Sluggish Start for Chains

Only B&N has positive comps

by Jim Milliot -- Publishers Weekly, 6/4/2007

First-quarter sales at the nation's three largest bookstore chains rose 2.4%, to $2.15 billion. Barnes & Noble had the strongest quarter with sales up 2.8%, while Borders Group and Books-A-Million both reported a sales gain of 2.1%. In addition to posting the largest sales increase among the big three, B&N was the only one to report an increase in same-store sales in the period, with comp store sales up 1.7% compared to a decline of 1.9% at Borders's domestic superstores and a 0.5% decrease at BAM. BAM, however, was the only chain to report an increase in net income, up 40% in the quarter, while the net loss at Borders deepened to $35.9 million from $20.2 million, and B&N had a loss of $1.7 million compared to profits of $10 million in last year's first quarter.

At Borders, book comps were down slightly in the quarter, but music same-store sales were again down by double digits. Borders attributed the decline in overall comp sales mainly to a 4% drop in customer traffic, and CEO George Jones told analysts in a conference call that getting more customers into its superstores “without giving away the farm” is a top priority for the company. He said a lack of traffic was a problem throughout the quarter and has continued into May. Jones was optimistic that Borders's new concept store, still set to be unveiled in next year's first quarter, should draw more shoppers, but stressed that Borders can't wait until 2008 to address the issue. The revamped loyalty program, implemented this winter, is aimed at getting customers into stores on a year-round basis compared to the old program, which emphasized the fourth quarter, but Jones said the “jury is still out” on how it is working. Jones said he is very happy by the number of loyalty members, now at 18 million.

The performance of the Walden specialty group, where comp sales fell only 1%, was a pleasant surprise to several analysts, and Jones said better merchandising had helped to limit declines. And while Jones said he was also pleased with Walden's performance, there are no plans to alter the downsizing program that aims to close 200 mall outlets by the end of 2008.

Borders's international stores, most of which are up for sale, posted a 22% sales increase in the quarter, although comp sales were down 2.5%. Jones said sales in Australia and New Zealand were good, but the U.K., after reviving a bit in the fourth quarter, had a “tough” first period. Another priority for Borders, upgrading its back-office systems, is proceeding, Jones said. The company has hired a new chief information officer, Susan Harwood, currently v-p of information technology at BAM, although Harwood will not join Borders until September.

Despite the July release of Harry Potter and the Deathly Hallows, none of the chains predicted a blowout second quarter. Only B&N provided a forecast for the quarter, predicting the comp store sales will increase in the low to mid-single digits. Borders and BAM said pre-orders have been heavy, and both said they hope to capitalize on the extra customers the title will bring into the stores. The quarter will also see the release of Borders's first novel from its proprietary publishing arm, State Street Press; Slip and Fall by Nick Santora will be released June 11.