March 27 – Apr 03, 2008 Edition

B&N, Borders
Showing Signs
of Slowing Economy

NEW YORK, NY/3/27/2008–America’s two largest retail bookstore chains both made the news last week as Borders Group, Inc. announced the retailer is now for sale, and analysts predicted its chief rival, Barnes & Noble, would be the likely buyer. All this, despite the fact that Barnes & Noble reported lower quarterly profits, and foresees same-store sales in the current first quarter in slight decline.

Barnes & Noble Inc. reported March 20 that fourth-quarter earnings declined 9 percent. Barnes & Noble earned $115.04 million, or $1.79 per share, in the three-month period ended Feb. 2, compared with $126.73 million, or $1.83 per share in the year-ago period.

For the year, Barnes & Noble earnings declined to $135.8 million, or $2.03 per share, compared to $150.53 million, or $2.17 per share, in the year-ago period. Sales totaled $5.4 billion, from $5.26 billion in the previous year.

Looking ahead, the company expects first quarter comparable store sales at Barnes & Noble stores to be slightly negative, and as previously announced, full-year comparable store sales are expected to be slightly positive.

Barnes & Noble, Inc.’s first quarter earnings are expected to range from $0.05 to $0.10 per share. As previously announced, Barnes & Noble, Inc.’s full-year earnings per share are expected to range from $1.70 to $1.90, approximately flat with 2007 on an operating basis.

The company said it would raise its quarterly cash dividend to 25 cents per share from 15 cents, and now expects earnings of 5 to 10 cents per share in the current quarter. Analysts had expected a loss of 2 cents per share.

Borders, in contrast, suspended dividends, and received a $42.5 million loan at 12.5% interest from its largest shareholder, Pershing Square Capital Management LP.

Borders Chief Executive Officer George Jones has told the media that the current U.S. credit crunch made a loan necessary. He said there are no plans for layoffs, and stressed “There was not a crisis. So why did we do the loan? Because we don’t want to have a crisis. We’re not in trouble; we’re not in trouble at all.”

This year, the chain is introducing concept stores that have digital download centers for music and books. The chain is also setting up strategic partnerships with online companies. Borders also plans to unveil its new e-commerce site by May 3.

Borders reported 2007 total sales of $3.8 billion, up from $3.6 billion the year before . It saw a net loss of $157.4 million for the year, compared to a loss of $151.3 million in 2006. Sales at stores open at least a year rose 1.5% at Borders superstores, 2.2% at Waldenbooks and 7.9% at Borders international stores.

Analysts say Borders is suffering because of financial institutions’ overzealous lending to marginal homebuyers. Borders is seen as a fundamentally sound company that is not in danger of going under.

Borders Group reported March 20, 2008 that it had achieved total consolidated sales from continuing operations of $1.3 billion in the fourth quarter. Excluding the impact of the extra week during fiscal 2006, this represents a 2.8% increase over the same period a year ago.

On an operating basis, Borders Group posted fourth quarter income from continuing operations of $84.7 million, or $1.44 per share, compared to $87.7 million, or $1.45 per share a year ago. The operating basis income excludes non-operating charges and discontinued operations.

Both Barnes & Noble and Borders have lost market share from aggressive discounting from online retailer and discounters like Target Corp. and Wal-Mart Stores Inc.

Barnes & Noble operated 713 Barnes & Noble stores and 85 B. Dalton stores, as of February 2008. During the fourth quarter, nine Barnes & Noble stores were opened and five were closed. Seven B. Dalton stores were closed during the quarter.

Borders Group opened six new Borders superstores in the U.S. during the fourth quarter and ended 2007 with a total of 509 domestic superstore locations.