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United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2004

OR

For the transition period from              to             

Commission File Number 1-3657

WINN-DIXIE STORES, INC.

(Exact name of registrant as specified in its charter)

(904) 783-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)    Yes  x    No  ¨.

The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the closing sale price of common stock on January 7, 2004, as reported on the New York Stock Exchange, was approximately $850,446,571.

As of August 20, 2004, the registrant had outstanding 142,043,551 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

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WINN DIXIE STORES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2004

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PART I

Unless specified to the contrary, all information reported in Part I of this Annual Report on Form 10-K is as of June 30, 2004, which was the end of our most recently completed fiscal year.

ITEM 1: BUSINESS

GENERAL

Winn-Dixie Stores, Inc. and its subsidiaries (which may be referred to as “we,” “us” or “our Company”) is a food and drug retailer operating in the southeastern United States and the Bahama Islands. We operate primarily under the “Winn-Dixie” and “Winn-Dixie Marketplace” banners. According to published reports, we are the eighth largest food retailer in the United States and one of the largest in the Southeast, based on revenues.

We have determined that our operations are within one reportable segment. Accordingly, financial information on segments is not provided.

CORE RETAIL MARKETS

Store Operations

Substantially all of our stores offer grocery, meat, seafood, produce, deli, bakery, floral, health and beauty and other general merchandise items. We offer national brands as well as our own private label products. Most of our stores include a pharmacy. Many stores offer photo labs and other special service departments. We have 59 liquor stores and 27 fuel centers in our core retail markets, as defined below.

As detailed in our asset rationalization plan which was approved by the Board of Directors and announced in April 2004 and discussed below, we are currently in the process of exiting either by sale or closure stores located in market areas we have designated as non-core. Those stores remaining are denoted as core. We also identified a number of underperforming stores within areas identified as core markets which will also close under the plan. The references to “core” and “non-core” throughout this document refer to these terms as detailed in the asset rationalization plan.

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The following chart identifies each of our core markets by state and designated marketing area (DMA^®), the number of stores operating in each DMA and the banners under which they operate. It also gives the count of stores in non-core market areas. We operate grocery warehouse stores under the “SaveRite” banner and most of our Bahama stores under the “City Markets” banner.

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The following chart provides selected information relating to our retail store base for the last five fiscal years:

Beginning in fiscal 2004, a remodel is defined as a major project with costs ranging from $750,000 to $2.5 million. The 331 image makeovers completed in fiscal 2004 were at a cost of approximately $50,000 to $250,000 each. Prior to fiscal 2004, projects of the scale of an image makeover were generally included as remodels and are reflected as such in the above table for fiscal years 2003 and earlier.

Merchandising

We offer national brands as well as our own private label products. These products are delivered through our distribution centers or directly from manufacturers and wholesalers.

Our merchandising strategy is to improve our perishable product offerings and merchandising programs, particularly in our delis and bakeries, and to enhance product assortment throughout the store by focusing on the specific needs of the customers in the neighborhood of each store. We are testing our efforts in this regard in our lead market of 92 stores in the Miami-Ft. Lauderdale DMA, as described below.

An important aspect of our merchandising efforts is our private label product line. We have developed a line of over 3,000 private label products. We are in the process of consolidating the number of brands under which these products are marketed to four primary names: Winn-Dixie Prestige, Winn-Dixie, Thrifty Maid and Chek. The Winn-Dixie Prestige line of products includes a limited number of specialty items such as premium ice creams. Our Winn-Dixie line of products includes dairy, pasta, cereal, snacks, and peanut butter, as well as other quality products. The Thrifty Maid line of products includes canned fruits and vegetables. The Chek line of products consists of carbonated beverages.

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Marketing

We use most forms of mass media and selected forms of highly targeted media for our retail advertising. We also incorporate major sponsorships into our marketing plan, such as the Jacksonville Jaguars, the Tampa Bay Buccaneers and the Super Bowl. Marketing campaigns are executed on both a regional and local basis and are often tailored to individual markets and customer demographics.

Strategic Initiatives

We are developing and pursuing five strategic initiatives announced during fiscal 2004. These initiatives are asset rationalization, expense reductions and three brand-related initiatives: customer service programs, image makeovers, and brand positioning.

Asset Rationalization

During the third quarter, we conducted a thorough market-by-market review of our operations, in which we classified each DMA as core or non-core based on an evaluation that examined market size, competitive considerations, demographic trends, and potential for growth. In evaluating our store base at that time, we considered many key factors, including market share, profitability, real estate quality, potential exit costs and other financial factors. The purpose of this initiative is to identify and refocus on the core markets that present our Company with the best opportunities for success, and to pinpoint and exit the non-core markets in which we have a low market share and limited opportunities to gain share. Core markets are generally where we maintain a 1^st, 2^nd or 3^rd market share position, or where we believe there may be future strategic opportunities to become a market leader. Non-core markets represent areas where we have limited opportunities to gain market share or are unprofitable in the aggregate.

On April 23, 2004, the Company’s Board of Directors approved a plan under which Winn-Dixie is focusing on a core base of stores across 36 DMAs and the Bahamas. Under the plan, the Company will exit a total of 156 stores, 111 of which are in 16 non-core DMAs and 45 of which are under-performing stores within core DMAs. During the fourth quarter, we began to exit these stores through sale or closure. As of August 1, 2004, we had completed the sale of nine and the closure of 23 of the identified locations.

In addition, as part of the asset rationalization plan, we are exiting three of our 14 distribution centers located in Louisville, Kentucky; Clayton, North Carolina; and Sarasota, Florida. As of August 1, 2004, we had ceased operations at two of the distribution centers.

We also designated our manufacturing operations as non-core and are pursuing the sale of our Dixie Packers, Crackin’ Good Bakers, Crackin’ Good Snacks, and Montgomery Pizza operations. As of August 1, 2004, the Miami Dairy operation was consolidated into other dairies and the Greenville Ice Cream operation was in the process of being consolidated. We expect to complete these sales or exit these facilities by April 2005.

Following the asset rationalization process, our operating area will include Florida, Alabama, Louisiana, Georgia, and certain areas of North Carolina, South Carolina, Mississippi, Tennessee, Virginia and the Bahamas.

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Brand-Related Initiatives

We are pursuing three strategic brand-related initiatives aimed at positioning Winn-Dixie as a neighborhood grocer competing on a combination of convenience, quality and price. These initiatives include: (1) improving our in-store customer service, (2) an image makeover program for our stores, and (3) improving our brand positioning. We are implementing, testing and refining the new initiatives in our lead market of 92 stores in the Miami-Ft. Lauderdale DMA. Our lead market program is designed to test and refine our new approach and measure its impact on a smaller scale before moving forward with the program throughout our core markets.

We are introducing into our lead market stores new product offerings and merchandising programs to enhance our perishables offerings, focusing in particular on our delis and bakeries. We also recognize the need to improve our store operating model to consistently deliver a higher quality customer shopping experience and personal, friendly service across all stores. We are testing these new offerings and merchandising, as well as new training, recruiting and performance management initiatives in our lead market.

In fiscal 2004, we launched an image makeover program to improve lighting, install produce bins, paint store interiors / exteriors and replace outside signage. We have now modified our image makeover program in the lead market to complement our other initiatives. Our lead market image makeover program also enhances the décor in the bakery and deli departments, adds registers in these departments, installs or upgrades self check out services and incorporates additional enhancements throughout the store. We anticipate that in fiscal 2005 our image makeover activities will be focused primarily in the lead market.

The first eight stores to contain the elements of our branding initiative in the lead market were completed on July 22, 2004. We anticipate that all stores in our lead market will include these new programs and offerings by March 2005. Given the size of the lead market and the implementation schedule, we do not anticipate recognizing any material financial benefit from this initiative in fiscal 2005.

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Information Technology

We invest in technology and information systems to support our business. During 2004, we continued our investment in a new buying and billing system and labor management and scheduling systems, which are substantially complete. We also continued our investment in an inventory management and pricing system, our enterprise data warehouse and our Customer Reward Card program.

In 2004, we fully equipped our truck fleet with onboard computers that use a Global Positioning System to provide direct communication with drivers. This technology allows us to effectively route store deliveries while closely monitoring truck mileage and expenses.

We continue to use several online programs that enhance customer service, such as our online pharmacy program for customers to access the Winn-Dixie pharmacy services, and Party ONline, an online ordering service to assist customers with planning holiday parties. Our Web site also features fresh flowers from FTD, the world’s largest floral company.

Distribution

In connection with our asset rationalization plan, we identified three of our 14 distribution facilities to be sold and/or closed. These facilities are located in Louisville, Kentucky; Clayton, North Carolina; and Sarasota, Florida. As of August 1, 2004 we have closed the Clayton and Sarasota facilities. Our remaining network of regional distribution centers will serve our core retail markets.

Upon completion of the asset rationalization plan, we will operate 11 distribution centers (10 in the United States and one in the Bahamas) which collectively provide the majority of all products to our stores.

Manufacturing

In connection with our asset rationalization plan, we undertook a comprehensive review of our manufacturing operations and determined that these operations are not fundamental to our core business of operating supermarkets. Products currently manufactured in facilities listed as part of the 2004 Restructure in the following chart will be purchased from third parties subsequent to closure.

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The following table reflects our manufacturing operations, including those detailed in our asset rationalization plan:

Employees

We employ approximately 89,000 associates, of whom approximately 36,000 are employed on a full-time basis and 53,000 on a part-time basis. We consider our employee relations to be good.

None of our U.S. employees are covered by a collective bargaining agreement. We have a collective bargaining agreement in place covering nine of our Bahamas stores representing approximately 345 employees.

Trademarks

We actively enforce and defend our rights in our intellectual property portfolio, which is an important asset. In addition to the Winn-Dixie and SaveRite trademarks, we own approximately 65 other trademarks which are registered or pending as applications in the United States Patent and Trademark Office.

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Suppliers and Raw Materials Sources

We receive the products we sell in our stores and the raw materials we use in our manufacturing operations from a number of sources. In general, we are not dependent on a single or relatively few suppliers. We believe that our products and raw materials generally are available in sufficient supply to adequately meet customer demand.

Environmental Matters

We are subject to federal, state and local environmental laws that apply to property ownership, property development and store operations. We may be subject to certain environmental regulations regardless of whether we lease or own stores or land or whether environmental conditions were created by us, the owner or a prior tenant.

We believe that compliance with federal, state and local environmental laws and regulations has not had a material effect on our capital expenditures, earnings or competitive position. We are not aware of any environmental condition at any of our properties that could be considered material. However, it is possible that the environmental investigations of our properties might not have revealed all potential environmental liabilities or might have underestimated any potential environmental issues. It is also possible that future environmental laws and regulations or new interpretations of existing environmental laws will impose material environmental liabilities on us or that current environmental conditions of properties that we own or operate will be affected adversely by hazardous substances associated with other nearby properties or the actions of unrelated third parties. The costs of defending any future environmental claims, performing any future environmental remediation, satisfying any environmental liabilities, or responding to changed environmental conditions could materially adversely affect our financial condition and operating results.

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Government Regulation

We are subject to regulation by a number of federal, state and local government agencies. Our stores also are subject to laws regarding zoning, land use, pharmacy operations and alcoholic beverage sales, among others. We believe that we are in material compliance with these laws and regulations.

Competition

We generally compete based on location, product quality, service, price, convenience, product variety and store condition. The number and type of competitors vary by location and competitive position varies according to individual operating markets.

The supermarket industry is highly competitive and generally characterized by high inventory turnover and narrow profit margins. We compete directly with national, regional and local supermarket chains, and independent supermarkets. We also compete with supercenters and other non-traditional grocery retailers such as dollar discount stores, drug stores, convenience stores, warehouse club stores and conventional department stores. Beyond grocery retailers, we also face competition from restaurants and fast food chains due to the increasing trend of consumers purchasing and consuming food away from home.

Seasonality

Due to the influx of winter residents to the Sunbelt, particularly to Florida, and increased purchases of food items for the Thanksgiving and Christmas holiday seasons, we usually experience an increase in sales during the months of November to April each year.

Working Capital

At year-end 2004, working capital was composed of $1.4 billion of current assets and $0.9 billion of current liabilities. Normal operating fluctuations in these substantial balances can result in changes to cash flow from operations presented in the consolidated statement of cash flows that are not necessarily indicative of long-term operating trends. There are no unusual industry practices or requirements relating to working capital items.

Additional Information

We were created as a Florida corporation in 1928. Our headquarters is located at 5050 Edgewood Court, Jacksonville, Florida 32254-3699. Our telephone number is 904-783-5000.

Our Web site located at www.winn-dixie.com provides additional information about our Company. On our Web site you can obtain, free of charge, this and prior year Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and all of our other filings with the Securities and Exchange Commission. You can also obtain copies of all of our recent press releases. Our Web site also contains important information relating to our corporate governance practices, including our Code of Conduct, information on the members of our Board of Directors, our Governance Principles and our Committee Charters. Unless specifically incorporated herein, the information on our Web site is not part of this Annual Report on Form 10-K.

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ITEM 2: PROPERTIES

We conduct our retail operations primarily in leased properties. Each lease provides for a minimum annual rent and certain of these leases require additional rental payments to the extent sales volumes exceed specified amounts. We believe our retail properties are in adequate condition for their intended use.

We conduct our manufacturing and distribution operations in owned and leased facilities. We believe that these properties are in adequate condition for their intended use.

The following table reflects our owned and leased properties utilized in our operation.

We operate eight retail support offices, located at certain of our distribution centers. Our corporate headquarters are located in several leased properties in Jacksonville, Florida.

ITEM 3: LEGAL PROCEEDINGS

On February 3, 2004, a putative class action lawsuit was filed in the United States District Court for the Middle District of Florida against us and three of our present and former executive officers. This action purports to be brought on behalf of a class of purchasers of our common stock during the period from October 9, 2002, through and including January 29, 2004 (the “Class Period”). The complaint alleges claims under the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint generally alleges that, during the Class Period, the defendants made false and misleading statements regarding our marketing and competitive situation, self-insurance reserves, impairment of assets and other matters. The complaint seeks certification as a class action, unspecified compensatory damages, attorneys’ fees and costs, and other relief.

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Subsequently, several similar putative class actions were filed asserting substantially the same claims, and some of these claims name a fourth executive officer as a defendant. We expect that these various actions will be consolidated and will proceed as a single action. We believe that the claims are without merit and intend to defend ourselves vigorously.

On March 17, 2004, two other putative class action lawsuits were filed in the United States District Court for the Middle District of Florida against us, three of our present and former executive officers and certain employees who serve on the administrative committee that administers our Profit Sharing/401(k) Plan (the “Plan”). On April 22, 2004, another putative class action lawsuit was filed in the same court against the same defendants. The three complaints are nearly identical, and the actions likely will be consolidated and then proceed as a single action. The actions purport to be brought on behalf of a class consisting of the Plan and participants and beneficiaries under the Plan whose individual accounts held shares in the Winn-Dixie Stock Fund during the period from May 6, 2002, through and including January 29, 2004 (the “Class Period”). The complaints allege claims under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). More specifically, the complaints generally allege that, during the Class Period, the defendants breached their fiduciary duties to the Plan, its participants and its beneficiaries under ERISA by failing to exercise prudent discretion in deciding whether to sell Company stock to the Plan trustee for investment by the Plan, failing to provide timely, accurate and complete information to Plan participants, failing to adequately monitor and review Company stock performance as a prudent investment option, failing to manage Plan assets with reasonable care, skill, prudence and diligence and other matters. The complaints seek certification as a class action, a declaration that defendants violated fiduciary duties under ERISA, unspecified equitable and remedial damages, attorneys’ fees and costs, and other relief. We believe that the claims are without merit and intend to defend ourselves vigorously.

In addition, we are from time to time involved in various legal proceedings incidental to our business, the cost of which are either included in the self insurance or legal reserves or are expected to be covered by liability insurance. While no one can predict the ultimate outcome of any pending or threatened litigation, management believes that any resolution of these proceedings will not have a material adverse effect on our results of operations or financial condition.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange under the ticker symbol: WIN. The number of holders of record of our common stock as of June 30, 2004, was 36,868.

Covenants related to our outstanding $300.0 million 8.875% senior notes require maintaining a minimum fixed charge coverage ratio in order to incur additional indebtedness outside of the senior secured credit facility or to make dividend payments. Based on the four quarters ended June 30, 2004, we do not meet the minimum fixed charge coverage ratio of 2.25 to 1.0 and are not able to declare dividends until such time as the coverage ratio is met. On January 30, 2004, our Board of Directors suspended indefinitely the declaration of future quarterly dividends.

The following table shows quarterly high and low closing prices of our common stock and dividends for fiscal years 2003 and 2004:

We did not purchase any of our equity securities during the fourth quarter of fiscal 2004.

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ITEM 6: SELECTED FINANCIAL DATA

We derived selected financial data for fiscal 2004, 2003, and 2002 from our audited consolidated financial statements included elsewhere in this report. We derived financial data for fiscal 2001 and 2000 from previously issued audited financial statements. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this report. The data have been reclassified for discontinued operations and restructuring, as described in Note 17 of the consolidated financial statements.

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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements and statements of our business strategies, all of which are subject to certain risks. All of the information in this section should be read in conjunction with the information contained in “Forward Looking Statements” below.

Executive Overview

Identical sales from continuing operations, on a comparative 52 week basis, declined 6.0% for fiscal 2004 as compared to the previous year. The decline was caused primarily by (a) increased competition through competitive store openings, (b) the de-emphasis of certain limited aspects of our promotional program on advertised special offers and (c) price reductions as part of the implementation of our shelf–pricing program without a corresponding increase in tonnage. Other items that contributed to the decline were store conditions, inconsistent customer service, promotional activity in existing stores by traditional supermarket competitors and an increase in competition through other channels such as mass merchandisers, supercenters, warehouse club stores, dollar-discount stores and drug stores. Based on information available to us regarding competitor store opening plans, we expect the competitive store openings to continue to negatively impact our identical sales for the foreseeable future.

The gross margin was negatively impacted in the second quarter of fiscal 2004 by the introduction of our shelf-pricing program without reducing promotional programs. Approximately 50% of the decline in fiscal 2004 gross profit occurred in the second quarter. The gross margin improved by 130 basis points in the third quarter compared to the second quarter and 10 basis points in the fourth quarter compared to the third quarter. The improvement in gross margin was due primarily to (a) the de-emphasis of certain aspects of our promotional program on advertised special offers and (b) modifications in the third quarter to our shelf-pricing program, which increased pricing on certain items, while maintaining our focus on targeted core basket items.

Our net loss from continuing operations for fiscal 2004 was $50.8 million ($0.36 per diluted share) compared to net earnings of $236.1 million ($1.68 per diluted share) for fiscal 2003. The change is due to (a) sales decline, (b) a reduction in gross margin, and (c) asset impairment and restructuring charges.

We are developing and pursuing five strategic initiatives, announced during fiscal 2004, aimed at improving our competitive positioning and operating performance. These initiatives are (1) asset rationalization, (2) expense reductions, (3) brand positioning, (4) customer service, and (5) image makeovers. For a description of these initiatives, please see the “Strategic Initiatives” section contained in Item 1, above.

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Results of Operations

Fiscal year ended June 30, 2004 (“Fiscal 2004”) compared to Fiscal year ended June 25, 2003 (“Fiscal 2003”)

Continuing Operations

Net Sales. Net Sales for the 53 weeks ended June 30, 2004 were $10.6 billion, a decrease of $0.4 billion, or 3.6%, compared to the 52 weeks ended June 25, 2003.

Average store sales, which is an average for all continuing operating stores based on the number of weeks open during the fiscal year, decreased 5.7%. Identical store sales for continuing operations locations, which include enlargements and exclude the sales from stores that opened or closed during the period, decreased 6.0% for the year. Comparable store sales for continuing operations locations, which include replacement stores, decreased 5.9% for the year. Identical and comparable store sales comparisons are measured on a 52-week basis while the total sales comparison is based on 53 weeks in 2004 and 52 weeks in 2003.

The identical sales decline of 6.0% during the year was caused primarily by (a) increased competition through competitive store openings, (b) the de-emphasis of certain limited aspects of our promotional program on advertised special offers and (c) price reductions as part of the implementation of our shelf–pricing program without a corresponding increase in tonnage. Store conditions, inconsistent customer service, promotional activity in existing stores by traditional supermarket competitors and an increase in competition through other channels such as mass merchandisers, supercenters, warehouse club stores, dollar-discount stores and drug stores also contributed to the decline. Based on our projected store openings and information available to us regarding competitor store opening plans, we expect competitive store openings to continue to negatively impact our sales for the foreseeable future.

Gross Profit on Sales. Gross profit on sales decreased $319.5 million during the current year compared to fiscal 2003. As a percentage of sales, the gross margin for the current year and fiscal 2003 was 26.4% and 28.4%, respectively.

The gross margin for fiscal 2004 compared to fiscal 2003 was negatively impacted by several factors resulting in the overall decline of 200 basis points. The primary cause of the decline in gross profit for the year related to the implementation of price reductions associated with our shelf-price program during the second quarter of fiscal 2004 without reducing promotional programs. The de-emphasis of certain aspects of our promotional programs on advertised special offers and modifications in the third and fourth quarters of fiscal 2004 to our shelf-pricing program, which increased pricing on certain items while maintaining our focus on targeted core basket items, partially offset the overall decline. The gross margin improved by 130 basis points in the third quarter compared to the second quarter and 10 basis points in the fourth quarter compared to the third quarter. In addition, we experienced a decline in the current year compared to the previous year in product growth funds. These funds are based upon purchasing additional cases of vendors’ products. As sales have declined over the past seven quarters, the majority of these funds have not been available to us. As well, we have experienced an increase in inventory shrink.

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Other Operating and Administrative Expenses. Other operating and administrative expenses increased $12.8 million as compared to the prior year. As a percentage of sales, other operating and administrative expenses were 26.7% and 25.7% for the current and prior year, respectively.

The increase in other operating and administrative expenses during the year was a result of several factors. We experienced an increase in the expense for lease liability on closed stores due to adjustments of certain existing closed store lease liabilities and the addition of 9 locations to the liability during the year. In addition, we experienced increases in advertising, utility and occupancy cost on store facilities which were partially offset by reductions in retail labor and other compensation and benefit expenditures from lower sales volumes. Certain expenses were higher in fiscal 2004 as compared to fiscal 2003 due to the additional week included in fiscal 2004.

The increase in operating and administrative expenses as a percentage of sales is due to our fixed expenses remaining relatively consistent over the prior year while sales have declined.

Asset Impairment Charges. In connection with a review of future cash flows from continuing operations and the residual value of long-lived assets, along with the development and announcement of our asset rationalization plan related to the sale or closure of certain stores, distribution centers, and manufacturing operations, we recognized total asset impairment charges of $63.2 million in fiscal 2004.

Asset impairment charges related to locations in the asset rationalization plan which do not qualify as discontinued operations totaled $6.3 million and are included as a component of restructuring charges. Charges totaling $35.0 million relate to long-lived assets outside the asset rationalization plan and are classified as asset impairment charges. An additional $21.9 million is contained in discontinued operations.

Interest Expense. Interest expense is primarily interest on long-term and short-term debt and the interest on capital leases.

Net interest expense totaled $14.4 million for fiscal 2004 as compared to $40.4 million in fiscal 2003. The decline in interest expense is related to the income of $14.5 million recognized from swap terminations which occurred during the third quarter of fiscal 2004, write-off of unamortized debt issue costs of $4.6 million in fiscal 2004 compared to $6.4 million in fiscal 2003, payments in fiscal 2003 of $7.5 million to unwind interest rate swaps, and reduction of $6.8 million in interest expense related to the six-year term note which is no longer outstanding.

Income Taxes. Income taxes from continuing operations have been accrued at an effective tax rate of 42.0% as compared with 25.1% for fiscal 2003. The current year rate was affected primarily by the operating loss for the current year and the impact of permanent tax differences. The prior year effective tax rate was affected by the reversal of $28.0 million in tax reserves related to the settlement of company-owned life insurance issues, a tax credit benefit from scholarship contributions and the resolution of other tax issues.

Net (Loss) Earnings From Continuing Operations. Net loss from continuing operations amounted to $50.8 million for fiscal 2004, or $0.36 per diluted share, as compared to net earnings from continuing operations of $236.1 million, or $1.68 per diluted share, in the prior year.

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Discontinued Operations and Restructuring

On April 23, 2004, our Board of Directors approved an asset rationalization plan, to be executed over a 12-month period from the announcement date. The asset rationalization plan detailed the plan to sell or close 45 unprofitable or poorly located stores within our core DMA^®s and to exit the 16 non-core DMA^®s by sale or closure of 111 stores. In addition to retail locations, the plan contemplates our exiting three of our 14 distribution centers. We also undertook a comprehensive review of our manufacturing operations and determined that these operations are not fundamental to our core business of operating supermarkets. As a result, the plan provides for the sale of four of our seven manufacturing plants and the consolidation of two of our nine dairy operations. We will also continue to evaluate our remaining dairies and manufacturing operations.

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment and Disposal of Long-Lived Asset”, we have determined that certain elements of the announced plan meet the qualifications to be classified as discontinued operations. Other elements of the announced plan do not qualify and must remain as a component of continuing operations. We have determined that all 156 stores and the Louisville, Kentucky distribution center identified in the plan for exit are components of the Company and qualify to be reported as discontinued operations in the Consolidated Statements of Operations. We have determined that the dairy and manufacturing operations to be exited and the remaining two distribution centers do not qualify as discontinued operations. The exit of these dairy and manufacturing operations and these two distribution centers will not eliminate our cash outlay for warehousing and similar manufactured goods subsequent to disposal. The results of operations of these facilities remain in continuing operations. Costs incurred to dispose of the manufacturing and dairy operations and two distribution centers are classified primarily as restructuring costs.

The pre-tax loss from discontinued operations was $77.9 million for fiscal 2004 which includes a pre-tax loss on disposal of discontinued operations of $16.7 million related to employee termination costs, lease termination costs, and other location closing costs. Restructuring charges were $9.0 million for fiscal 2004 related to asset impairment charges, employee termination costs, lease termination costs, and other location closing costs.

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The following table displays the total costs incurred through June 30, 2004, along with the range of expected costs:

Net sales from discontinued operations were approximately $1.1 billion in both fiscal 2004 and 2003.

Property, plant and equipment related to the operations detailed in the asset rationalization plan in the amount of $51.0 million pertaining to leasehold improvement and equipment have been reclassified as assets held for sale during the fourth quarter.

Fiscal year ended June 25, 2003 (“Fiscal 2003”) compared to Fiscal year ended June 26, 2002 (“Fiscal 2002”)

Continuing Operations

Net Sales. Net Sales for fiscal 2003 decreased 1.3% to $11.0 billion compared to $11.2 billion in fiscal 2002.

Average store sales, which is an average for all continuing operating stores based on the number of weeks open during the fiscal year, decreased 1.4%. Identical store sales, which include enlargements and exclude the sales from stores that opened and closed during the fiscal year, decreased 0.4%. Comparable store sales, which include replacement stores, decreased 0.5%.

During the fourth quarter, identical store sales were negatively impacted by an increase in competitive action through significantly increased promotional activity. Sales were also impacted by increased competition through other channels such as mass merchandisers, supercenters, warehouse club stores, dollar-discount stores and drug stores. Other factors that led to the decline in identical store sales were the overall weakness in the economy and reduced store traffic in operating markets impacted by the decline of tourism and significant military troop deployments.

Gross Profit on Sales. Gross profit on sales was $3.1 billion in fiscal 2003 and fiscal 2002. As a percent of sales, gross profit was 28.4% for fiscal 2003 compared to 27.6% for fiscal 2002. The increase in gross profit on sales was due to pricing strategies and promotions, improved supply chain efficiencies and reductions in inventory shrink which was partially offset by decreased retail sales and decreased manufacturing sales to outside customers.

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Other Operating and Administrative Expenses. Other operating and administrative expenses for fiscal 2003 increased 4.2% to $2.8 billion compared to $2.7 billion in fiscal 2002. As a percent of sales, other operating and administrative expenses was 25.7% for fiscal 2003 compared to 24.3% for fiscal 2002.

The increase in other operating and administrative expenses was due to the higher cost of settling prior year insurance claims, improving store conditions, costs associated with information technology initiatives, a gain on the sale of facilities recognized in the previous year and contributions to the State of Florida Nonprofit Scholarship Funding Organizations Program.

We took a proactive approach beginning in 2003 to settling outstanding self-insured claims by accelerating claims payments to prevent future adverse development. In addition, we experienced adverse development related to prior year claims. As a result, fiscal 2003 expense, including the change in the self-insurance reserve, increased by $34.8 million over the prior year.

We increased the spending for items related to appearance and service in our stores in fiscal 2003 as compared to fiscal 2002.

We increased spending on professional fees and other related costs associated with the implementation of several information technology initiatives. The improvement in information technology increased current operational efficiency and provided a platform to build on in the future.

We sold our cheese processing facility in fiscal 2002 for a $12.7 million gain, which reduced other operating and administrative expenses in that year.

During fiscal 2003, we contributed $5.0 million to the State of Florida Nonprofit Scholarship Funding Organizations Program for which we will receive a tax credit for 100% of the amount of the contribution. Comparable contributions were not made in fiscal 2002.

Bank Agreement Termination Income. Bank agreement termination income of $52.7 million ($34.0 million net of tax) for fiscal 2003 resulted from Canadian Imperial Bank of Commerce (“CIBC”) terminating its in-store bank agreement with us. We received $60.0 million and are responsible for the costs associated with the de-installation of the in-store Marketplace Bank locations and other related costs, totaling approximately $7.3 million. Sub-lease income, a component of other operating and administrative expenses, decreased by $8.4 million ($5.4 million net of tax) in fiscal 2003 as compared to fiscal 2002 due to the termination. The net impact on pre-tax profit for fiscal 2003 was an increase of $44.3 million ($28.6 million net of tax).

Interest Expense. Interest expense for fiscal 2003 decreased 34.3% to $40.4 million from $61.6 million in fiscal 2002. The decrease was due to the decrease in average debt outstanding and lower average interest rates paid on debt. This decrease was partially offset by $6.4 million of

debt issue costs and $7.5 million to unwind interest rate swaps which were charged to interest expense related to the early extinguishment of the six-year term loan during fiscal 2003. In fiscal 2002, interest expense was impacted by $3.8 million of debt issue costs related to the early extinguishment of debt.

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Earnings From Continuing Operations Before Income Taxes. Earnings from continuing operations before income taxes increased 10.2% to $315.4 million from $286.2 million in fiscal 2002. The increase was due primarily to the bank agreement termination income of $52.7 million in fiscal 2003.

Income Taxes. The combined federal and state effective income tax rate from continuing operations decreased to 25.1% for fiscal 2003 from 38.5% for fiscal 2002. The rate in fiscal 2003 is primarily due to the reversal of $28.0 million in tax reserves related to the settlement of company-owned life insurance issues, a tax credit benefit from scholarship contributions and the resolution of other tax issues.

Net Earnings From Continuing Operations. Net earnings from continuing operations increased 34.1% to $236.1 million, or $1.68 per diluted share for fiscal 2003 from $176.1 million, or $1.26 per diluted share for fiscal 2002.

Discontinued Operations

Net (Loss) Earnings from Discontinued Operations. Net (loss) earnings from discontinued operations in fiscal 2003 and 2002 includes the results of operations of the 156 stores and one distribution center to close in the asset rationalization plan announced during fiscal 2004. Net loss from discontinued operations also reflects the results of operations of the Texas and Oklahoma operations exited during fiscal 2002.

Liquidity and Capital Resources

Cash and marketable securities amounted to $76.1 million at June 30, 2004 compared to $146.7 million at June 25, 2003. The decline in cash and marketable securities is primarily the result of capital expenditures and dividend payments that have exceeded cash flow from operations.

As of June 30, 2004, our total liquidity was $448.5 million, which was comprised of $56.8 million in cash and cash equivalents and $391.7 million of net borrowing availability under the revolving credit facility as described below.

The following table sets forth certain consolidated statements of cash flow data:

Cash provided by operations remained positive despite the net loss for the fiscal year. The cash flow from operations was driven primarily by the decrease in merchandise inventories related to improvements in overall inventory management.

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We require capital primarily for the development of new stores, remodeling of stores and investment in technology. Capital expenditures totaled $203.6 million for fiscal 2004 compared to $176.7 million in the previous fiscal year.

We believe that the condition of many of our store facilities must improve. To address facility deficiencies, we launched an image makeover program in fiscal 2004. As of June 30, 2004, a total of 331 makeovers have been completed at a cost of approximately $75.2 million. Makeovers include improving lighting, installing produce bins, painting store interiors and exteriors and replacing outside signage.

We have modified the image makeover program in the lead market to complement our brand positioning initiative. In addition to the basic image makeovers, we have expanded our scope to include enhancements in our delis, bakeries, and front-end checkouts. During the fourth quarter of 2004, we substantially completed lead market image makeovers at eight stores at a total cost of approximately $4.5 million. The total cost of our lead market initiative, including capital expenditures, training, store resets and other costs, is expected to range from $50 to $60 million and is expected to be incurred by March 2005.

The average cost of an image makeover is substantially less than the average cost of a full remodel. Because an image makeover is not a complete substitute for a full remodel, we also believe we will need in the future to expand the scope and rate at which we remodel our stores in core markets in order to maintain a competitive store base and consistent quality in the condition of our store facilities.

On June 29, 2004, we amended and restated our revolving credit facility to increase the borrowing capacity to $600.0 million. The facility is asset-based with a borrowing base comprised of an agreed percentage of the inventory balance, pharmacy receivables, pharmacy scripts and certain real estate. The facility provides for a $400.0 million revolving credit facility and a $200.0 million standby letter of credit facility. No amounts were drawn on the revolving credit facility as of June 30, 2004 other than the import letters of credit described below.

Covenants under the amended and restated credit agreement require a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) and maximum capital expenditures that will not be tested as long as we maintain a minimum Excess Availability of $100.0 million. If this covenant is not met, our borrowing capacity would be reduced by the minimum Excess Availability requirement. In addition, we cannot allow Adjusted Excess Availability to fall below $75.0 million at any time. To the extent that our Borrowing Base is negatively impacted by asset disposals, reductions in appraisals, or other events, our borrowing capacity could be reduced. The full $600.0 million borrowing capacity was available as of June 30, 2004. Reserves totaling $36.7 million reduced the Borrowing Base to $563.3 million. As described below, letters of credit totaling $8.3 million were outstanding under the revolving credit facility and reduced our borrowing availability to $391.7 million under that facility. In addition, the amended and restated credit agreement has covenants that restrict capital expenditures, dividends, new debt arrangements and acquisitions/dispositions of subsidiaries. The amended and restated credit agreement was filed on a Current Report on Form 8-K dated June 29, 2004.

At June 30, 2004, we had $134.0 million in outstanding letters of credit used primarily to support insurance obligations. Of the total, $117.0 million were issued under the credit facility,

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$8.3 million supporting import letters of credit under the $400.0 million revolving credit facility and $108.7 million supporting workers’ compensation standby letters of credit under the $200.0 million letter of credit facility. The remaining $17.0 million in outstanding letters of credit were issued under a separate agreement outside the credit facility and are secured by marketable securities of $19.3 million as of June 30, 2004. We paid weighted average commitment fees of 2.1% on the outstanding letters of credit.

We have $300.0 million of outstanding senior notes bearing interest at 8.875%. The notes mature in 2008 and require interest only payments semiannually until maturity. Covenants related to the senior notes require maintaining a minimum fixed charge coverage ratio in order to incur additional indebtedness outside of the senior secured credit facility or to make dividend payments. Based on the four quarters ended June 30, 2004, we do not meet the minimum fixed charge coverage ratio of 2.25 to 1.0 and are not able to incur additional indebtedness outside of the senior secured credit facility or declare dividends until such time the coverage ratio is met. On January 30, 2004, our Board of Directors suspended indefinitely the declaration of future quarterly dividends.

On January 30, 2004, Standard & Poor’s Rating Services lowered our corporate debt rating from BB to B and placed the rating on Credit Watch with negative implications. On July 29, 2004, Standard & Poor’s Rating Services affirmed our corporate debt rating of B and removed the credit watch. The rating still has a negative outlook. On July 8, 2004, Moody’s Investor Services lowered our senior implied ratings to B1 from Ba3 with a negative outlook. The change in the corporate debt ratings had no impact on covenants, pricing of our credit facility or the interest rate paid under the senior notes.

Company management believes that current cash on hand, available trade credit, available borrowings under the revolving credit facility, anticipated cash flow from operations, cash increases as a result of improvements in working capital and the sale of assets from the execution of the asset rationalization plan will be sufficient to fund our current operating and capital needs. Execution of certain of our strategic initiatives will require additional funding. Therefore, before we can implement the more capital-intensive aspects of the strategic initiatives outside of our lead market or increase the scope and timing of full store remodels – as management believes it needs to do – we will need to either produce improved operating results or secure additional sources of capital.

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Contractual Obligations and Commercial Commitments

We have assumed various financial obligations and commitments in the normal course of our operations and financing activities. Financial obligations are considered to represent known future cash payments that we are required to make under existing contractual arrangements, such as debt and lease arrangements. The following table represents the scheduled maturities of our long-term contractual obligations as of June 30, 2004.

Contractual Obligations

Our purchase obligations include purchase commitments to be used in the normal course of business and range from one to nine years. The total remaining purchase obligations have been apportioned by year based on estimates of current purchasing and price levels.

Our commercial commitments as of June 30, 2004, representing possible commitments triggered by potential future events, were as follows:

Other Commercial Commitments

Impact of Inflation

Our primary costs, inventory and labor, increase with inflation. Recovery of these costs will come, if at all, from improved operating efficiencies, including improvements in merchandise procurement, and to the extent permitted by the competition, through improved gross profit margins.

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Critical Accounting Policies

The Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements contain information that is pertinent to Management’s Discussion and Analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. We cannot determine future events and their effects with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. We constantly review these significant factors and make adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from estimated results determined using the factors described above.

The following is a discussion of our critical accounting policies. These accounting policies are most important to the portrayal of our financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters.

Revenue recognition. We recognize revenue at the point of sale for retail sales. We record sales discounts offered to customers as a reduction of sales at the time of purchase, as part of our Customer Reward Card program and other promotional events.

Merchandise cost. We receive various rebates from third party vendors in the form of promotional allowances, quantity discounts and payments under merchandising agreements. We classify such rebates as either a reduction to cost of goods sold or a reduction of cost incurred, depending on the nature of the rebate.

We record promotional allowances as a component of cost of sales as they are earned. Promotional allowance recognition is determined in accordance with the terms of the underlying vendor agreement, the guidance set forth in EITF 02-16 and when management has concluded that the earnings process is complete. Certain promotional allowances are associated with long-term contracts that require specific performance by us or time-based merchandising of vendor products. We recognize contractually obligated allowances as the specific performance criteria set forth in the contract are met or when time expires. In addition, we defer portions of promotional allowances that are contractually refundable to the vendor from recognition until realization is assured.

We measure and earn quantity discounts and merchandising agreements based on inventory purchases or sales volume levels. We receive the discounts from vendors upon achievement of certain performance measures. We recognize these performance-based rebates as a component of cost of sales based on a systematic and rational allocation of the consideration received relative to the transaction that marks our progress toward earning the rebate or refund. If the amounts are not probable and reasonably estimable, we recognize rebate income upon achieving the performance measure.

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Certain other allowances for new item introductions, or slotting fees, placement of the vendor’s products in our advertising, placement of vendor’s product in premier locations within our stores, and temporary reductions offered to customers on products in the stores are included as a reduction of cost of sales as product is sold. These allowances that have been earned as a result of completing the required performance, but have not been sold, are recognized as reductions of inventory. Since we use the retail method of valuing inventory, average product turnover rates are used by management to determine the amount of product sold and ultimately the amount of fees in ending inventory.

We make judgments and estimates related to specific purchase or sales levels and related inventory turnover. Unanticipated changes in these factors may produce materially different amounts of cost of sales related to these agreements.

Self-insurance reserves. We self insure for certain insurable risks consisting primarily of physical loss to property, business interruptions, workers’ compensation, comprehensive general and auto liability. We obtain insurance coverage for catastrophic property and casualty exposures as well as those risks requiring insurance by law or contract. We base liabilities relating to workers’ compensation, comprehensive general and auto liability claims on independent actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims.

Our accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding claim reporting and settlement patterns, judicial decisions, legislation, and economic conditions. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.

Long-lived assets. We periodically evaluate the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. We review property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We measure recoverability by comparing the carrying amount to the net undiscounted cash flows expected to be generated by the asset. We would record an impairment loss for the excess of net book value over the fair value of the impaired asset. We estimate the fair value based on the best information available, including prices for similar assets and the results of other valuation techniques.

With respect to owned property and equipment associated with closed stores, we adjust the value of the property and equipment to reflect recoverable values based on our prior history of disposing of similar assets and current economic conditions.

Factors such as changes in economic conditions and changes in operating performance affect our judgments and estimates related to the expected useful lives of long-lived assets. As we assess the ongoing expected cash flows and carrying amounts of long-lived assets, these factors could cause us to realize a material impairment charge.

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Intangible assets and goodwill. We report intangible assets and goodwill in accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” SFAS 142 requires companies to cease amortizing goodwill that existed at the time of adoption and establish a new method for testing goodwill for impairment on an annual basis at the reporting unit level (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). We have determined that we are contained within one reporting unit and, as such, impairment is tested at the company level. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach. Our judgments and estimates related to the evaluation of goodwill and intangibles with indefinite useful lives for impairment are affected by factors such as changes in economic conditions and changes in operating performance. As we assess the ongoing expected cash flows and carrying amounts of goodwill and intangible assets, these factors could cause us to realize a material impairment charge.

Store closing costs. We provide for closed store liabilities relating to the estimated post-closing lease liabilities and other related exit costs associated with store closing commitments. We pay closed store liabilities over the lease terms associated with the closed stores having remaining terms ranging from one to 20 years. We estimate the lease liabilities, net of estimated sublease income only to the extent of the liability. We use a discount rate based on a credit adjusted risk-free rate to calculate the present value of the anticipated rent payments on closed stores. Other exit costs include real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes over the anticipated lease term. Store closings are generally completed within one year after the decision to close.

Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. We make adjustments for changes in estimates in the period in which the change becomes known. We reverse any excess store closing liability remaining upon settlement of the obligation to income in the period that such settlement is determined. We classify inventory write-downs in connection with store closings as cost of sales. We expense costs to transfer inventory and equipment from closed stores as incurred. We rarely incur severance costs in connection with ordinary store closings.

Changes in economic conditions affect our judgments and estimates related to store closing liabilities and may result in materially different amounts of expense.

Income taxes. We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. The computation of income taxes is subject to estimation due to the judgment required and the uncertainty related to the recoverability of deferred tax assets or the outcome of tax audits. We adjust our income tax provision in the period it is determined that actual results will differ from our estimates. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

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Forward-Looking Statements

Certain statements made in this report, and other written or oral statements made by or on our behalf, may constitute “forward-looking statements” within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management’s expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws.

All forward-looking statements, as well as our business and strategic initiatives, are subject to certain risks and uncertainties that could cause actual events to differ materially from expected results. Management believes that these forward-looking statements are reasonable. However, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Additional information concerning the risks and uncertainties listed below, and other factors that you may wish to consider, are contained elsewhere in our filings with the Securities and Exchange Commission.

These risks and uncertainties include, but are not limited to:

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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We manage interest rate risk through the use of fixed and variable rate debt. From time to time, we enter into interest rate swaps to manage interest rate risk. During the fiscal year ended June 30, 2004, we unwound our interest rate swaps related to our fixed rate borrowing and currently have no interest rate swaps in effect.

The following table presents the future principal amounts and related weighted-average interest rates expected on our existing long-term debt instruments. We have determined fair values based on quoted market prices as of June 30, 2004.

Expected Maturity Date

(Dollar amounts in thousands)

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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,

SUPPORTING SCHEDULES AND SUPPLEMENTARY DATA

All other schedules are omitted either because they are not applicable or because information required therein is shown in the Financial Statements or Notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and the Board of Directors

Winn-Dixie Stores, Inc.:

We have audited the accompanying consolidated balance sheets of Winn-Dixie Stores, Inc. and subsidiaries as of June 30, 2004 and June 25, 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years ended June 30, 2004, June 25, 2003 and June 26, 2002. These consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Winn-Dixie Stores, Inc. and subsidiaries at June 30, 2004 and June 25, 2003, and the results of their operations and their cash flows for each of the years ended June 30, 2004, June 25, 2003 and June 26, 2002 in conformity with U.S. generally accepted accounting principles.

KPMG LLP

Jacksonville, Florida

August 18, 2004

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