Borders book sales drop in digital shift

DETROIT (Reuters) - Borders Group posted a sharp decline in sales on Thursday, as consumers shifted to the electronic books offered by rivals, sending the shares of the No. 2 specialty U.S. bookseller down over 8 percent.

"During the quarter, we continued to have a challenge on the top line," chief financial officer Mark Bierley said on a conference call, pointing to a double-digit decline in U.S. sales at stores open at least a year and a 3.6 percent drop in the average amount spent per visit.

The company, which has seen sales slump over the last several years as more book buying shifts to e-books, is counting on its revamped Borders.com website and a customer loyalty program to reverse the slide.

Borders' net loss for the first quarter ended May 1 narrowed to $64.1 million, or $1.07 a share, from $86 million, or $1.44 a share, a year earlier.

Total revenue fell 15.8 percent to $547.2 million. Same-store sales at its namesake superstores and Borders.com fell 11.4 percent. Gross profit margin as a percent of sales fell to 19.9 percent from 22.4 percent.

Standard & Poor's retail analyst Michael Souers lowered his recommendation on Borders stock to sell from hold, saying in a note the sales drop was worse than his projection and noting that it marked the seventh straight quarter of double-digit declines.

Borders is set to launch its own electronic bookstore in June to catch up with larger rivals Barnes & Noble and competitors such as Amazon.com and Apple.

A Goldman Sachs study last month estimated e-books currently account for about 3 percent of total books sales and projected that share would rise to 12.8 percent by 2015.

DIGITAL REVOLUTION

Borders interim chief executive Mike Edwards said he is pleased with pre-orders to date for the Kobo e-reader that will be sold for $149 and let shoppers choose titles from Borders' e-bookstore. Borders will begin taking pre-orders for a second e-reader next week, with plans to sell as many as 10 other devices over the coming months.

"We believe the lion's share of the e-reader business will be under the $200 price point going into the fourth quarter," he said during the call. "As such, we plan to offer a strong selection of e-reading devices that suit all of our customers' needs."

Edwards dismissed the notion that the Ann Arbor, Michigan-based company might not make up for lost time.

"While we're a little late to the game, the truth of the matter is the game's just starting, and we won't see the full shakeout of the digital revolution for at least another six months to a year," he said in a interview with Reuters.

(Additional reporting by Phil Wahba in New York; editing by Gerald E. McCormick, Lisa Von Ahn and Andre Grenon)