updated 6/29/2006 1:00:54 PM ET 2006-06-29T17:00:54

Winn-Dixie Stores Inc. said Thursday it has filed plans to emerge from bankruptcy by the end of October, as the supermarket chain struggles to boost sales amid tough competition and regain customers.

The Jacksonville-based company, which has about two-thirds as many stores as it had when it filed for Chapter 11 reorganization in February 2005, will present the plan to U.S. Bankruptcy Judge Jerry A. Funk at a hearing later Thursday.

The chain wants Funk to approve the plan on Aug. 4 and set in motion the process to get creditors to accept it. Winn-Dixie attorney Stephen Busey said it usually takes about 60 days to do that, meaning the chain could have a confirmation hearing in early October and emerge from bankruptcy later that month.

The chain said it has agreed with Wachovia Corp. for up to $725 million in exit financing, so it should emerge from reorganization with sufficient funding and liquidity to make significant investments in current stores and to open new stores. The company also expects to have only a minimal amount of long-term debt.

The company also said it planned to keep Peter Lynch as its president and chief executive, whose current contract ends Aug. 31. Lynch said the company has made tremendous progress in improving identical store sales in recent months and increasing gross margin.

“There is always critics out there, but I will stand by our record and I am feeling very, very confident,” Lynch said at a new conference.

Lynch said when he arrived at Winn-Dixie, “the brand was badly tarnished. We have spent the last year cleaning it up.” He said his priorities were “focused on cleaning up the stores, having better customer service, having a better emphasis on quality products and a focus on the perishables.”

Winn-Dixie cited competitive pressures when it filed for bankruptcy, caught in the crush between Wal-Mart Stores Inc. and Publix Super Markets Inc. The filing came just after Winn-Dixie lost $399 million in its fiscal second quarter, which led to downgrades from debt rating agencies and a tightening of credit from vendors.

About 22,000 employees were laid off when the company left a number of large markets. It has closed or sold about 360 stores in the Southeast and 12 stores in the Bahamas. It also has closed and sold several distribution centers.

The chain now has 527 supermarkets and about 54,944 employees and operates stores in Florida, Georgia, Alabama, Mississippi and Louisiana. The company said store closings and measures to slash overhead led to a $100 million reduction in annual costs.

But Barton Weitz, executive director of the Miller Center for Retailing at the University of Florida, doesn’t believe Winn-Dixie has improved its position while under reorganization.

“I don’t think there has been a radical change in the quality of service, merchandise and store atmosphere and environment,” he said. “They are in a difficult position, being caught between Wal-Mart on the low end and Publix, based on customer service and merchandise.”

Winn-Dixie listed assets of $2.2 billion and liabilities of $1.9 billion when it filed for reorganization.

The plan is bad news for Winn-Dixie’s current shareholders, whose stock will be canceled once the plan of reorganization is approved. The company’s vendors and creditors will become Winn-Dixie’s owners.

Once the plan is confirmed, a new board of directors will be appointed to run the company.

Winn-Dixie’s largest shareholder is the Davis family, which founded the company in 1925 and owns 51.7 million shares, or 36.7 percent of the common stock. The Davis family holdings were worth about $3.5 billion when the stock peaked in 1998 and are now worth about $5 million.

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