A Quarter to Forget

Sales at the nation's three largest bookstore chains fell 3.8% in the quarter ended August 2, and while difficult comparisons to last year's quarter, when the chains combined to sell millions of copies of Harry Potter and the Deathly Hallows, was a significant factor in the decline, the drop in sales also reflected a soft retail market. Barnes & Noble, Borders and Books-a-Million all reported that even excluding Potter, comparable-store sales were still down in the period. Borders, which was the last of the chains to report results, said comp sales at its superstores fell 8.9% in the quarter, but that excluding Hallows and weak music sales, comps were down 3.0%; same-store sales of books were down 2.5%. B&N's superstore comps were down a total of 4.7% (1.5% excluding Hallows). Like his competitors at B&N and BAM, Borders CEO George Jones said the chain is not counting on a significant improvement in business in the second half of the year. CFO Ed Wilhelm said that sales in the first few weeks in August remained soft, which was expected given the country's interest in the Olympics, keeping consumers out of stores.

Borders's second quarter did contain some good news for investors and publishers. The company cut its net loss from continuing operations from $18.1 million to $11.3 million, significantly lower than expected. Cost controls—the company eliminated 274 positions in the quarter—plus tighter inventory management were cited as two key factors in reducing the loss. Borders slashed its inventory by 14.5% in the period, but Jones said the bulk of the returns has been completed. He added, however, that Borders will continue to tightly monitor its inventory levels and reiterated that the company's policy of displaying some books face-out at its concept stores will be expanded to all of its stores. The company has already opened all but one of its 14 scheduled concept stores, although it has not revealed its store opening plans for 2009.

Jones declined to discuss if the store was getting close to selling its Paperchase division or any new developments about the possible sale of the entire company. Wilhelm said that even without the sale of Paperchase, Borders has the financial capacity to make it through the upcoming peak debt season.