Borders third quarter results, released just after the market closed Thursday afternoon, provided little sign that the company is turning around as total revenue fell 17.6%, to $470.9 million and comparable store sales dropped 12.6%. The loss from continuing operations was $74.4 million compared to a loss of $37.7 million a year ago. CEO Michael Edwards called the results disappointing, adding they reflect “the business challenges facing Borders and the industry at large.”

Borders’ challenges, however, are stiffer than its competitors. Although the company said digital sales doubled, sales through fell 8.6%, to $12.5 million, something the company attributed to a reduction in marketing while it redesigned the site by adding such items as used books and textbooks. Sales of e-books, however, are included in the third quarter figures. For the first nine months of the year, sales through rose 24% and executives said they have seen sales improvement since the new site was launched in mid November.

Compounded its problems, Borders revealed in its quarterly filing with the SEC that due in part to ts failure to hit its financial targets the liquidation value of its inventory has been lowered, forcing the company to look for new possible sources of financing. In the filing, Borders said it was in detailed discussions with potential lenders for replacement financing that would provide sufficient liquidity through the first part of 2012. The company is also exploring the sale of certain assets, cost cuts and "sales generating initiatives." If the steps are not successful, Borders could be in violation of its credit agreement in the first quarter of 2011, "which could result in a liquidity shortfall," the filing said.

The decline in store comps was attributed mainly to a drop in the adult trade category, while the overall sales decline was impacted by the closure of 204 bookstores between the end of the third quarter of 2009 and the end of the most recent quarter. Digital sales, helped by the creation of Area-e digital shops, had a comp increase of 93.6% in the quarter driven by a number of devices. The newly expanded toys and games segment had a comp gain of 6.6%.

Borders said it will close a total of 16 stores in the fourth quarter, including four outlets where the company negotiated an early lease termination. CFO Scott Henry said Borders continues to vigorously negotiate lower leases with landlords and had secured $10 million in saving already for 2011. In addition, the chain will continue to work to "rightsize" its store footprint. Borders ended the quarter with 674 stores.

In the lone question asked during the conference call, Henry and Edwards said the chain continues to have the support of its vendors and that it is getting "plenty of inventory."

Moving forward, more of that inventory will not be books. Edwards said Borders has plans to transform the Borders brand that will include the right mix of book and non-book items. Although it has begun the makeover, Edwards said the process has not moved far along enough to have made an impact in the third quarter. Beginning in early 2011, Borders will begin a more extensive transformation, creating pilot stores in Washington, D.C. and New York that will feature more room for e-readers and other electronic devices; a "significant increase" in the assortment of educational toys and games; and children's educational and enrichment programs in partnership with an education provider.

The company said the new Borders Rewards program has had a good start, generating $11 million in revenue and with members spending more per ticket than other consumers. Borders said it is also moving its promotional dollars away from in-store programs to programs that will drive consumers into stores.

For the first nine months of the year, total sales fell 15%, to $1.52 billion, and the loss increased to $185.2 million from $169.3 million in the comparable period last year.

Before addressing the quarterly results, Edwards said that he could confirm that William Ackman, one of Borders largest shareholders, had talked to the company about financing a bid for Barnes & Noble and that Borders has been, and continues to be, interested in exploring a combination with B&N.