Borders Group Sales Rose 5%, to $3.39 Billion

Aided by a 5.6% increase in fourth-quarter sales, to $1.2 billion, total revenues for Borders Group rose 5.1%, to $3.39 billion, for the fiscal year ended January 28, 2002. Earnings are also expected to be up, although final figures will not be available until March.

Company president Greg Josefowicz reported that the retailer had strong holiday results across all its businesses. Book sales were led by romance titles, cookbooks and boxed sets plus extremely strong children's book sales. DVDs had "explosive" growth in the quarter, while gift and stationery products also had solid sales gains.

Sales at Borders superstores rose 7.6% for the year, to $2.23 billion. Comparable-store sales were ahead 2.0%. Josefowicz said sales gains were boosted by an increase in the average transaction plus higher foot traffic. At Waldenbooks, sales were down 3.1%, to $901.5 million. Same-store sales were off 1.6%. The sales decline was due to store closings, which offset a strong performance by Walden's calendar kiosk business. International sales increased 15.9%, to $251.7 million, with stores in the U.K. doing particularly well. Josefowicz said he was very encouraged by the performance of Borders's U.K. suburban stores, which are smaller and less expensive to open than city outlets. A total of eight international superstores are planned to be opened this year.

Josefowicz said he considers 2002 to be "a great opportunity to build on the successes" of the past year. The company is projecting a 15% increase in net income on an 8% gain in sales. The forecast calls for a 3% increase in comparable-store sales at the superstores with a 20% increase in profits. Same-store sales are expected to decline 2% at Walden, and profits are projected to fall 10%. Total sales in the international group are projected to increase 20%, and the loss in the segment is expected to fall between 40% and 50%. The company expects the international group to be profitable in 2003.

Borders plans to allocate about $120 million for capital expenditures in the year, which will be used for store openings and new technology. Forty domestic superstores are set to be opened this year (five in the first quarter, five in the second, 12 in the third and 18 in the fourth). The company also plans to close 40 Walden outlets in the year and will scrutinize the 140 leases that are up for renewal. There were 825 Walden stores going into this year, and Josefowicz said that within three years he expects that number to shrink by 100 to 150 stores.

Company CFO Ed Wilhelm noted that the bankruptcy of Kmart, Borders's former parent company, would not have a material effect on the chain. The only action Borders needs to take is to repay a $33-million note.