Linens 'n Things rocks 'n rolls

Company sees profits up almost 15 percent

Don Hogsett, Laurie Karzen, February 9, 2004

Helped by its strongest same-store sales gain in the past two years, as well as lower costs and interest expense, Linens 'n Things pushed fourth-quarter profits up by 14.5 percent, to $46.1 million from $40.2 million last year.

Sales in the Christmas quarter rose by 9 percent, to $788.3 million from $723.3 million a year ago. Helping the bottom line, same-store sales rose by 4.7 percent, its best performance since 2001, said Norman Axelrod, chairman and CEO.

Coming in at $1.02 per share on a fully diluted basis, earnings beat Wall Street's forecast by a penny. Cheered by the news, investors pushed the price of Linens 'n Things stock higher in the hours that followed the earnings release on Wednesday, Feb. 4. Shares of the retailer jumped by $2.15, or 7.5 percent, to $30.69, with more than 1.5 million changing hands.

"A key indicator of our performance in the fourth quarter is that sales were generated from both an increase in guest traffic, as well as an increase in average transaction," said Axelrod.

Fueling the bottom-line growth — in addition to the improvement in comps — the retailer kept whittling down costs by 50 basis points to 30.6 percent from 31.1 percent the preceding year. At the same time, the company was able to hold margins steady at 40.1 percent.

Lifted by the stronger same-store sales and lower costs, operating profits jumped, rising by 14.2 percent to $74.8 million from $65.5 million.

In another modest lift to profits, the retailer continued to pare its interest expense after paying down much of its debt. Interest expense was cut by almost a third (32.4 percent) to $276,000 from $408,000 last year.

Running somewhat ahead of the 9 percent increase in overall sales, inventories swelled by 14.1 percent during the holiday period, to $701.9 million from $615.3 million.

Going forward, Linens 'n Things forecasts that total sales for the new fiscal year will rise by 11 to 14 percent, with square footage increasing about 10 percent. But hobbled by new accounting rules governing the way vendor allowances are handled, the retailer estimated that diluted earnings per share for all of 2004 will be roughly flat with this year.

After $1.67 in per-share earnings for 2003, Linens 'n Things said it expects profits will come in at $1.66 to $1.71 after taking the accounting hit.

Linens 'n Things Inc

Qtr. 01/03 (x000) 2003 2002 % chg
Sales $788,313 $723,322 9.0
Oper. income (EBIT) 74,811 65,503 14.2
Net income 46,063 40,240 14.5
Per share (diluted) 1.02 0.90 13.3
Average gross margin 40.1% 40.1%
SG&A expenses 30.6% 31.1%
12 months 2003 2002 % chg
Sales 2,395,272 2,184,716 9.6
Oper. income (EBIT) 121,953 114,269 6.7
Net income 74,825 69,246 8.1
Per share (diluted) 1.67 1.60 4.4
Average gross margin 40.3% 40.0%
SG&A expenses 35.2% 34.7%

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