14301 Fri, 04/18/2008 - 3:11pm
By Barbara Thau
CLIFTON, N.J.–Linens ’n Things said it expects its financial fate to be determined by early May.
The struggling retailer is evaluating scenarios that include filing a pre-packaged bankruptcy or securing a cash infusion from Apollo Management LP, the private-equity firm that purchased the retailer in 2006.
The retailer has not ruled out a conventional Chapter 11 filing, Bob DiNicola, chairman and chief executive officer, told HFN, in an exclusive interview from the retailer’s headquarters here today.
DiNicola, who took on the CEO spot in 2006, also stressed that his turnaround strategy was working. However, with the retailer’s high debt levels and the souring economic picture, “We found ourselves in a tight squeeze.” Due to the housing malaise, credit crunch and recessionary climate, “the world imploded just as we were starting to get traction,” he said. The “financial structure of this company was never designed to [withstand] the pressure we were forced to absorb.”
Today, Linens is paying vendors for key items, “and we hope to be releasing new orders as early as Monday [April 21],” he said.
That merchandise will be paid on a cash-on-delivery basis, while foreign goods will be handled on a letter-of-credit basis, he said.
Numerous vendors have told HFN that they have stopped shipping the chain due to non payment and advice from factoring firms.
“There is an anxiety level involved,” DiNicola said. “The longer we wait, the longer the distractions upset us.”
The retailer has retained banking firm Financo as well as Conway, Del Genio, Gries & Co. LLC as financial advisers to devise a plan that in the next 30 days satisfies vendors, bondholders, creditors and its employees, DiNicola said.
Apollo “has a desire to make [a cash] infusion of sorts,” DiNicola said.
Linens could have benefited from a cash infusion from Apollo in the post-holiday period. That’s when its comparable-store sales slipped 1 percent, “faring well compared to most of the competition,” DiNiCola said.
A restructuring plan could include closing “a minimal number of stores” in the 589-unit chain, DiNicola said.
Despite whispers that the retailer could sell its 40-unit Canadian division, “Our plan is to continue with Canada,” he said. “But we want to be able to say, at the end of the day, that we’ve explored all options.”
Despite its woes, the retailer is in stock on 97 percent of its merchandise now, DiNicola said.
“At this point, we are still working with the vendor community on first-class key items, advertising goods that are important to volume, customer service and brand-integrity issues,” he said. But shipments “have slowed down dramatically for obvious reasons.”
Although the retailer has been posting consecutive bottom-line losses, DiNicola said his strategy was starting to bear fruit. That strategy included getting back to basics by highlighting key items with its Best Bets handle, supported by a “rounded assortment” of coordinated home goods presented by classification in shops.
Despite criticism that Linens’ aggressive promotions hurt the chain, DiNicola said the business was no more promotional than when he took on the chain in 2006.
“Margins have been affected mostly from clearance markdowns” and an unbalanced mix of soft home and hard home that has been largely rectified, he said. “Our margins are up and our volume is reasonably competitive.”
He pointed to Linens’ Canadian business as evidence that his fix-it strategy is just fine.
In Canada, where the economic picture is more stable, comp-store sales rose 6 percent in 2007, compared with a 3.5 percent drop in 2005.
If all goes well, the retailer will enter phase two of DiNicola’s nine-year turnaround plan, which will involve growing the bridal business.
That’s when it hopes to emerge and “be an industry leader,” DiNicola said.