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LNT pares forecast, expects more of same

Clifton, NJ — Hoisting a yellow caution flag in a stormy retail environment, Linens 'N Things warned that second-quarter profits will fall as much as 35 percent beneath year-ago levels, snapping a long winning streak of double-digit earnings gains at the big-box pioneer.

With same-store sales falling off by 3.6 percent — another big setback for this high-flying home chain — second-quarter profits are now expected to come in at 11 cents or 12 cents per share — 29 percent to 35 percent beneath last year's level of 17 cents per share.

The news clearly rattled an unforgiving Wall Street, which had been expecting earnings in the range of 15 cents a share, and jittery investors slashed the value of Linens 'N Things stock by 11.5 percent, or $3 a share, to $23.20, in heavy trading. More than 4.7 million shares changed hands after the company issued its warning, more than seven times the normal daily volume of 663,409 shares.

After the sell-off, Linens 'N Things stock was trading at $23.20, down almost 40 percent from a 52-week high of $37.88.

Two Wall Street houses reacted rapidly by downgrading the retailer's stock. Still bullish overall, Tucker Anthony now rates the stock a "buy"' down from an earlier "strong buy." Credit Suisse First Boston knocked the stock down to a "hold" from an earlier "buy" rating.

Further unnerving investors, the retailer said the outlook remains muted for the balance of the year. Same-store sales for the third quarter are now forecast to come in "flat to slightly negative," while earnings are now projected at 40 cents to 46 cents a share, flat to down about 11 percent from last year's level of 45 cents.

For all of this year, the retailer, said same-store sales will be "flat to slightly negative," even though rapid expansion will push overall sales up by 16 percent to 17 percent. Earnings are forecast at $1.48 to $1.60 a share for all of 2001, flat to down about 8 percent from $1.60 a year ago.

"As with most retailers, the softness in the economy has had an impact on our store traffic and sales," said Norman Axelrod, chairman and ceo. "Though we are disappointed with our sales results, our gross margins remain healthy and our inventory per square foot is lower than last year's levels. We enter the important back half of the year without the need for additional markdowns."

Linens 'N Things is scheduled to release second-quarter earnings Wednesday morning.

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