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Axelrod: 'We'll nearly double biz'

Clifton, NJ — Silverstein is out. And Linens 'n Things chairman and ceo Norman Axelrod's assertion last week that he'll stay the course of the retailer's strategic plan while nearly doubling revenues over the next three years presents a plethora of interesting questions for a company already knee-deep in transition.

The departure of LNT president Steve Silverstein, at the helm less than two years, came at an awkward moment. In addition to winter market, his resignation was tendered on the eve of the company's release of fourth quarter and year-end financial results (see accompanying article) and analysts' conference call.

The suddenness notwithstanding, a number of analysts and suppliers immediately expressed their confidence and continuing support, stating that in the near-term, at least, the company appears to be on track to meet its objectives.

In a telephone interview, Axelrod said he'll take a more direct, hands-on role in the merchant's day-to-day operations, assuming Silverstein's duties in merchandising, marketing and operations, and leaving his other charges to senior level staff. But the president's office? It will remain empty — for now.

"I'll take the time to review the organizational structure to determine our needs to grow from a $2 billion company to a $4 billion one within two to three years, and so Steve's job may or may not be filled. We are certainly not going to fill it today," Axelrod said.

That Axelrod, known for his high-touch management style, wasn't planning to replace Silverstein for now, wasn't particularly surprising. However, throwing down the gauntlet to double growth in three years begged obvious questions concerning where and how that growth would be achieved.

For now, at least, no one appears to doubt the assertion.

"We like what we've seen, particularly in the fourth quarter" said Peter Benedict, analyst, CIBC World Markets.

To grow LNT needs to continue to open new stores, improve the productivity of its existing stores, and improve its sales per square foot, which had been declining for several quarters, he added.

"The gap between BBB and LNT is enormous" in this regard, he said. In 1999, BBB's sales per square foot was $20 higher than LIN — now it's $60.

Moreover, the momentum of LNT's turnaround — begun last winter — is still in motion, analysts said, though, even with positive changes, the retailer is facing a continuing tough economy.

To achieve its growth, LNT will probably add 15 percent to 20 percent square footage annually, and Alan Rifkin, analyst, Lehman Brothers, estimated same-store comps to be between 3 percent to 4 percent over the longer term, but could be higher if the program giving more sku responsibility to store managers "has legs." But Rifkin likes the space the company is in.

LNT was initially undermanaged, said Joan Storms, analyst, WedBush Morgan. But "they've brought in a number of senior people to report to Steve and they did a really good job of that."

The beginning of the transition became evident last February and March, and had "a noticeable difference in the stores — their in-stocks are better, their store standards are better, their merchandising is better," she said. "The turnaround is ongoing."

But because the tough economy hinders execution of those initiatives, she estimated "flat-ish" operating margins for the current year. Others indicated patience.

Axelrod offered assurances none of the earlier initiatives would change.

"Strategically, we think we will continue to grow here," said Axelrod during the company's yearend conference call.

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