Despite weaker than expected sales in the second quarter, executives at Barnes & Noble and Borders Group told analysts in conference calls late last month that they expect an extremely strong lineup of fall and holiday books to make for a reasonably good second half of the year, in what Borders Group chairman Greg Josefowicz described as a "challenging sales environment." Sales have been "less than robust" the last few months, Josefowicz said, while B&N CEO Steve Riggio acknowledged that store traffic was "not as strong as planned," which led to softer than expected sales in the most recent quarter. B&N executives also noted that the retailer had a "slight lag" in its returns process in the second quarter, something that will be corrected in the third period.

Borders executives said the company's strongest sales came around Mother's Day and Father's Day, as well as during the graduation season, a trend they attributed to Borders advertising campaigns that stress the value of books as gifts. They are hopeful that similar advertising campaigns will spark sales during the big December holiday season.

In addition to books from well-known authors, chain executives expect titles about September 11 to sell well, observing that a few such books have already hit bestseller lists. Riggio said he expects gift books to also do well in December, a category that will be "dominated" by B&N's own aggressive publishing program. Riggio had no concrete plans for the expansion of B&N's publishing operation, although he said the company's recent publication of 100 Sparks Notes guides could serve as a "case study" about how future publishing efforts would proceed. B&N has just published 50 additional Sparks Notes and will soon enter the SAT study guide arena.

Sales in the second part of 2002 should also be helped by new store openings. Borders is on track to open 41 new superstores in the fiscal year, while B&N plans to open 29 new superstores in the balance of the year, in addition to the 16 outlets it has already opened. Both companies, however, continue to downsize their mall store operations. Although Borders will renew leases on about 120 Waldenbook outlets this year, it will close approximately 40 underperforming stores as part of its goal to be left with 700 to 750 profitable locations. It finished the quarter with 811 Waldens. B&N will close 40 Dalton outlets this year as the company shrinks the chain "to a profitable core." There are currently 286 Dalton stores.

Committed to B&

Asked about the future of, given the recent shakeup at Bertelsmann (which holds a 36% stake in the e-tailer), Riggio emphasized that both B&N and Bertelsmann remain committed to the company. He said B& has enough cash to support itself through mid-2003, and that he expects new financing to be in place to carry the company into the future.