LNT down 20% in 3Q

Don Hogsett, October 22, 2001

CLIFTON, NJ — With sales growth stunted after last month's terrorist attacks — and with cost, interest expense and inventories all swelling — third-quarter profits at Linens 'N Things slumped by 20.1 percent, to $14.7 million from $18.4 million.

It was the third straight quarterly earnings drop recorded by the superstore retailer, which last posted an increase in profits during the fourth quarter of last year.

With traffic in its stores slowing after last month's terrorist attacks, same-store sales dropped off by 4.8 percent, steadily weakening throughout the year after declines of 3.6 percent and 1.8 percent in the second and first quarters, respectively.

But still given a lift by the roll-out of new stores, overall sales improved by 14.3 percent, to $468.9 million from $410.4 million.

Earnings per share, at 36 cents, came in at the low end of Wall Street expectations, with analysts forecasting a per-share profit ranging of 32 to 40 cents. And sales were expected to rise by 15 percent to 18 percent, compared with the 14.3 percent actual growth rate.

Clearly dismayed, Wall Street knocked the retailer's stock down by 4.2 percent the day the news came out, to $19.50 a share. The sell-off continued the following day, with the stock declining another 5.1 percent, to $18.51. Even before the latest round of bad news, the company's stock price had fallen about 11 percent from year-before levels.

Prompted by the earnings drop, Deutsche Bank Alex. Brown trimmed its earnings outlook for the retailer to $1.46 a share from an earlier forecast of $1.60. In a research note, the company said that rival Bed Bath & Beyond is moving ahead of Linens 'N Things in terms of same-store sales and sales per square foot.

Putting downward pressure on profits, in addition to eroding same-store sales, costs climbed sharply higher, rising by 230 basis points, to 35.5 percent from 33.0 percent a year ago.

At the same time, interest costs, while still unusually low by retail industry standards, jumped up by 57.6 percent, to $1.0 million from $663,000 a year ago. Putting even more pressure on the bottom line, inventories grew at a faster pace than sales, climbing by 18.2 percent, to $561.5 million from $475.2 million.

"We experienced a significant decline in customer traffic following the tragic events of Sept. 11th through the end of the third quarter," said Norman Axelrod, ceo.

Linens 'N Things

Qtr. 9/29 (x000) 2001 2000 % CHG
Sales $468,944 $410,371 14.3
Oper. income (EBIT) 24,836 30,510 -18.6
Net income 14,705 18,406 -20.1
Per share (diluted) 0.36 0.45 -20.0
Average gross margin 40.6% 40.5%
SG&A expenses 35.3% 33.0%
Nine months
Sales 1,235,904 1,077,002 14.8
Oper. income (EBIT) 41,602 50,524 -17.7
Net income 21,507 30,408 -29.3
Per share (diluted) 0.52 0.75 -30.7
Average gross margin 40.7% 40.3%
SG&A expenses 37.3% 35.6%

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