LNT profits drop in 4Q

Don Hogsett, February 4, 2002

CLIFTON, NJ — Picking up a hefty tab — $34.0 million — to shutter 17 underperforming stores, big-box retailer Linens 'N Things reported a steep 76.1 percent drop in profits during the all-important Christmas quarter, with earnings falling off to $8.2 million from $34.5 million a year ago.

Acting as a further drag on the bottom line was a triple whammy of narrowing margins, rising costs and a big jump in interest expense and debt.

Same-store sales in the holiday quarter were virtually flat at the home fashions superstore, edging up just 0.1 percent. But given a boost by the roll-out of new stores, overall sales in the closing quarter climbed by 18.6 percent, to $587.9 million from $495.6 million the prior year.

Looking past the one-time charge to better days ahead, analysts and investors were cheered as the retailer managed to beat earnings forecasts even on the subdued level of same-store sales. Earnings per share before one-time items came in at $0.78 a share, about $0.03 ahead of a consensus Wall Street forecast of $0.75 a share.

Stock watchers were also buoyed when the retailer said the store closings should save money and add to profits. Savings from the store closings should add about $0.07 per share to annualized earnings, the retailer said.

Further calming Wall Street, the retailer affirmed its earlier forecast for $2.1 billion in sales this year, and said it's comfortable with a Wall Street forecast of $0.08 to $0.10 earnings per share for both the first and second quarters. For all of this year, the chain said it expects to put up earnings of $1.46 to $1.60 per share.

For the first two quarters same-store sales are expected to be "relatively flat," the retailer said, picking up in the back half. For all of this year, same-store sales are expected to be in the low single digits.

Weighing down the bottom line during the all-important holiday quarter, in addition to flat same-store sales, were sharply tightened margins and higher costs. Average gross margin narrowed by 150 basis points, to 40.7 percent from 42.2 percent the prior year. At the same time, costs climbed higher by 160 basis points, to 32.4 percent from 30.8 percent. Measured in absolute dollars, costs ran up by 24.9 percent — well ahead of the gain in sales — to $190.6 million from $152.6 million, a jump of $37.9 million.

Adding pressure, interest expense shot up by 48.7 percent, to $1.1 million from $718 million, as the company layered on more debt. Short-term debt jumped up to $29.7 million from just $3.9 million last year, while other long-term liabilities climbed to $69.5 million from $56.6 million. The retailer's cash position thinned to $15.4 million from $38.5 million last year.

Linens 'N Things Inc.

Qtr. 12/29 (x000) 2001 2000 % CHG
a-Earnings in the quarter were reduced by a $34.0 million one-time restructuring charge. b-12-month earnings were reduced by a $34.0 million one-time restructuring charge and a $4.0 million charge resulting from the settlement of a wage-related class-action lawsuit brought by a group of California store managers and former employees. c-Excluding one-time items, earnings per share in the fourth quarter declined by 7.1 percent, to 78 cents vs. 84 cents a year ago; 12-month earnings per share declined 15.0 percent, to $1.36 from $1.60.
Sales $587,899 $495,574 18.6
Oper. income (EBIT) 48,884 56,568 -13.6
Net income 8,242a 34,529a -76.1
Per share (diluted) 0.20c 0.86c -76.7
Average gross margin 40.7% 42.2%
SG&A expenses 32.4% 30.8%
12 months
Sales $1,823,803 $1,572,576 16.0
Oper. income (EBIT) 90,486 107,092 -15.5
Net income 29,749b 64,937b -54.2
Per share (diluted) 0.72 1.60 -55.0
Average gross margin 40.7% 40.9%
SG&A expenses 35.8% 34.1%

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