Borders Group Sees Soft Year-End

Lowers third-quarter forecast and predicts no growth in fourth-quarter comp sales

by Jim Milliot -- Publishers Weekly, 10/18/2004

Borders Group delivered unwelcome news to investors as well as to the book industry last week, announcing that sales for the third quarter ending October 31 will not hit expectations, and that sales in the fourth quarter will be below last year's fourth quarter on a comparable-store basis. As a result of the weak sales, Borders said, it is projecting a net loss in the third quarter that will range from a loss of 1 cent to 3 cents per share, compared to earlier projections of earnings of 1 cent to 3 cents per share.

For its part, Barnes & Noble had more positive news, though it said that same-store sales at its superstores for the third quarter will be slightly below the low end of its estimates.

Borders reported that, through October 10, comparable-store sales at its superstores fell 1.9% and declined 4.5% at Waldenbooks and that it didn't expect results in the last few weeks of the quarter to have a significant change on the figures. Borders had been projecting that same-store sales at its superstores would be flat to up slightly, while Walden comps were projected to be flat to down slightly. Projections for the fourth quarter are also disappointing, with the chain predicting that same-store sales at superstores will range from flat to a decline in the low single digits, while Walden sales are projected to decline in the low single digits. In last year's fourth quarter, superstore sales were up about 2% over 2002.

The weaker-than-expected second half of the year will offset a better-than-anticipated first six months. The company projects that comp-store sales at superstores will be flat to slightly down for the year, instead of previous projections of a low single digit increase. Walden's same-store sales for the year are projected to drop in the low single digits, compared to an earlier forecast of flat to slightly down. As a result of the disappointing comp-store figures, Borders's total sales will not reach original estimates of a 6% to 7% gain. Earnings per share are estimated to be in the $1.66 to $1.73 range for the year, compared to earlier projections of $1.72 to $1.77.

Borders chairman Greg Josefowicz attributed the sales decline in the third quarter to hurricanes, the presidential election and lighter-than-expected customer traffic. Although a company spokesperson couldn't comment directly on how book sales fared in the quarter, she said sales were sluggish across all categories. The one bright spot for Borders was in its international segment, which is still expected to have a 25% sales increase for the full year.

News of the downward forecast resulted in a 9.4% decline in the company's stock price last Wednesday, the day after the revised guidance was issued. B&N's stock fell 3% Wednesday and, after the market closed, the company said comparable-store sales through October 12 rose 0.8% at its superstores; it had forecasted growth of 1% to 2%. B&N estimated that hurricanes reduced comp-store sales by about 0.25%. Despite the minor sales shortfall, B&N said, it still expected to hit its earnings targets for the quarter. Books-A-Million's stock fell 3.7%; in late September, the company said hurricane damage would cause lower results in the third quarter (News, Sept. 27).