Improving sales trend seen

UNION, NJ —Rallying after a weak first quarter and rebuilding sales and profits, superstore retailer Linens 'n Things boosted second-quarter earnings by 2.1 percent, to $5.7 million from $5.6 million last year, staging a recovery after a 60 percent slide in profits during the opening quarter.

Sales improved by 13.4 percent, to $523.7 million from $461.9 million in the same period a year ago, building on a skimpy 5.2 percent increase recorded in the previous quarter. But same-store sales remained soft and virtually unchanged in the midst of a persistently vexing retail environment, slipping by 0.1 percent — still a big improvement over a 3.2 percent drop during the preceding quarter.

"We are pleased to see an improvement in the trend of our business," said Norman Axelrod, chairman and ceo. "We feel we are delivering a better shopping experience for our guests, and we believe that our initiatives are the driving force behind much of the improvements."

Propping up the bottom line, margins and costs both held relatively steady, and the retailer pared its expense by almost two-thirds.

Average gross margin was unchanged at 41.8 percent, but given the double-digit gain in sales, gross margin dollars jumped up by 13.4 percent, to $218.7 million from $192.9 million.

Operating costs climbed modestly higher, rising by 30 basis points, or three-tenths of a percentage point, to 39.9 percent of sales from 39.6 percent a year ago. Measured in absolute dollars, costs rose by 14.3 percent, to $209.2 million from $183.1 million, slightly outpacing the increase in sales.

In a lift to the bottom line — accounting for all of the improvement over last year — interest expense was pared by 61.8 percent, to $288,000 from $753,000, generating a cash savings of $465,000.

Looking ahead, the retailer said third-quarter sales are targeted to grow by nine to 12 percent, with same-store sales coming in flat to up in the low single digits. Profits, the company said, should come in at 44 to 49 cents a share, rising between seven and 20 percent from the 2002 third quarter.

For the all-important Christmas quarter —shorter by a week than last year, 13 weeks vs. 14 weeks in 2002 — sales are forecast to rise by 8 percent to 10 percent, and same-store sales are targeted in the low to mid single digits. Earnings, the retailer forecast, should come in at 98 cents to $1.04 a share, climbing between 9 percent and 16 percent over last year's 90 cents a share.