MAIN NEWS HEADLINES
March 16-31, 2004 Edition
Borders Group Reports
13.6 Percent Increase
Over 2002 4th Quarter
ANN ARBOR, Mich/03/11/04—Borders Group Inc. (NYSE: BGP – News) today reported final fourth quarter and full-year 2003 results for the period ended Jan. 25, 2004. With fourth quarter consolidated earnings per share of $1.50, the company generated earnings growth of 13.6% over the same period in 2002, which is in-line with previous company guidance. Full-year consolidated earnings per share were $1.52, an increase of 11.8% over 2002. Management reiterated full-year 2004 earnings per share guidance of $1.70 to $1.75, representing growth of 12% to 15% over 2003. “We are pleased with our performance in the fourth quarter, which drove another year of increased sales and earnings growth for Borders Group,” said Chief Executive Officer Greg Josefowicz. “In addition to increased earnings, we have continued to provide returns to investors through share repurchases and our recently initiated quarterly cash dividend. As we begin fiscal year 2004, we will continue to focus on driving shareholder value with a strong emphasis on generating top line sales growth.”
As reported Feb. 10, Borders Group achieved fourth quarter consolidated sales of $1.3 billion, an increase of 7.5% over 2002. For the full year 2003, consolidated sales were $3.7 billion, a 6.1% increase over the prior year.
For the fourth quarter, net income was $119.8 million, up 12.8% compared to a year ago. Fourth quarter net income before the cumulative effect of an accounting change increased 14.8% over last year to $121.9 million. The increase in fourth quarter net income was attributable to operating leverage driven primarily by improved sales. For the fourth quarter, gross margin as a percent of sales was flat at 33.5% as lower supply chain costs as a percent of sales helped offset higher bestseller discounts. Fourth quarter SG&A as a percent of sales improved from 17.7% to 17.1%, driven by sales leverage combined with continued disciplined cost control across all businesses.
The company’s overall financial position remains strong. Cash flow produced from operations in 2003, after subtracting capital expenditures, totaled $131.0 million. For the year, Borders Group repurchased 2.6 million shares of common stock totaling $44.0 million. In addition, the company paid its first quarterly cash dividend of $0.08 per share in January. Borders Group plans to continue its shareholder value strategy of quarterly cash dividend payments and share repurchases subject to approval from its Board of Directors.
In 2003, Borders Group opened 41 new Borders superstores in the U.S., ending the fiscal year with 445 total domestic locations. As previously reported, fourth quarter sales at Borders superstores were $827.0 million, an increase of 8.9% over the same period in 2002. For the year, Borders superstore sales increased 6.5% over fiscal 2002, ending the year at $2.5 billion. Borders comparable store sales increased by 2.5% in the fourth quarter and by 0.5% for the full year. Category sales strength came from books, DVD and gifts and stationery, while music continued to decline. Net income for the fourth quarter, before the cumulative effect of an accounting change, was $79.8 million, a 9.0% increase over 2002.
Consistent with the company’s internal projections, the International segment reached profitability for the full year 2003, driven by fourth quarter net income of $9.9 million. This compares to fourth quarter net income of $1.2 million in 2002. Full-year net income for the segment was $0.1 million compared to a full-year 2002 segment net loss of $12.3 million. Sales at International stores for the full year were $407.5 million, a 29.4% increase over 2002. In the fourth quarter, International sales were $145.0 million, up 28.8% from the prior year. These sales increases benefited, in part, from favorable currency exchange rates. In 2003, International segment sales represented 11.0% of total consolidated sales compared to 9.0% a year ago. Borders Group opened seven new overseas superstores in fiscal 2003, ending the year with 37 total International superstore locations.
Waldenbooks generated fourth quarter sales of $340.4 million, which is down 2.5% from a year ago due to store closures. Full-year sales in the Waldenbooks segment were $820.9 million, a decrease of 3.7% from 2002. Comparable store sales at Waldenbooks increased 0.3% in the fourth quarter. For the year, comparable stores sales in the segment declined 0.6%. Net income for the segment increased by 8.7% in the fourth quarter to $45.2 million, due primarily to improved sales and reduced store closure costs and asset impairments. Borders Group closed 67 under-performing Waldenbooks stores in 2003, ending the fiscal year with 716 total locations.
All earnings per share figures reported for the fourth quarter and full year 2003 include the impact of non-operating adjustments, which for the fourth quarter totaled an after-tax charge of $0.10 per share. This charge is comprised of several items including asset impairments, FIN 46 adoption, tentative settlement of the California overtime litigation, and a receivable writedown net of insurance recoveries and other reserve adjustments.
Q1 2004 Outlook
Consistent with the company’s Feb. 10 disclosure, consolidated earnings per share for the first quarter of 2004, which ends April 25, are expected to range from $0.02 to $0.03 compared to a loss of $0.06 per share in the same period of 2003. First quarter results in 2003 were adversely impacted by the war in Iraq. Comparable store sales at Borders are expected to increase by 2% to 3% in the first quarter. First quarter comparable store sales at Waldenbooks are expected to increase 3% to 4%. Total International sales are expected to increase by 25% to 30% in the first quarter.
2004 Full-Year Outlook
Borders comparable store sales for the year are expected to increase in the low single digits. Waldenbooks comparable store sales are projected to be flat. Total sales for the full year for the International segment are expected to increase by approximately 20% over 2003. Consolidated full year 2004 earnings per share are expected to range from $1.70 to $1.75, which is a 12% to 15% increase over 2003. Full-year earnings per share estimates include the impact of non-operating adjustments, projected for the year to be an after-tax charge of $0.04 to $0.06 per share. The company expects non-operating adjustments in 2004 to be comprised primarily of store asset impairments and store closing costs.
About Borders Group Inc.
Borders Group Inc. (NYSE: BGP – News) is a leading global retailer of books, music, video and other information and entertainment items with stores in the United States, United Kingdom, Australia, New Zealand, Singapore, and the commonwealth of Puerto Rico. A FORTUNE 500 company headquartered in Ann Arbor, Mich., Borders Group employs approximately 32,000 worldwide and operates over 445 Borders domestic superstores, 37 international Borders stores, 36 Books etc. locations and approximately 700 Waldenbooks stores. Online shopping is available through www.borders.com and www.waldenbooks.com.