Jacksonville, Fla.-based Winn-Dixie Stores Inc., the venerable Southern grocery retainler, announced early Tuesday that it had filed a chapter 11 case in New York City. The company operates 920 stores and employs about 80,000 workers in eight states and the Bahamas.
Winn-Dixie is one of the largest food retailers in the U.S., but the company reported earlier this month that it had posted a loss of almost $400 million for its most recent fiscal quarter on revenue of just above $3 billion. This result compared with an $80 million loss on almost $3.25 billion in revenue for the year earlier period. Lower revenues combined with considerably higher losses is usually a sign that that it’s high time to reorganize.
As is typical in such big retail reorganizations, the main purpose of the chapter 11 is to reject the leases on about 150 stores that were the result of an ill-timed expansion effort. The company projects that those closings, along with the termination of leases on a couple of warehouses, will result in annual cash savings of at least $60 million. The company has also obtained an $800 million DIP (i.e., “debtor-in-possession”) credit facility from Wachovia Bank N.A. to fund its operations during the chapter 11 case.
In early December, Winn-Dixie had the dubious distinction of being dropped from the Standard & Poor’s 500 index after recording the worst performance in 2003 in the select stock index. Consequently, the company’s management has its work cut out for it in this reorganization. Absent a white knight appearing to buy the company at a premium — which is highly unlikely in the brutally competitive retail grocery business — look for a debt-to-equity reorganization plan that will carve out a healthy piece of new equity to incentivize a new management team to turn Winn-Dixie around.