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    Q4 Profits Expected to Plunge at Winn-Dixie

    In preliminary results, the chain said aggressive promotions walloped margins and drained the bottom line beyond expectations.

    Winn-Dixie Stores Inc. said yesterday it anticipates reporting a net loss of about $5 million for the fourth quarter of fiscal 2008, and gross margins of 26.9 percent, a decrease of 100 basis points compared to the prior year period.

    The Jacksonville, Fla.-based chain said in a release of preliminary financial results for the fiscal year and fourth quarter ended June 25, 2008 that it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to be approximately $101 million, an increase of approximately 57 percent compared to $64.5 million in the prior year.

    But its comparatively dismal adjusted performance for the fourth quarter was due primarily to an increase in promotional activity and higher LIFO charges, offset by other items, the company states.

    "Overall, Winn-Dixie had a strong year, with year-over-year increases in sales, gross margin and Adjusted EBITDA, and we made significant progress with the company's strategic initiatives, which gives us a stronger foundation and added confidence as we head in to fiscal 2009," said Peter Lynch, chairman, president and c.e.o. "However, our fourth quarter profits came in well below our expectations and are not indicative of what we believe Winn-Dixie can deliver."

    Lynch said promotional activity was the culprit. "As consumers modified their spending behavior in response to higher oil and food prices, we invested in more promotional programs in order to attract and retain customers," he said. "We reached out aggressively with programs like 'Stretch Your Check' and '10 for $10', which are designed to attract value-oriented consumers. Although we grew sales during the fourth quarter, our promotional activity had a negative impact on both gross margin and Adjusted EBITDA, causing us to fall below our earnings guidance range for the year."

    For the fourth quarter, identical store sales increased by 0.6 percent. Identical store sales were positively impacted by food inflation, partially offset by the timing of the Easter holiday, which negatively influenced the fourth quarter by approximately 90 basis points, the continued mix shift in pharmacy sales from branded drugs to generic drugs, which had a negative impact of approximately 110 basis points for the quarter, and competitive factors.

    For the year, identical store sales increased 0.9 percent. Food inflation, partially offset by competitive factors positively affected store sales, the company said. However, a shift in pharmacy sales from branded drugs to generic dragged down identical store sales by approximately 90 basis points for the year.

    Gross margin is projected to be 27.2 percent, an increase of 30 basis points compared to the prior year. Net income for fiscal 2008 is projected to be approximately $13 million, or $0.25 per share.

    For fiscal 2009, the Company expects adjusted earnings in the range of $110 million to $125 million, based on, among other things, its expectation that identical store sales will increase by approximately 1.0 percent to 1.5 percent as compared to fiscal 2008, and that gross margin in fiscal 2009 will be slightly higher than gross margin in fiscal 2008.

    "Despite the current economic climate, looking ahead, we see near-term opportunities to improve profitability by focusing on growing profitable sales and keeping a tight control on operating expenses," Lynch said. "We have already moderated our promotional spending in the first few weeks of the new fiscal year and are pleased with the early results. In the longer term, we are pursuing sustainable sales growth through initiatives such as our store remodel and corporate brands programs and our neighborhood marketing strategy."

    Winn-Dixie will report actual results for the fourth quarter and fiscal year on August 25, 2008. It operates 521 stores including more than 400 in-store pharmacies in Florida, Alabama, Louisiana, Georgia, and Mississippi.

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