Sales Drop at Borders, But Loss Cut
by Jim Milliot -- Publishers Weekly, 8/26/2008 2:57:00 PM
Borders Group was able to trim its net loss in the second quarter ended August 2, but the chain couldn’t counter the soft retail environment and posted a decline in revenue in the period. While Borders’s operating loss rose slightly from $21.0 million to $23.1 million, its loss from continuing operations was cut to $11.3 million from $18.1 million. The loss was less than expected by Wall Street analysts, giving a bump to Borders's stock price. During the quarter, the company sold its Australia/New Zealand/Singapore business and applied the proceeds to help cut its debt, which was reduced to $465.7 million compared to $738.4 million a year ago. Total sales, however, fell 6.9%, to $749.2 million, as comparable store at its superstores and Walden Specialty segment fell compared to the second quarter of 2007 when Harry Potter and the Deathly Hallows was published.
Borders CEO George Jones said that "while we'd love to have positive comps" he was pleased that the company was able to cut its losses and reduce its debt by about 40% compared to the same quarter last year. Jones acknowledged that Borders's aggressive inventory reduction program may have had a negative impact on the top line, but said it was the right approach in reducing the company's expenses. Jones said the bulk of the returns program has been completed. The company also reduced costs by eliminated 274 positions in the period, and Jones said no other corporate layoffs are planned. While the earlier layoffs largely did not impact store personnel, CFO Ed Wilhelm said some stores hours have been cut in a response to slower customer traffic. Jones said Borders is now operating at the appropriate employment level for its sales volume.
At its superstores, sales fell 6.7%, to $614.5 million, with comp sales down 8.9%. Excluding Hallows and the steep decline in music, comp sales were off 3.0%, with same store sales from books down 2.5%. Categories that did well included the bargain book and children’s segments. Superstore sales include results from Borders.com, which the company relaunched in late May and which generated $7.4 million in sales. Jones said he was unhappy with the sales performance of the Web site, something he attributed to a delay in launching the site, which in turn delayed when the company could begin marketing it to its members. Marketing began in mid-July and Jones said sales picked up considerably in the last two weeks of the month. He said despite the late launch, Borders.com will still breakeven for the year.
Sales in the Walden unit fell a total of 17%, to $96.9 million. Comp sales actually fared better than at the superstores, down 7.0% and 1.4% excluding Hallows. Sales in Borders much smaller international group rose 3.8%, to $30.4 million; the group now includes Borders’s three superstores in Puerto Rico, its franchise operations in the UAE and Malaysia, and Paperchase, which is up for sale. Jones declined to discuss how the sale process for Paperchase or for the company itself is proceeding, saying only the the company is continuing to explore its options.
For the first six months of the year, the company’s loss from continuing operations was $41.4 million, down from $46.6 million, while sales fell 5%, to $1.48 billion. Jones said the company is budgeting conservatively for sales for the remainder of the year, but was planning a vigorous promotional campaign for the holidays. If the sale environment improves, "we'll be all over it," Jones vowed. He said the company has opened 13 new concept stores this year and will open the 14th, and last scheduled, soon. The concept stores are operating ahead of plan, but Jones declined to say how many new stores it will open in 2009.
