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Borders Sales Decline Amid Merger Speculation

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Dec 6 – Dec 12, 2010 Edition Borders Sales Decline Amid Merger Speculation

ANN ARBOR, Mich/ AUTHORLINK NEWS/December 9, 2010— Borders Group, Inc. (NYSE: BGP) today reported third quarter 2010 sales of $470.9 million, a dramatic decrease of 17.6% from the third period ending in October a year ago. Comparable store sales declined by 12.6%. Borders.com sales decreased 8.6% over the prior year to $12.5 million; however, fiscal year-to-date through the end of the third quarter, Borders.com sales increased 24.0% over the prior year, to $43.3 million.

Earlier this week the investment firm, Pershing Square Capital Management, L.P., which owns about 42% of Borders together with Pershing’[s Bill Ackman, said it is willing to finance a merger with Barnes & Noble. In August, Barnes & Noble board of directors announced they are considering selling the company. A proposal by Bill Ackman surfaced in a regulatory filing with the Securities and Exchange Commission. However, industry analysts say a deal is unlikely, if only because Barnes & Noble is financially healthier.

Barnes & Noble has not made any public statements about a deal, but some investors seemed open to the concept. The two competitors are struggling to compete in a pricing war with Walmart Target and Amazon.com.

It’s unclear how a merger between Borders and Barnes & Noble would play out. Cuts to personnel and stores would be likely on both sides. Borders employs about 600 people at its Ann Arbor headquarters and more than 19,000 worldwide.

Meanwhile, Borders weak performance may not help fuel a marriage between the two giants. The company incurred a loss from continuing operations in the third quarter of $74.4 million or $1.03 per share. For the same period a year ago, the company had a loss of $37.7 million or $0.63 per share. The company’s third quarter loss from continuing operations was caused primarily by decreased gross margin.

“Our third quarter results reflect the business challenges facing Borders and the industry at large,” said Mike Edwards, CEO, Borders, Inc. “While we are disappointed with third quarter results, my management team and I continue to vigorously address these challenges and our commitment to winning at retail is stronger than ever.

“We’re pleased that our publishers and strategic partners have continued to support our business and brand initiatives. We have a comprehensive, executable plan in place that supports our goal of transforming the iconic Borders brand into a profitable economic model over time. I am happy to say that the elements of the plan we’ve executed thus far have been successful. Our Borders Rewards Plus program has generated more than $11 million in membership revenue since launching just one hundred days ago. Notably, Borders Rewards Plus members shop more frequently and have a higher than average ticket driven by significantly higher units per transaction.

“In terms of other successes, we’ve also made substantial improvements to our stores, expanding the Kids section in 51 locations to drive further sales increases in our Kids Toys and Games category, which is outpacing most other areas of the business. We recently completed the addition of Area-e digital shops to stores to position Borders as a destination for all things eReading, with a goal to grow our digital and eBook market share. I want to point out that these enhancements required some reconfiguring of store space, creating a disruption which adversely impacted sales for the quarter. We also invested strategically in our Borders.com business, redesigning the site and adding a number of services, which we are confident will greatly enhance the customer experience. We see Borders.com as an extension of our bricks and mortar business, and we’ll continue to make prudent investments in the site, not to displace our stores, but rather to support and enhance the in-store experience.

“We have a talented and experienced management team executing a strong brand transformation plan, grounded in the extensive consumer research we have conducted with the Boston Consulting Group. During Q4 and throughout 2011, we will continue to work with strategic partners to provide a compelling combination of book and non book product and service offerings to position Borders as the most relevant bookstore in the marketplace,” concluded Edwards.

Borders has significantly strengthened its executive management team over the last two quarters with two key appointments. Scott Henry joined the company in October as Executive Vice President and Chief Financial Officer. A seasoned executive who brings more than 20 years of financial management experience to Borders, Henry has expertise in all aspects of internal and external corporate and operational financial management and business development. In addition, the company welcomed Michele Cloutier as Executive Vice President and Chief Merchandising Officer in August. Cloutier has over 22 years of merchandising experience with a heavy focus on female lifestyle brand building, including repositioning and redefining the business of multi-billion-dollar specialty retail organizations.