Winn-Dixie CEO: Supermarket Pricing Rational, No Price War

Winn-Dixie Stores Inc. (WINN) sees rational pricing strategies among its competitors and dismissed the notion of cutthroat "pricing wars" among supermarkets, at least in the South.

"I don't see anyone doing anything that's crazy out there," Chairman and Chief Executive Peter Lynch told investors on an earnings call Tuesday. "While some people are talking about price wars, I clearly don't see it. I see rational markets out there."

Holding off on slashing prices showed up in Winn-Dixie's bottom line, where margins improved in its fiscal third quarter, in contrast to other large supermarkets like Safeway Inc. (SWY) whose margins are suffering as they cut prices. It also helped keep identical-store sales in positive territory, up 0.2% in the quarter and 1.2% when adjusted for the Easter shift.

"We have restored a more appropriate balance between sales and margins," Lynch said.

Winn-Dixie's strategy contributed to a 10% increase in earnings, as Winn-Dixie topped analyst expectations and raised its outlook for the year when it reported late Monday. Shares rose 17% in recent trading to $13.42.

Some on Wall Street question whether the company may lose out on value-seeking customers, especially given more competition from Wal-Mart Stores Inc.'s (WMT) grocery business in the South. Kroger Co. (KR) has also thrived from offering low prices.

"We do not view this as a winning strategy given head-to-head competition with Wal-Mart and the need to improve the efficiency of its assets through higher sales per square foot," Jefferies & Co. analyst Scott Mushkin noted.

Winn-Dixie, which operates 520 grocery stores in the South, is also getting a lift in both traffic and the amount customers spend per transaction as it continues to remodel its store base, a key part of its rebuilding effort.

Private-label sales, which carry a higher profit margin, are also gaining share, boosting penetration 1.1 percentage points to 21.8%.

The company also sees 16 stores directly benefiting from the bankruptcy of Birmingham, Ala.-based Bruno's Supermarkets LLC, which is liquidating 25 locations.

-By Paul Ziobro, Dow Jones Newswires; 201-938-2046; [e-mail]