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LNT Retrenches Further

As shoppers picked over the sparse remains of a closing Linens 'n Things store here late last week — literally selling out to the bare walls — the retailer reported continued steep sales declines, and a federal bankruptcy court judge in Delaware ruled that about 85 more stores may close.

There's nothing pretty about the liquidation process. Shoppers pored over increasingly slimmer pickings in this Okeechobee Boulevard store, scheduled to close this past Sunday, as retailers and other tradesmen shopped hardware and fixtures in the rear. Many of the remaining goods on mostly empty shelves were damaged or shop-worn. The scene filled out the picture of LNT's struggle to survive and reinvent itself, even as it retrenches and its financial results appeared more challenging.

With net sales of $468.1 million for the quarter ended June 28, LNT saw a 21.1% decline in sales that included an 18.3% drop in comparable-store sales. Those results do not include $35.9 million in liquidation sales related to the first round of 120 store closings still underway.

Sales for the first six months of the fiscal year fell 11.2% to $1.035 billion, without the contribution of the store closings. The company notified the Securities and Exchange Commission that it will delay the full filing of its quarterly report until it is able to do so.

In the meantime, Gordon Brothers Retail Partners and the joint venture firm Hilco Merchant Services were named for the going-out-of-business sales at the units. They bid to be the stalking horse in the first round of 120 store closings but lost out to the joint venture of SB Capital and Tiger Capital.

The agreements calls for an agent's fee of 5% of the merchandise cost and a minimum guaranteed payment to LNT of 102.6% of the goods at cost. Sales beyond the fee and the guarantee will be split 50-50 between the agents and LNT, after expenses, according to the agreement approved by the court.

The additional 28 stores were added to the closing list 10 days ago in order for LNT to remain in substantial compliance with the waiver last month to its $700 debtor-in-possession financing agreement. After failing to hit budgeted sales for two consecutive four-week periods, LNT won the waiver of the requirement but with the proviso that it keep 80 percent of the chain open, unless landlords granted extensions to accept or reject the leases. The company must reach those agreements or begin liquidating those stores by the end of August.

Bankruptcy law provides debtors with up to 210 days to decide whether to accept or reject leases.

The closures will come on the heels of the original 120 stores closed by LNT. Some of those stores are still in the closing process. The auction to sell the 120 leases yielded only five sales. Following the second round of liquidations, the company will emerge with 384 stores — 35% fewer units than it had in December 2007.

LNT said it ended the quarter with an asset-based revolver balance of $200.9 million (excluding outstanding letters of credit totaling $63.3 million), cash on hand of $42.7 million and excess availability under its revolving credit facility of $176.7 million.

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