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Borders Group Sees ’06 Increase In Holiday Sales

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MAIN NEWS HEADLINES
January 11 – 18, 2007 Edition

Borders Group

Sees ’06 Increase

In Holiday Sales

ANN ARBOR, MI/1/8/07—Borders Group, Inc. (NYSE: BGP) January 8 reported sales results for the nine-week holiday period ended Dec. 30, 2006. At $1.1 billion, total consolidated sales increased by 3.5% over the same period last year.

Sales within Borders domestic superstores were $709.2 million, which represents a 2.7% increase over the same period in 2005. Driven primarily by a decline in store traffic, comparable store sales at Borders domestic superstores decreased by 1.9%, which is lower than management’s prior projection. On a categorical basis, books performed slightly better than the overall comparable store sales trend. The movie, Seattle’s Best Coffee, and Paperchase gifts and stationery categories generated positive comparable store sales, while music continued its steep decline.

Waldenbooks generated sales of $227.6 million, which is down by 9.0% compared to the same period last year, attributable in part to closures of under-performing stores. Comparable store sales at Waldenbooks decreased by 6.3%, which is below company guidance.

Borders Group’s International segment generated total sales of $198.3 million, which is up 27.0% from the same period in 2005. Excluding the impact of foreign currency translation, total International sales would have increased by 18.8% for the period over last year. Comparable store sales in the segment increased by 1.0%, which is in-line with management’s prior projection.

As a result of sales that were lower than expected, and with heavy investments in the Borders Rewards loyalty program and other promotions, gross margins were negatively impacted. In addition, management expects non- operating adjustments, which were projected to be an after-tax charge ranging from $0.08 to $0.14 per share, to be higher than that range due to additional write-offs related primarily to increased closures of Waldenbooks stores as well as other asset impairments related to the Waldenbooks segment and to the company’s U.K. operations. Therefore, management expects that with all factors combined, consolidated earnings per share will fall below prior guidance of $1.80 to $2.00 for the fourth quarter and will fall below guidance for the full year as well.

"The holiday season was very competitive and highly promotional. We are disappointed that store traffic and sales trends were not better, especially considering the significant investment made in the Borders Rewards loyalty program," said Borders Group Chief Executive Officer George Jones. "Borders Rewards provides our company with many competitive advantages. By applying what we learned from it this holiday season, we will make modifications to the program to improve it going forward. As I work toward a turnaround of the company, I am focused on our mission to be a headquarters for knowledge and entertainment and the many exciting ways that we can make this a reality. Our strategic plan for the future, which is in development now and will be communicated in March, will provide specifics on how we will transform Borders superstores to drive higher comps and improved store productivity, as well as how we will address unproductive elements of our Waldenbooks and International segments to improve their contribution. We have a lot of work to do and a turnaround will not happen overnight, or even completely in the next year, but I am confident it will be achieved."

Next Financial Release

Borders Group will issue final fourth quarter and full year 2006 results on March 22 after market close.

About Borders Group

Headquartered in Ann Arbor, Mich., Borders Group, Inc. is a leading global retailer of books, music and movies with more than 1,300 stores and over 34,000 employees worldwide.

The company is comprised of three business segments: Borders Domestic Superstores, International, and Waldenbooks Specialty Retail. At the close of fiscal third quarter 2006, Borders operated 487 domestic Borders Superstores. In the International segment, there were 61 Borders superstores located mainly in the U.K. and Asia Pacific, and 30 Books etc. stores primarily throughout Great Britain. The International segment also includes Paperchase Products Limited, a U.K.-based gifts and stationery retailer with more than 90 locations outside the U.S. The Waldenbooks Specialty Retail segment operates 652 Waldenbooks, Borders Express, Borders outlet and airport stores and the company’s seasonal calendar unit.