US retailer Winn-Dixie Stores today (10 November) faced public calls from investors to return cash to shareholders rather than spend money on remodelling its stores.
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Schultze Asset Management, an advisor to shareholders that own a combine 1.5% of Winn-Dixie, claimed that the retailer was an “undervalued and underleveraged” business.
In a letter to Winn-Dixie president, CEO and chairman Peter Lynch, Schultze Asset Management managing member George Schultze suggested that the retailer’s work to remodel stores had not led to greater value for shareholders.
“The company has already remodeled 170 stores but Winn-Dixie’s share price is at nearly the same level as its IPO price in November 2006,” Schultze wrote.
Schultze claimed that Winn-Dixie’s management told investors last month that the write-down of two recently remodelled stores had cost the business US$3.5m.
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By GlobalData“It does not make sense to invest more of our company’s money in remodeling stores only for such stores to become valuation-impaired right after we make the multi-million dollar investment,” he said.
Two weeks ago, Winn-Dixie highlighted stabilising traffic numbers despite lowering its annual guidance on falling sales and profits.
The company saw net sales dip 2% to US$1.6bn for the three months to 16 September. Identical-store sales fell 1.5%.
The slide in turnover and fall in identical-store sales contributed to widening net losses at Winn-Dixie.
Schultze went on to claim that Winn-Dixie’s EBITDA margin was below the average seen throughout the sector.
“The company’s EBITDA margin – for the last 12 months ended September 30, 2009 – of only 2% of sales is well below its peer group average of 5.9%,” Schultze said.
“This clearly demonstrates that shareholders would be better served if management reduced corporate overhead and other expenses to bring the company’s operating cost structure more in line with that of its peers.
“This strategic approach of reducing overhead and other corporate expenses, rather than spending shareholder money in remodeling stores that become valuation-impaired right after the investment, is much more likely to yield increased shareholder value for our company.”
