LNT gets set for second half
July 20, 2001,
Clifton, NJ — Finishing with a lackluster second quarter in the throes of a continuing difficult environment, Linens 'N Things readied itself for the rest of 2001. With its initiatives to revamp the textiles area expected to be complete by the fourth quarter, as well as declining inventory levels and a climbing percent age of proprietary product, the discounter seeks to remain steady to the end of the year, targeting sales growth of 16 percent to 17 percent for 2001.
In a conference call to analysts last week, ceo Norman Axelrod specifically cited the textiles category as "challenging" due to difficulties in the industry; and since LNT derives 60 percent of its sales in this category, it looks to renovate the area and drive traffic.
One-quarter of LNT's stores have the Nautica bedding and bath program, but with the results in those stores having "exceeded expectations," said president Steven Silverstein, LNT will roll out the program to all of its stores by late third or early fourth quarter.
In addition, its solid-color towel program has been delayed due to vendor issues, he said, though "consumers" have responded positively to its "fresh palette and better quality." It will be implemented in early third quarter.
The discounter will also continue to increase its share of proprietary product, which was about 10 percent in 2000 and will climb to 15 percent or even 20 percent or 25 percent this year. This is an area where it can offer customers "better-quality product at compelling price points."
"The assortment changes in decorative accessories will have a positive impact on business," Silverstein added.
The slowing economy influenced consumer traffic and sales, Axelrod said, with traffic especially soft in the middle of the country. However, the average transaction remained steady, he said, and there had been sales momentum within the second quarter, with June sales being the strongest.
LNT also looks to actively manage inventory without affecting in-stock positions, and for this quarter, levels have dipped approximately 4 percent per square foot, for a total of $48.65, compared to last year's $50.46. Going forward, LNT will reduce inventory levels of slow sellers and allocate that space to more popular items.
Bill Giles, cfo, attributed the strengthened gross margins to the product mix, improved buying and, to some extent, penetration of proprietary product, allowing the company to be more aggressive on pricing. Silverstein said there was still room to further improve on margin, and the opening of a third distribution center in Louisville, KY, in the spring of next year will help.
New-store performance is a priority this year, said Giles, with 23 of a planned 60 stores opened thus far. Twelve stores opened in the second quarter, and the company is pleased with their results, which are consistent with $150 to $175 per square foot target sales — "well ahead of last year." Linens will open 20 to 23 additional stores in the third quarter, and 17 to 19 in the fourth.
Though the stores opened in 2000 are not performing as well as the 2001 stores, Silverstein said there is "real opportunity" and that the company would begin heavier marketing in its newer markets.
Looking ahead, Giles said the company is "weighed toward the 'things' side." It expects the economy to remain slow, but in the event of an upswing, it can respond quickly, he said, since most of its product is domestically sourced.
Though it "wasn't Linens' greatest quarter," said Alan Rifkin, analyst, Lehman Brothers, considering the difficult environment and other factors, it's "pretty good to show flat year over year. Its new initiatives have helped maintain flatness."
However, Rifkin added, for the long term, "Linens will get back on track. It's still a viable competitor."
And LNT and Bed Bath will "both take market share from less nimble players like JCPenney and Sears."
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