Bed, Bath & Beyond is considering an acquisition of rival Linens ‘N Things, which has recently hired an investment bank to advise it on a possible sale of the company, industry sources said.
Should Bed, Bath & Beyond decide to pursue a deal – and it remains unclear whether it will – the company would have an opportunity to consolidate the home goods market in the face of increasing competition from rivals like Wal-Mart, Target and a host of department stores, these people said.
Ronald Curwin, the chief financial officer of Bed, Bath & Beyond, did not return a call seeking comment. A call to Linens ‘N Things was not returned.
While a combination of the two companies is not without risks – and analysts expressed a healthy dose of skepticism that such a deal would ever come to fruition – the rewards could also be outsized.
The performance of Linens ‘N Things, the No. 2 player with $2.6 billion in sales, has lagged Bed, Bath & Beyond, the market leader with annual sales of $5.2 billion. By applying its operating tactics, which include a decentralized system that empowers store managers, many of whom have been promoted from the sales floor, to its weaker rival, Bed, Bath & Beyond could see sizeable gains.
Sales per square foot at Bed, Bath & Beyond stores average $220, analysts estimate – higher than the $165 per square foot at Linens ‘N Things. As a result of buying and operating efficiencies, even a small increase at Linens ‘N Things could translate into a large increase in profits, analysts said.
To avoid the problem of store overlap, which is considerable, Bed, Bath & Beyond would continue to operate both nameplates, much the way the TJX Companies does with T.J. Maxx and Marshalls, sources said.
In the past, Bed, Bath & Beyond has tended toward smaller deals, buying the Harmon Stores drug chain in March 2002 and the Christmas Tree Shop in June 2003. But with $877 million in cash on its balance sheet, as of the most recent quarter, some investors have begun to itch for bigger deals.
That desire has been magnified by the realization that with 660 stores Bed, Bath & Beyond won’t be able to continue growing at its current pace indefinitely. The company has been adding about 70 new stores a year. “But,” said Mollie Hetzel, of Friedman, Billings, Ramsey, “They are getting to a point where their growth is starting to slow.”
Consolidating its position in the home market would also allow Bed, Bath & Beyond to better compete against discounters and department stores.