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Borders Stores Post Gains, But Loss at E-retailing Unit Lowers Earnings
Jim Milliot -- 3/13/00

As the industry continued to speculate about the fate of the Borders Group last week following its announcement that it is exploring strategic options (News, Mar. 6), the nation's second largest bookstore chain reported solid gains in its core bookstore businesses.

Total sales for the stores rose 15.1%, to just under $3 billion, and net income increased 8.1%, to $110.9 million. Its superstore group posted a 22.4% sales gain to $1.91 billion, due to a 5.4% increase in same-store sales and the opening of 46 new outlets, giving the company 291 superstores at the end of its fiscal year on January 23, 2000. Sales at Waldenbooks reversed a longtime slide, with revenues up 4.2% to $981.4 million. Comparable store sales rose 0.7% in the year and Walden ended fiscal 2000 with 904 stores, an increase of four outlets compared to the end of fiscal 1999.

The strong profit performance by the stores was offset by a net loss of $17.2 million at Borders.com; sales at the e-retailer rose 289%, to $17.9 million. The loss at Borders.com plus a one-time charge dropped overall earnings for the Borders Group to $90.3 million from $92.1 million in fiscal '99, while total revenues rose 15.6% to $3 billion.

Borders president Greg Josefowicz noted, "Our focus was and continues to be on growth and performance, emerging from an overall strategy of retail convergence." He added that the struggling Borders.com unit "continues to be a vital tool" in the company's convergence strategy.

The performance report did little to impress investors; the company's stock was still selling below $15 on March 8, a price that only reinforced Borders management's determination to find a way to lift its stock price. The route a number of industry members think Borders will choose is taking the company private through a leveraged buy-out. Its low stock price plus its healthy cash flow makes a management buyout extremely feasible, observers said. The purchase of the company by either an American investment group or a foreign retailer were other options mentioned by industry members. The only company in the industry that may be interested in acquiring Borders is Amazon.com. One publishing executive noted that by acquiring Borders, Amazon "would move itself closer to profitability," something that has eluded the e-retailer since its launch.

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