Linens ’N Things readies for spring cleaning

CLIFTON, N.J. —After filing for Chapter 11 bankruptcy protection on May 1, Linens Holding Co. notified the Securities and Exchange Commission on May 13 that it would delay filing its 10-Q report for the first financial quarter. The company, parent of retailer Linens ’N Things, said it needs more time to perform an impairment analysis related to assets.

Linens Holding Co. did announce total net sales of $566.9 million for the quarter, a 0.8% decrease over the same period in 2007, with comparable-store sales down 5.7%. Linens ’N Things opened seven stores and closed three in the first quarter, with total store square footage increasing 2.9% to 19.5 million.

When it announced its bankruptcy filing, Linens Holding also stated that Robert DiNicola would leave the post of president and ceo and would assume the position of executive chairman. DiNicola said the current soft economy had pushed Linens into bankruptcy, remarking, “The significant deterioration in the mortgage, housing and credit markets…has overwhelmed the operating and merchandising improvements that we have made over the past two years.”

Michael Gries replaces DiNicola as ceo with the additional title of chief restructuring officer. Gries is a principle of Conway, Del Genio, Gries & Co., which Linens previously engaged as a restructuring consultant. Additionally, David Coder, formerly the evp of store operations, was promoted to president and coo.

Linens Holding Co. received $700 million in debtor-in-possession financing from GE Capital. The company will shutter 120 underperforming stores, located mostly in markets that have been heavily impacted by mortgage and related economic problems, including California, Florida and Michigan.

Currently, plans about renovating the operation haven’t gone farther than the 120 store closures, at least none that have been revealed. Linens spokesman Rich Tauberman said, “It’s still in the early days; in the coming months we’ll be putting together the plans, but the initial step was to close 120 stores.”

Analyst Tiffany Co of Fitch Ratings said the number may not represent enough underperforming stores operated by Linen ’N Things. This will be the second chance Apollo Management has had to close stores, she noted, the first being the original buyout of the chain. It should consider closing any that threaten to weigh on the chain further.

“I think a third of the stores are underperforming,” Co said. “Now they have the protection to revamp and get company and operation models going. Get rid of that bottom third. It seems like Apollo is hesitant about closing doors, but they may need that to get the operation turned around.”

Co said given margin pressures in the domestics business, Linens ’N Things’ failure to gain ground on Bed Bath & Beyond—despite imitating them on housewares, particularly, and home department improvements at middle-market broadliners—will mean the retailer will have a difficult time after any Chapter 11 emergence, even beyond the challenges arising from a general decline in the home furnishings business and the general economy.

Without radical change in company and store-level operations, things aren’t likely to get better. “I think the future is a little uncertain unless you can help consumers find a reason to go into stores,” said Co. “The company’s downfall recently has been not enough traffic.

“They said they had an average ticket increase, but traffic just dropped,” she continued. “It’s what they’ve been doing in the past year with the Best Bet program. They try to come down in pricing so people will come in [and] stimulate traffic, but they cut margins. They have to do something to drive customers in the store.”