The Wall Street Journal reported Friday that the retailer considers bankruptcy as one of the options to solve the increasing debt problem and may file for Chapter 11 as early as Tuesday. The interesting detail is that Linens ‘n Things is a privately held company but they have to disclose financial information publicly because they have publicly-owned debt, which is obviously why we have this early warning.
A Linens ‘n Things filing would mark one of the first major retailers to seek bankruptcy protection in this economic downturn. The New Jersey retailer, which sells home products like towels, bath rugs and kitchen appliances, has about 590 stores in 46 states and employs 17,000 people.
I almost lost my gift cards when Sharper Image went down in February. Bankruptcy seems to be a convenient way for retailers to avoid paying back the loan they get from customers, which is what a gift card essentially is, and if I had any LNT cards I would run to cash them out at this very moment.
Bed Bath and Beyond is LNT’s key competitor but according MarketWatch they seem to be in better shape to weather the downturn, and as we all know the weakest dies first in a financial crisis.
A key difference between the two retailers’ situations is that Bed Bath & Beyond has $224 million of cash on hand with no long term debt, while Linens ‘n Things has cash of just $16.1 million with $650 million in long term debt.
The question you probably want to ask is who is going to be next. The companies that carry more debt are certainly more affected. The profit margin and recent history of cash flow are also important. I am trying to dig out more information on this and if you have anything to share - please post it in the comments.