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Borders CEO Refutes Claims in PW Article

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November 1-15, 2004 Edition

Borders CEO

Refutes Claims

in PW Article

ANN ARBOR, MICH/10/26/04—Responding to a negative report by Publishers Weekly October 21, Borders Group chairman Greg Josefowicz said that claims of poor communication and service between Borders and publishers, and sagging internal morale are mostly “exaggerated and distorted.” He said sales were much better than the article implied and that communication with the industry remains a high company priority.

Borders media spokesperson Anne Roman told Authorlink today that Josefowicz had responded to the original article in a subsequent PW piece (dated October 26), and that the Borders CEO stands by those comments. In his response to PW, Josefowicz pointed out that Borders’ sales are at a higher level than at any time in its history, that book sales year-to-date are ahead of the industry average and returns have fallen “significantly” for the last three years. He also said the company’s market share has increased.

The original PW article intimated that Borders’ lower performance targets for the fourth quarter were due to more than an election year and the Florida hurricanes. PW said it had interviewed “a wide range of publishers–many at mid-sized houses as well as at some large publishers and micros–found that the problems at the country’s second-largest chain may run a lot deeper. A culture shift, the departure of key employees and old inventory systems have led to widespread publisher puzzlement, and sometimes discontent, with the company.”

The initial PW article also said that orders to publishers for backlist titles had significantly fallen, but Josefowicz said that maintaining backlist titles is a company strength.

In the subsequent PW article, the Borders CEO said that the company will increase its efforts to work with publishers and wants publishers “to help us help them.” He said he is “unaware of any endemic problems” of publishers not being able to reach the people they needed to reach at Borders.

On October 13, Borders Group revised sales and earnings guidance for the fiscal third quarter, ending October 24. Management now projects a consolidated loss of $0.01 to $0.03 per share for the period versus consolidated earnings per share of $0.01 to $0.03 as previously projected.

On a quarter-to-date basis through Oct. 10, comparable store sales at Borders have declined by 1.9% and declined by 4.5% at Waldenbooks. Final third quarter comparable store sales were not expected to change significantly from these quarter-to-date figures. These results compare to management’s previous guidance for comparable store sales at Borders to be flat to up slightly and flat to down slightly at Waldenbooks.

Total sales in the company’s International segment are up 27.1% on a quarter-to-date basis, which is above prior management projections for an increase of 20% to 25% over third quarter 2003.

In a press release October 13, Josefowicz said, “Weaker than anticipated sales caused us to revise guidance. “A combination of factors, including multiple hurricanes, the presidential election campaign, and overall store traffic that was lighter than anticipated negatively impacted sales. Borders Group has managed costs as diligently as possible to minimize the impact of sluggish sales trends on earnings, while investing appropriately to meet improved consumer demand we hope to see once we’re past the November elections and into the holiday period.”

In addition to revising third quarter guidance, Borders Group is also, for the first time, providing management guidance for the fourth quarter and restating expectations for the full year. For the fourth quarter, comparable store sales at Borders are expected to range from flat to a decline in the low single digits. At Waldenbooks comparable store sales for the period are projected to decline in the low single digits. Total International sales are anticipated to increase by approximately 25% over a year ago. Fourth quarter consolidated earnings per share are expected to range from $l.55 to $1.62. Fourth quarter earnings per share estimates include the impact of non-operating adjustments projected to be an after-tax charge of $0.04 to $0.06 per share.

For the full year 2004, Borders Group now anticipates consolidated earnings per share of $1.66 to $1.73 versus the $1.72 to $1.77 range previously projected. This new range represents growth of 9% to 14% over 2003. Comparable store sales for the year for Borders are now expected to be flat to down slightly instead of the previously projected low single digit increase. Waldenbooks’ comparable store sales are now projected to decline in the low single digits in comparison to the company’s previous projection of flat to down slightly. For the full year, total sales for the International segment are expected to increase by approximately 25% over 2003, which is in-line with previous management guidance. 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.

Borders Group will issue final third quarter results after market close November 16 with a conference call to follow November 17 at 8 a.m. Eastern.

Borders Group Inc. is a leading global retailer of books, music and movies with annual revenues of $3.7 billion. Headquartered in Ann Arbor, Mich., the company employs approximately 32,000 people worldwide. Borders Group operates over 450 Borders superstores and approximately 700 Waldenbooks stores throughout the U.S. In addition, the company operates 39 Borders superstores outside the U.S., as well as 36 Books etc. stores located throughout Great Britain. Borders Group recently acquired Paperchase Products Limited, a leading stationery retailer in the U.K. with 65 locations. Teamed with Amazon.com, online shopping is available through Borders.com and Waldenbooks.com