter isn't being very straight forward with what's really going on with this company. He is polishing some turds. Did any of you guys catch this or am I making a sloppy conclusions? Link to comment Share on other sites More sharing options...
Parsad Posted May 13, 2011 Share Posted May 13, 2011 I'm not sure exactly what transpired there, but these guys have no idea what equitable compensation is. It's the main reason I never touched the stock when it fell below book. It had to fall to 60% of book for me to say, ok now I can consider this business because there are idiots in charge and I need a really significant margin of safety. How can you screw up a company that generates so much free cash, has no debt and you've just finished renovating 75% of the stores...and you've still got a ton of cash on hand? Well, you can go and continue to renovate, even through the incremental benefit from remodelling those stores will be far less than the capital expense. Thank God they came to their temporary senses in the last six months, and decided to slow down the remaining remodelling. This is a simple business in a cut-throat industry, but they have huge advantages over their competitors since coming out of bankruptcy with a clean balance sheet. This was not the way this business should have gone. Hopefully, somebody can ram some sense into management, or step in and takeover, but I'm not betting on it...thus the profit-taking as it goes up. Cheers! Link to comment Share on other sites More sharing options...
claphands22 Posted May 13, 2011 Share Posted May 13, 2011 I don't think they slowed down capex temporarily because they came to their senses, they said they slowed capex down in order to get permits for the renovations. Yet, they clearly aren't trying to grow their empire at any costs w/ their 30 something store closures last year. But yeah, I agree, I wish they weren't investing so much in the stores. George Schultze has been pounding the table about their capital spending & not returning money to the shareholders (http://www.jaxdailyrecord.com/showstory.php?Story_id=532287) Anyhow, I am still holding on to my position at this price. I agree with Beerbaron, IV is around 12 and the current cash opex & balance sheet gives it downside protection, and possibly much higher if they can increase their sales per square feet to an industry average...yet not a bad idea on selling on yesterday's pop. Link to comment Share on other sites More sharing options...
Parsad Posted May 16, 2011 Share Posted May 16, 2011 Good quarterly results by WINN. Primarily by reducing capital expenditures. As I mentioned in a previous post, the business' cash flows are terrific...they just need to redeploy it to where it provides a better return on capital. They should be buying back shares until the stock is at 90% of book! Cheers! http://finance.yahoo.com/news/WinnDixie-Stores-Reports-bw-983970281.html?x=0&.v=1 Link to comment Share on other sites More sharing options...
beerbaron Posted May 16, 2011 Author Share Posted May 16, 2011 I'm pretty happy about the results, they are not bleeding market share any more which is great. Their press release talked about the renovated stores lifting the SSS... hopefully we can get some updates on their 5M$ stores. Once this company is done patching holes it should generate a real net income top of 100M$ which would value it at 1B$. Problem is that at 5M$ a store it would take years to upgrade their remaining stores. BeerBaron Link to comment Share on other sites More sharing options...
claphands22 Posted May 17, 2011 Share Posted May 17, 2011 from the press release Identical store sales, which exclude stores that opened or closed during the quarter, decreased 0.5% for the third quarter compared to the prior year period. The decline in identical store sales was attributable to a decrease in transaction count of 1.7%, which was mitigated by a 1.3% increase in basket size. Identical store sales were negatively impacted this quarter by competitive activity and other market factors, which were partially offset by inflationary price increases that were passed through in selected categories, an increase in sales in remodeled stores, and favorable results from the Company's computer generated ordering and fuelperks!® Rewards initiatives. Still seeing same store sales decline year over year. I'd rather have an increase in transaction count than basket size, since transaction count tells me more people are shopping at the stores and WINN is being more competitive. Although the increase in basket size & decrease in transaction could just be a manifestation of high gas prices where shoppers are choosing to be more efficient with their gasoline-miles. The press release makes me think it's a combination of high gas prices & competition, looking forward to the conference call. Still cheap based on #'s and possible upside if SSS could ever increase. PPS 7.34 Cash per share 3.12 PP&E per share 11.9 Book value per share 15.35 100M ebitda per share 1.79 100M depreciation (taken for capex, although from reason I think management said 70M) per share 1.79 Link to comment Share on other sites More sharing options...
Parsad Posted May 18, 2011 Share Posted May 18, 2011 Closed at $8.88 today! We are completely out now. Cheers! Link to comment Share on other sites More sharing options...
twacowfca Posted May 19, 2011 Share Posted May 19, 2011 Closed at $8.88 today! We are completely out now. Cheers! That's definitely a WINN! ;) Link to comment Share on other sites More sharing options...
beerbaron Posted May 19, 2011 Author Share Posted May 19, 2011 Sold all my position in WINN today at around 9.00$ . The market is getting ahead of itself. Regards BeerBaron Link to comment Share on other sites More sharing options...
Kraven Posted May 19, 2011 Share Posted May 19, 2011 I might be reading a different report than others, but thought that their quarterly results were just ok. Definitely a big improvement over the same quarter last year, but nothing fantastic. Cash pile up due in part to slowing their capex down. Of course, all the remodels and such are the "key" (according to them) of their resurgence. I think I agree that the market has gotten ahead of itself here on this one. I agree with Sanjeev's earlier posts to the effect that they essentially need to decide who they are. If they are going to try and make a go of it, put the money in, don't slow down. Otherwise, go into run off and return the cash for as long as they can. Trying to half ass it isn't going to work on this one. Link to comment Share on other sites More sharing options...
claphands22 Posted August 18, 2011 Share Posted August 18, 2011 WINN just printed 6.35. It's looking purty again. Link to comment Share on other sites More sharing options...
Parsad Posted August 18, 2011 Share Posted August 18, 2011 WINN just printed 6.35. It's looking purty again. We've been buying...it does look "purty" again! Cheers! Link to comment Share on other sites More sharing options...
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