Borders Group managed to improve cash flow and cut its debt in the first quarter, but the bookstore chain continued to struggle with sales as total revenue fell 12.1% in the period ended May 2, to $641.5 million. Sale at the superstores, which now includes, fell 10.7%, to $536.7 million with comp sales off 13.5%. Sales at the Waldenbooks specialty group fell 19.9%, to $76.9 million, due to a combination of 11 store closures and a 5.5% drop in same store sales. A series of one-time expenses ate into the company’s bottomline resulting in a loss from continuing operations of $86 million compared to a loss of $30.1 million in last year’s first quarter. On an operating basis, the loss was $15.9 million down from $30.5 million in the comparable period in 2008.

To lower costs in the quarter, Borders cut capital expenditures from $27 million to $2.4 million and reduced inventory by 22%, to $893 million. CEO Ron Marshall said while the company will continue to maintain “financial discipline,” he knows that the company must to a much better job of driving sales, “and that’s where our focus is right now.”

CFO Mark Bierley said that in addition to the difficult retail environment, sales were down because of the company's decision to reduce inventory, which he said Borders continues to refine with publishers and other vendors. He believes that disruptions caused by that process should come to an end by the second half of the year. Another factor in the sales decline was poor execution in communicating to customers the retailer's offerings. "We've got to become better booksellers," Bierley said. He reiterated Marshall's remarks that improving sales is where the company's priority is right now.

At last week's annual meeting Marshall said expanding Borders's children's section was one way to grow sales, and Bierley said "we are undersized in kids." The company will spend the second quarter expanding the children's section, which he said ranges from infant through teens. Expansion will come in areas that use to be occupied by music and movie titles. The company has been steadily reducing that inventory and Bierley said the amount of music and movie offerings are about where the company wants them to be.