PW: Borders Lowers Earnings Estimates

The company reported that earnings for the year ended January 24, 1999, will likely be in the $1.11 to $1.13 per share range, explaining that while earnings from its stores are expected to be between $1.23 to $1.25 per share, it expects to record a loss of 12 to 13 cents per share from its online business. Previously, Borders had said earnings would be between $1.14 and $1.18. Sales at Borders.com were $4.6 million in fiscal '98, with $2.6 million in sales earned in the fourth quarter. Borders anticipates that Borders.com's sales in the current fiscal year will be roughly $25 million, generating a loss of about 21 cents, to 24 cents per share. After the earnings announcement, Borders stock fell 15%, to $17.13.

Borders.com is not the only reason that the company's earnings are below forecast. Comparable-store sales at its superstores rose 3.5% in the year and fell 1% at Waldenbooks. New Borders CEO Phil Pfeffer called the comparable-store sales figures "totally unacceptable" and promised to devote the company's efforts to correcting the situation. Sales for all stores, including the group's international operation, rose 14.3% to $2.59 billion.

Among the initiatives set for fiscal 2000 is more aggressive marketing of the Borders brand, including a plan to do more cross-marketing between its stores and Borders.com. The company also hopes to increase sales by expanding the special order program at its superstores, while also making the program available to Walden outlets. In addition, the chain expects to open 50 to 55 stores this year, including four in the U.K. and one in New Zealand. Three Books, etc. outlets are also scheduled to be opened this year as well as 30 international kiosks.

Another strategy to improve sales is to increase the chain's stationery and sideline sales; to that end, Borders has acquired a 19.9% stake in the U.K. company Paperchase Products Ltd. Paperchase operates 18 stores and concessions in three Books, etc. stores and two Borders outlets in the U.K. Borders plans to team with Paperchase to introduce a new line of products in several U.S. superstores this spring. If the test is successful, Borders will roll out the new line in 2000.