It was the "'n Things" part of Linens 'n Things (NYSE:LIN) that socked the home decor retailer's performance last month as an emphasis on fashion and lower-priced goods cheapened the experience for shoppers who apparently avoided the store at all costs. Same-store sales dropped more than 10% for the quarter, leading to a 94% decline in profits and a 4% drop in total net sales.
It didn't cause much of a stir in the stock's price, however, because the company had warned the previous month that it would miss estimates, while also announcing it was putting itself up for sale. Fellow Foolish contributor W.D. Crotty said that with the valuations Linens 'n Things was sporting at the time, a corporate investor could find value in the business.
It was undoubtedly those low valuations that attracted a private equity group to seek an acquisition of the towels 'n stuff company. According to today's Financial Times, while Apollo Management hasn't offered a buyout price yet, since it's still early in the negotiations, it is believed that the final numbers will exceed Linens 'n Things' current $1.2 billion sticker price. This price accounts for the 500 stores in 45 states and five Canadian provinces the company operates.
The home doodads retailer has had a rough go of it as discounters like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) aggressively promote their own lower-cost home furnishings, and category leader Bed Bath & Beyond (NASDAQ:BBBY) has been experiencing stellar growth. Moreover, the back-to-school merchandise Linens 'n Things offered in an attempt to generate foot traffic was simply seen as too narrow to appeal to a wider audience. With middle-market retailers like J.C. Penney (NYSE:JCP) vigorously pushing back-to-school products at the same time, there was little chance for the retailer associated with bath decor to gain traction.
It still seems to be a fairly risky acquisition for Apollo Management, even if it's coming at a discount. Sales at Linens 'n Things have faltered over the past two quarters, dropping 1% and 3%, respectively, while earnings have been even worse. Per-share profits have dropped below prior year results every quarter for the past two years.
Revenues
|
FY2005 |
FY2004 |
FY2003 | |
|
Q1 |
570.9 |
552.8 |
480.5 |
|
Q2 |
573.3 |
578.7 |
523.7 |
|
Q3 |
629.3 |
654.2 |
602.8 |
|
Q4 |
NA |
875.7 |
788.3 |
|
Total |
NA |
2,661.4 |
2,395.3 |
Earnings
|
FY2005 |
FY2004 |
FY2003 | |
|
Q1 |
-$0.09 |
-$0.02 |
$0.05 |
|
Q2 |
-$0.13 |
$0.00 |
$0.13 |
|
Q3 |
$0.02 |
$0.38 |
$0.47 |
|
Q4 |
NA |
$0.93 |
$1.03 |
|
Total |
NA |
$1.31 |
$1.68 |
Returning to the linen marketer's core roots, while at the same time eliminating the confusion and profusion of home decor and things, might provide a fresh scent to a stale brand and reverse the threadbare look of the financial statements.
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Fool contributor Rich Duprey owns shares of Wal-Mart, but none of the other stocks mentioned in this article. The Motley Fool has a disclosure policy
