May 29, 2007 / 9:48 PM / 12 years ago

UPDATE 2-Borders posts wider quarterly loss

(Adds analyst comment, details)

By Justin Grant

NEW YORK, May 29 (Reuters) - Borders Group Inc. BGP.N, the second-largest U.S. bookseller, on Tuesday posted a wider quarterly loss as sales at established stores fell.

The net loss widened to $35.9 million, or 61 cents a share, from $20.2 million, or 31 cents a year ago.

Quarterly sales rose 2 percent to a lower-than-expected $878.8 million, while comparable store sales at Borders superstores in the United States fell 1.9 percent during the quarter ended May 5.

Analysts, on average, were expecting Borders to post a loss of 38 cents a share for the quarter on about $881.6 million in sales, according to Reuters Estimates.

“It’s pretty messy no matter how you look at it,” Jefferies & Co. analyst Tim Allen told Reuters. “Even adjusting for one-time items, it’s an eroding business. Their financial position continues to weaken,” said Allen, who has a “hold” rating on Borders’ stock.

The Ann Arbor, Michigan-based bookseller did not provide any earnings outlook, but is eyeing a return to earnings growth in 2008, Chief Executive George Jones said.

“Previously we reported that 2007 would be a year of transition as we execute our long-term strategic plan for the turnaround of the company,” Jones said in a statement. “The current sales environment was more challenging than we anticipated.”

Last week, Barnes & Noble Inc. BKS.N posted first-quarter results that topped Wall Street’s expectations, buoyed by sales of best-selling titles like Rhonda Byrne’s “The Secret” and Chris Bohjalian’s “The Double Bind.”

Borders also said book sales were “slightly negative,” while DVD sales were flat. Music sales continued their decline, the company said.

The company’s results were also hurt by increased promotional discounts. Gross margin as a percentage of sales fell nearly 1 percent to 22.4 percent, the company said.

Comparable store sales in the international segment dropped 2.5 percent.

Borders said it will continue to explore strategic alternatives for most of its international operations, including its U.K., Ireland, Australia and New Zealand superstores.

The company also said it opened four stores in the United States during the quarter, while closing 11 under-performing Waldenbooks stores. Total sales at Waldenbooks fell 15 percent during the period, Borders said.

Borders said earlier this year that it would close nearly half of its Waldenbooks stores, which have been struggling with declining comparable store sales.

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