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Anna's Linens to utilize new cash for expansion

COSTA MESA, CA – Anna's Linens last week sold a 25 percent stake in the company to Rosewood Capital for $25 million dollars — giving the 80-store retailer sufficient investment dollars to ramp up openings dramatically over the next three years — while maintaining a debt-free balance sheet, according to Anna's president Alan Gladstone.

"There are only two of us out there with no debt," Gladstone said, referring to specialty store sales leader Bed Bath & Beyond, which operates 443 stores. "Growing without debt is going to enable us to make better real estate and merchandising decisions."

With the fresh capital infusion in hand, Anna's now plans to open 120 stores in new and existing markets between 2003 and 2005, with the first 30 of those openings planned for next year.

The company opened 12 stores in 2001 and will open 20 by yearend 2002 for a total of 90 stores.

San Francisco-based Rosewood Capital, founded in 1985, invests in consumer and business services companies with profitable growth and revenues between $25 million and $500 million. Its advisory board members include eBay ceo Meg Whitman, Gap chairman Don Fisher and former Lehman Brothers president Warren Hellman, whom BusinessWeek called "the Warren Buffet of the West Coast." For its investment, Rosewood will be allowed to appoint a director to Anna's board, which will then expand to five members, Gladstone said.

Gladstone remains the majority shareholder in Anna's. Rosewood's 25 percent bought out some earlier investors — a mixture of individual and institutional. Gladstone said the investors received "in excess of 15 times" their investment.

Despite its accelerated expansion plans, Anna's will stick to its core strategy as "a value retailer" of bed, bath and window treatment products, targeting urban communities with large ethnic populations. Gladstone said the company has been investing in personnel and systems for the past two years in anticipation of this move, with significant Cap Ex applied to MIS operations, POS registers and EDI capabilities. The company also has added strategic personnel and expanded duties for others, he said.

"We're always looking for talented operations and merchandising people, and you'll probably see us announce more additions after the holidays," Gladstone added.

Sales have grown 35 percent over the past three years, and comps have run at double-digits for five-and-a-half consecutive years, Gladstone said.

For 2001, HTT's Top 50 Retailers Report ranked Anna's as the fastest growing home textiles retailer, with a sales gain of 37.5 percent to $88.0 million. Anna's ranked 44th overall on the list.

Rosewood managing director Peter Breck said the venture firm sees Anna's as "well-positioned ahead of a large market opportunity," adding that Rosewood was "impressed by its relentless focus on its target customer, deep company culture and unusually consistent and impressive store performance across multiple markets."

Anna's currently operates stores as far east as Mobile, AL, and as far north as Seattle. This past summer, Gladstone announced that Anna's would expand to the Atlantic seaboard in 2003. It currently operates in eight markets, including southern California (its base), northern California, Seattle, Houston, New Orleans, Las Vegas, Phoenix and Mobile, AL.

Competitively, Kmart markets have always been good ones for Anna's stores, and Gladstone expects that additional Kmart closings will give Anna's an added boost.

"It's a two-pronged benefit," he said. "First, it removes product from the market that customers have to go find elsewhere. And second, the real estate. They're cutting up a lot of the Kmart boxes, and in Houston we're going into a former Kmart in 2003 with two other companies."

The liquidation of some 300 Ames stores in the Northeast, on the other hand, doesn't tempt in the near term, he said.

"There's low-hanging fruit in other areas we can take first," Gladstone explained. "We'll get to the Northeast eventually. We're going to remain disciplined and follow the growth plans we've already laid out."

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