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LNT Widens Losses to $4.1 Million

Clifton, N.J. — Hamstrung by a slide in same-store sales and rising costs, Linens 'n Things recorded a sharply widening first quarter loss of $4.1 million, more than three times the size of a year-before deficit of $1.1 million.

Helped by ongoing expansion, sales at the home furnishings superstore edged up 3.3 percent, to $570.9 million from $552.8 million last year. But the crucial gauge of same-store sales tumbled 5.4 percent.

Putting pressure on the bottom line, in addition to sliding same-store sales, operating costs climbed sharply during the opening quarter, offsetting improving margins. SG&A expenses widened 220 basis points, or 2.2 percentage points, to 42.4 percent of sales from 40.2 percent a year ago.

Taking some of the sting out of rising costs, average gross margin improved 140 basis points, or 1.4 percentage points, to 41.4 percent from 40 percent. Helped by growth in overall sales and stronger margins, gross margin dollars increased 6.8 percent, to $236.4 million.

But spending more than it took in once it paid for the goods it sold, Linens 'n Things recorded a sharply widening operating loss of $5.8 million, more than five times the size of the $1 million operating loss chalked up in the year-ago first quarter.

On a positive note, inventories remained well controlled, rising just 0.7 percent, to $765.9 million from $760.5 million last year, substantially behind the 3.3 percent increase in sales. And the retailer's cash position improved 11.1 percent, to $75.3 million.

“Although the external environment was challenging, we are still disappointed in our first quarter sales performance,” said Norman Axelrod, chairman and CEO. “However, we still have the majority of our sales and earnings opportunities ahead of us as the first quarter represents the smallest portion of our annual sales and earnings. Looking forward, we believe that our initiatives will enable us to accelerate more newness in our assortments, improve our productivity and profitability and continue to enhance the guest shopping experience.”

Looking ahead, the retailer said it expects to return to profitability during the second quarter, with earnings in a range of 3 to 9 cents per share. Overall sales are forecast to rise 3 to 7 percent, while same-store sales are expected to be “slightly down.”

Pulling in its horns and conserving cash, the retailer opened just eight new stores during the quarter, while closing another, compared with the 21 stores opened during the same period a year ago.

Despite the widening loss, the retailer still managed to provide an upside earnings surprise, beating Wall Street estimates by a penny. The retailer's loss of 9 cents per share came in slightly ahead of a consensus Wall Street forecast of an even greater 10 cents a share loss.

Liking what they saw, investors responded mid-day when the news came out, Wednesday, April 20, by pushing Linens shares up 32 cents, or 1.3 percent, to $24.62. But even with the lift, shares still remained more than 28 percent beneath their 52-week high of $34.40 a share.

LINENS 'N THINGS

QTR. 4/2 (x000) 2005 2004 % CHANGE
(loss)
a. First quarter results include an income-tax benefit of $2.4 million, compared with a prior-year tax benefit of $689,000. Excluding the income-tax benefit, the retailer recorded a pre-tax loss of $6.5 million, compared with $1.8 million during the same period a year ago.
Sales $570,946 $552,800 3.3
Oper. Income (EBIT) (5,761) (1,042)
Net income (4,074)a (1,112)a
Per share (diluted) (0.09) (0.02)
Average gross margin 41.4% 40.0%
SG&A expenses 42.4% 40.2%


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