Borders Book Sales Drop-12.1% in First Quarter

May 28, 2009
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May 28 – June 4, 2009 Edition

Borders Book Sales Drop
12.1% in First Quarter

ANN ARBOR, Mich., (Authorlink News, May 26, 2009)—Borders Group, Inc today reported a 12.1% decline in first quarter sales ended May 2 to $641.5 million, compared to the prior year. Comparable store sales also declined by 13.5% , and superstore and Waldenbooks sales dropped 5.5% during the period.

The company lost $15.9 million in continuing operations. On a GAAP basis, the first quarter loss from continuing operations was $86.0 million or $1.44 per share compared to a loss of $30.1 million or $0.50 per share a year ago. One bright spot was that Borders has slashed its debt load by $266.0 million to $325.9 million—a 44.9% reduction over a year ago and $10.3 million—or 3.1%—less than the end of fiscal 2008.

 “We continued to strengthen the financial structure of the company by making further improvements to cash flow, debt and adjusted EBITDA,” said Borders Group Chief Executive Officer Ron Marshall.  “Make no mistake about it, we have much more work to do and will continue to maintain our financial discipline. At the same time, we know that we cannot save our way to prosperity. Our long-term success will come from doing a much better job of driving sales and that’s where our focus is right now.”

Consolidated Results on a continuing operations basis:

First quarter consolidated sales were $641.5 million, down 12.1% from a year ago.  On an operating basis, Borders Group generated a first quarter loss of $15.9 million or $0.27 per share compared to a loss of $30.5 million or $0.51 per share for the same period last year. On a GAAP basis, the first quarter loss was $86.0 million or $1.44 per share compared to a GAAP loss of $30.1 million or $0.50 per share a year ago. The first quarter GAAP loss includes non-operating, after-tax charges—primarily non-cash—totaling $70.1 million.

Excluding non-operating charges, SG&A as a percent of sales improved over last year by 3.6% from 28.9% to 25.3% due to the company’s aggressive expense reduction initiatives, which were partially offset by de-leveraging due to negative sales trends. Expense reduction initiatives helped reduce SG&A dollar expenses by $48.1 million compared to the prior year. On a GAAP basis, SG&A as a percent of sales decreased in the first quarter by 2.4% from 29.3% to 26.9%.

Operating cash flow improved in the first quarter by $19.5 million to cash generated of $2.4 million compared to cash used of $17.1 million for the period in the prior year.

First quarter capital expenditures were $2.4 million compared to $27.0 million in 2008 as management took aggressive action to reduce capital expenditures. Debt at the end of the first quarter totaled $325.9 million compared to debt at the end of the first quarter a year ago of $591.9 million, a decrease of 44.9%. Inventory productivity improved as the company reduced its first quarter inventory investment to $893.0 million compared to year-ago inventory of $1.1 billion, a 22.2% reduction.

Total sales at Borders superstores, including Borders.com, in the first quarter were $536.7 million, down 10.7% from a year ago. Comparable store sales decreased by 13.5% at Borders superstores in the first quarter. On an operating basis, the segment generated a first quarter loss of $12.7 million compared to a loss of $27.9 million for the same period a year ago. On a GAAP basis, the segment generated an operating loss in the first quarter of $16.5 million compared to a loss of $30.0 million the prior year. The total number of Borders superstores remains unchanged from the close of fiscal 2008 at 515 locations.

Total sales in the first quarter within the Waldenbooks Specialty Retail segment were $76.9 million, a 19.9% decline compared to the same period in 2008 as the number of stores was decreased to 376 at the end of the first quarter this year compared to 476 stores that were open at the close of the same period a year ago. The company closed 11 Waldenbooks locations in the first quarter of this year. Comparable store sales in the first quarter at Waldenbooks decreased by 5.5%.  On an operating basis, the segment generated an operating loss of $5.6 million compared to an operating loss of $12.8 million for the same period in 2008. On a GAAP basis, the segment generated an operating loss of $6.8 million compared to a loss of $13.6 million for the same period in 2008.

The International sales segment (which consists primarily of Paperchase) fell 14.9% to $27.9 million in the first quarter. Excluding the impact of foreign currency translation, segment sales increased by 9.5% for the period. On both an operating basis and GAAP basis, operating income in the International segment for the first quarter was $0.1 million compared to operating income of $1.4 million a year ago.

Borders Group plans to issue fiscal second quarter 2009 results August 25.

Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a leading retailer of books, music and movies with more than 25,000 employees. Through its subsidiaries, the company operates approximately 1,000 stores worldwide primarily under the Borders® and Waldenbooks® brand names. For online shopping, visit Borders.com.

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