Borders Looks for Earnings Gain in Fiscal 2002

Jim Milliot |

Feb 12, 2001

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Borders Looks for Earnings Gain in Fiscal 2002 Jim Milliot -- 2/12/01 In a February 1 conference call, Borders Group executives estimated that earnings for the next fiscal year will be about 15% higher than earnings for the fiscal year ended January 28, 2001. Borders president Greg Josefowicz and chief financial officer Ed Wilhelm said the earnings growth will be the result of an improved performance in its domestic superstore division, lower losses in its international and online operations and a small decline in profits at Waldenbooks. Although sales were disappointing in the fourth quarter, the two men noted that business picked up in the last six weeks of the period, when comparable-store sales at Borders's superstores were up 4%-5%, compared to a 1.8% increase in same-store sales for the entire quarter. Total superstore sales rose 12.7% in the quarter, to $725 million. Walden had flat comparable-store results in the same six-week period, although same-store sales were off 3.7% in the quarter. International sales increased 20.4% in the last quarter, to about $70 million, while sales at Borders.com rose 22.2%, to approximately $9 million. Profit improvement in fiscal 2002 is also expected to be helped by the company's decision to shed its All Wound Up division, which lost $5 million in the most recent quarter, as well as Borders's decision to take a one-time charge in the quarter of between $21 million and $24 million related to the writedown of assets at Borders.com and Waldenbooks. Approximately 55% of the one-time charge will tied to writing down hardware and software assets at Borders.com. The executives said they believe the direct-to-consumer portion of Borders.com will continue to lose money for the foreseeable future, and they vowed to look for "any and all ways" to cut the losses in that part of the business without hurting Borders's in-store online activities, such as Title Sleuth, that are profitable. Josefowicz said the online market for books "has matured faster than thought" and predicted that Internet sales will account for no more than 10% of industry sales in calendar 2002. The company will curtail its store-opening program this year to focus on improving the comp-store performance of its superstores, where it is looking for growth of 3%-4%. Borders plans to open 25-30 new domestic superstores this year and five or six international outlets, while cutting the number of Walden stores by 30-40 stores. Despite slashing the number of Walden outlets, the executives said they expect that the chain can continue to be a steady source of cash flow through cost-containment efforts that include minimizing capital spending. A change in Walden's product mix to include music and gift items is also in the works. In addition to reporting one-time writedowns in the fourth quarter, Borders said costs in the period rose because of escalating costs related to the litigation with the American Booksellers Association.

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Borders Looks for Earnings Gain in Fiscal 2002
Jim Milliot -- 2/12/01

In a February 1 conference call, Borders Group executives estimated that earnings for the next fiscal year will be about 15% higher than earnings for the fiscal year ended January 28, 2001. Borders president Greg Josefowicz and chief financial officer Ed Wilhelm said the earnings growth will be the result of an improved performance in its domestic superstore division, lower losses in its international and online operations and a small decline in profits at Waldenbooks.

Although sales were disappointing in the fourth quarter, the two men noted that business picked up in the last six weeks of the period, when comparable-store sales at Borders's superstores were up 4%-5%, compared to a 1.8% increase in same-store sales for the entire quarter. Total superstore sales rose 12.7% in the quarter, to $725 million. Walden had flat comparable-store results in the same six-week period, although same-store sales were off 3.7% in the quarter. International sales increased 20.4% in the last quarter, to about $70 million, while sales at Borders.com rose 22.2%, to approximately $9 million.

Profit improvement in fiscal 2002 is also expected to be helped by the company's decision to shed its All Wound Up division, which lost $5 million in the most recent quarter, as well as Borders's decision to take a one-time charge in the quarter of between $21 million and $24 million related to the writedown of assets at Borders.com and Waldenbooks.

Approximately 55% of the one-time charge will tied to writing down hardware and software assets at Borders.com. The executives said they believe the direct-to-consumer portion of Borders.com will continue to lose money for the foreseeable future, and they vowed to look for "any and all ways" to cut the losses in that part of the business without hurting Borders's in-store online activities, such as Title Sleuth, that are profitable. Josefowicz said the online market for books "has matured faster than thought" and predicted that Internet sales will account for no more than 10% of industry sales in calendar 2002.

The company will curtail its store-opening program this year to focus on improving the comp-store performance of its superstores, where it is looking for growth of 3%-4%. Borders plans to open 25-30 new domestic superstores this year and five or six international outlets, while cutting the number of Walden stores by 30-40 stores. Despite slashing the number of Walden outlets, the executives said they expect that the chain can continue to be a steady source of cash flow through cost-containment efforts that include minimizing capital spending. A change in Walden's product mix to include music and gift items is also in the works.

In addition to reporting one-time writedowns in the fourth quarter, Borders said costs in the period rose because of escalating costs related to the litigation with the American Booksellers Association.

A version of this article appeared in the 02/12/2001 issue of Publishers Weekly under the headline: