LNT takes stock in stronger rating
June 17, 2002,
Citing a strong outlook for home goods, improving sales momentum and a tighter operational focus, Merrill Lynch has boosted its intermediate term rating on Linens 'n Things to a 'strong buy' from an earlier 'neutral' ranking.
"We believe Linens' business has stabilized and sales momentum should continue to improve boosted by internal initiatives and solid execution," Friedman said in a research note.
"We believe a renewed emphasis on the home following Sept. 11, combined with the possibility of an economic rebound, bode well for the home goods segment," said Friedman. "In addition, home sales remain robust, up 7 percent in April and at a record high in the first quarter."
Sales momentum should continue to improve, the analyst said. "Key categories continue to show improvement as the company makes necessary strategic changes and improves its offerings."
Inventory management is a key focus, and the company is devoting more resources to ensure a better in-stock position on core basics, said Friedman. In addition to improving in-stock position, "Linens aims to reduce repetition and rationalize product offerings by category. This should result in a deeper assortment of better-selling items, instead of a broad assortment that turns over less frequently."
Same-store sales growth accelerated during the first quarter, and the retailer posted a 2.6 percent comp gain, "with February and March stronger than January," Friedman pointed out. "Although we believe home goods momentum in general has helped Linens' improving performance, the company is clearly making progress in certain product categories. Textiles are on the right rack, boosted by the introduction of two major sheet programs, sharper pricing on existing products, and a new fashion introduction in window treatments."
To get the point across to the consumer, LNT is refining its marketing message, said Friedman. "The key point of differentiation for Linens is improved quality at the same or lower prices. Value is the key message Linens is trying to convey, and new marketing and signage in stores have been helpful."
Linens is also boosting its private-label business, said Friedman. "This strategy is another point of differentiation for Linens and offers the ability to fill in gaps in the merchandise. We believe proprietary product can grow to 25 percent of the business from 15 percent today."