Linens 'n Things Chips Away at Losses

By Don Hogsett -- Home Textiles Today, 5/21/2007 12:00:00 AM

Clifton, N.J. —

With sales still sliding, and spending far more than it's able to make selling the goods it stocks on its shelves, Linens 'n Things recorded a first-quarter loss of $58.2 million, making some headway after a prior-year loss of $65.5 million.

Sales at the big-box home fashions specialist, acquired last year and taken private by Apollo Management, slipped by 3.6%, to $571.6 million from $592.8 million last year, an improvement over even greater declines put up before the company was sold. The acid-test measure of same-store sales declined by 5.2%, again an improvement over prior results.

"While first-quarter results are disappointing, we continue to remain committed to our long-term turnaround strategy," said Robert DiNicola, chairman and ceo. "We believe that by instituting the proper merchandising and marketing strategies we will generate improved customer traffic and better product sell-through, which will result in an increase in sales productivity."

Operating costs, while improving, still sharply outpaced the money the company made selling its goods. The company spent $282.9 million on white-collar salaries, advertising and administrative costs — well in excess of the $213.5 million it recorded in gross profit, the money it made after paying for the goods, warehousing them, and getting them onto its shelves.

Operating costs, when measured as a percentage of declining sales, improved by 330 basis points, or 3.3 percentage points, to 49.5% from 52.8% during the same period a year ago. Measured in absolute dollars, costs were whittled down at an almost double-digit pace, by 9.6%, to $282.9 million from $313.0 million last year, generating a cash savings of $30.0 million.

But partially offsetting the lower costs, and taking a bite out of the bottom line, average gross margin thinned slightly, contracting by 20 basis points, or two-tenths of a percentage point, to 37.4% from 37.6%. Caught between the falling sales and narrowed margins, gross margin dollars declined by 4.3%, to $213.5 million from $223.1 million last year, a $9.6 million shortfall.

Still, with operating costs down considerably, the retailer put up a sharply narrowed operating loss of $69.5 million, more than 20% beneath a year-ago operating loss of $89.9 million.

Turning to the balance sheet, inventories were held in check, rising a modest 0.2%, to $829.6 million from $827.8 million the preceding year. But cash on hand was reduced by almost half, or 43.0%, to $8.6 million from $15.0 million during the same period last year.

Providing LNT with considerably more flexibility in the form of greater borrowing power, the retailer said it has obtained a $100 million increase in its credit facility, increasing the maximum available to $700 million from $600 million. The company said the increase should be effective before the end of the second quarter.

The retailer said it has a revolver balance of $192.6 million, cash on hand of $8.6 million, and $254 million available under its revolving credit facility.

During the opening quarter, LNT opened two stores, while shutting none, increasing square footage by about 3.8%, to 19.0 million. With store openings scaled back, the retailer slashed its capital spending virtually in half, by 47.4%, to $11.6 million from $22.0 million last year, yielding a savings $10.4 million.

Linens 'n Things (Linens Holding Co.)