MAIN NEWS HEADLINES
November 29 – December 6, 2007 Edition
Borders Reports
Third Quarter Gains
In All Business Units
ANN ARBOR, MI/11/20/07–Borders Group, Inc. (NYSE: BGP) today reported results for the third fiscal quarter, ended Nov. 3, 2007, showing gains in comparable store sales for all business segments for the second consecutive quarter. Total consolidated sales from continuing operations, at $805.2 million, were up 5.3% over a year ago. At Borders domestic superstores, same-store sales increased by 1.1% driven largely by a continued increase in traffic as the company further leveraged its 22-million-member Borders Rewards database, among other initiatives. Comparable store sales increased by 3.6% in the Waldenbooks Specialty Retail segment led by growth in traffic and transaction size. In the International segment, comparable store sales increased by 7.8% as a result of strong performance in Asia Pacific stores.
“We are pleased with the progress we are making toward a turnaround of this company. Many of our initiatives are clearly working, as we have reversed previous negative trends and are now consistently increasing traffic and same- store sales, both of which had been steadily declining prior to the implementation of our strategic plan,” said Borders Group Chief Executive Officer George Jones. “In fact, we had not achieved same-store sales growth across all three business segments since the first quarter of 2004, and we have done it now for two consecutive quarters. The stage is set for a much improved holiday season compared to last year. We fully expect to deliver improved same-store sales results, while at the same time increasing profitability in the fourth quarter of this year versus 2006.”
Consolidated Results
Borders Group achieved third quarter consolidated sales from continuing operations of $805.2 million, an increase of 5.3% over 2006.
On an operating basis, the company posted a third quarter consolidated net loss from continuing operations of $39.1 million, or $0.66 per share, compared to $32.9 million, or $0.54 per share a year ago. The operating basis net loss excludes non-operating charges and discontinued operations. On a GAAP basis, the third quarter net loss was $161.1 million or $2.74 per share. It includes a one-time $116.5 million after-tax loss related to the sale of the U.K. and Ireland book store operations, as previously reported, and $2.6 million of after-tax non-operating charges.
Excluding non-operating charges, consolidated gross margin from continuing operations as a percent of sales decreased by 0.7% from 22.7% to 22.0% in the third quarter primarily due to increased redemption of discount offers by the much larger Borders Rewards member base this year compared to last year, as well as the impact of shrink in the DVD and cafe categories at Borders superstores. On a GAAP basis, consolidated gross margin from continuing operations as a percent of sales decreased by 0.8% from 22.7% to 21.9% in the third quarter.
Excluding non-operating charges, SG&A from continuing operations as a percent of sales increased by 0.1% from 28.2% to 28.3% in the third quarter due primarily to investments in strategic initiatives. On a GAAP basis, SG&A from continuing operations as a percent of sales increased by 0.1% from 28.4% to 28.5% in the third quarter.
Capital expenditures were $113.1 million for the year to date through the third quarter compared to $130.7 million for the same period in 2006. Debt, net of cash, totaled $733.0 million at the end of the third quarter compared to debt, net of cash, of $540.5 million for the same period one year ago. The company improved inventory turn for the second consecutive quarter as sales growth of 5.3% outpaced inventory growth of 3.4% in the third quarter.
Domestic Borders Superstores
Total third quarter sales at domestic Borders superstores were $615.8 million, an increase of 5.6% over the same period in 2006. On a comparable store basis, transactions increased by 2.8% for the period, and same-store sales in the segment increased by 1.1%, representing the second consecutive quarter of positive same-store sales at domestic Borders superstores. The book category was solid, generating a 3.1% same-store sales increase for the period, while music continued its steep sales decline with a 13.1% same-store sales decrease for the period. Seattle’s Best Coffee cafes and Paperchase gifts and stationery shops performed well in the third quarter with positive same-store sales of 7.4% and 8.4%, respectively.
On an operating basis, Borders superstores generated an operating loss of $30.8 million in the third quarter compared to an operating loss of $16.7 million for the same period a year ago. On a GAAP basis, Borders superstores reported an operating loss of $31.9 million in the third quarter compared to an operating loss of $18.5 million for the same period a year ago. The loss was a result of increased redemption of discounts by Borders Rewards members, incremental expenses associated with strategic initiatives, and shrink within the DVD and cafe categories.
“Profitability in the Borders domestic superstore segment was negatively impacted by investments we are making now — in efforts such as our upcoming e-commerce site and concept store development — that are currently not providing returns, but will drive contributions in the long term,” Jones said. “We have also been experimenting with our promotions and discount structure to gain a solid understanding of the levers that drive traffic and sales in our stores. Our Borders Rewards program has proven that it clearly and consistently works to achieve both. Now, we need to fine-tune our approach further so that we better balance the bottom-line impact with our top-line growth,” he added.
The company opened four new Borders superstores in the U.S. during the period, ending the third quarter with a total of 510 domestic superstore locations.
Waldenbooks Specialty Retail
Comparable store sales increased within the Waldenbooks Specialty Retail segment by 3.6% for the period, which represents the second consecutive quarter of positive same-store sales following seven prior negative quarters, and the first time since fourth quarter 2003/first quarter 2004, that the segment generated a back-to-back same-stores sales increase. The growth was driven by a third-quarter boost in transactions of 1.8%, as well as an increase of 1.8% in transaction size. Total sales within the Waldenbooks Specialty Retail segment were down 11.4% in the third quarter to $109.7 million, as the number of stores was reduced from 652 at the close of the third quarter 2006 to 521 at the end of the period this year.
“Our efforts in the Waldenbooks Specialty Retail segment, which have included improvements in product assortment and lease-line presentation, are making a difference as the long-running negative sales trends have now been consistently reversed,” Jones said. “We will continue on this path and expect to generate even better results this holiday season.”
On an operating basis, the operating loss within the segment narrowed to $19.4 million compared to $23.1 million for the same period a year ago. The improvement was driven primarily by better sales performance. On a GAAP basis, the third quarter operating loss for the Waldenbooks Specialty Retail segment was $20.5 million compared to $23.5 million in 2006.
International
As recently announced, Borders Group sold its U.K. and Ireland book store operations consistent with its strategic plan, and therefore, International segment results no longer include these operations. For the third quarter, total sales from continuing operations in the International segment were $79.7 million, which is up by 38.4% compared to the same period a year ago. Excluding the impact of foreign currency translation, total International sales would have increased by 25.9% for the third quarter.
Comparable store sales in the International segment increased by 7.8% in the third quarter as a result of strong performance in Asia Pacific stores. On an operating basis, the third quarter operating income was $0.6 million compared to an operating loss of $3.1 million a year ago, with the improvement driven by stronger sales. On a GAAP basis, the third quarter operating loss for the International segment improved to $1.1 million compared to a third- quarter operating loss of $3.4 million in 2006.
Borders Group plans to issue a release regarding holiday sales results in mid-January 2008. Final fourth quarter and full year 2007 results will be issued March 20, 2008 after market close with a conference call to follow March 21, 2008 at 8 a.m. Eastern.
About Borders Group
Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a leading global retailer of books, music and movies with more than 1,100 stores and over 30,000 employees worldwide. More information on the company is available at www.bordersgroupinc.com.
