Borders Q2 Results Confirm Book Vertical Troubles
Book retailer Borders Group, Inc. released
disappointing financial results for Q2 2009 (ended August 1, 2009). Combined with last week’s
mostly negative Q2 results from chief rival Barnes & Noble, Borders’ numbers clearly indicate U.S. book retailing is
sustaining a slump that has lasted since fiscal 2008. Selected highlights and analysis follow.
Total and Comparable Store Sales Take a Hit
Borders reported significant declines in its consolidated total sales and comparable store sales for the quarter. Total consolidated sales fell 17.7%, from $749.2 million to $616.8 million. Comparable store sales declined 17.9% in the Borders superstore segment and 10.8% in the Waldenbooks specialty retail segment. Borders cited the impact of an 18.5% or $201.3 million inventory reduction, including $57.3 million in multimedia reductions, as well as space reductions designed to strategically position declining categories for profitability while it further develops businesses that have potential (see “Borders Targets Niche Audiences” below) as negatively affecting sales performance. The retailer says it now plans to capitalize on the opportunity this has created to drive sales.
Net Loss Significantly Deepens
On both an operating and GAAP (generally accepted accounting principles) basis, Borders saw its quarterly net loss grow. On an operating basis, net loss increased 20.9%, from $10.5 million to $12.7 million. On a GAAP basis, net loss grew 303.5%, from $11.3 million to $45.6 million. The GAAP figure includes non-operating, after-tax charges, primarily non-cash, totaling $32.9 million.
Operating Loss also Grows
Borders also reported an increased quarterly operating loss, both on an operating and GAAP basis. On an operating basis, operating loss grew 24.8%, from $12.9 million to $16.1 million. On a GAAP basis, operating loss grew 16%, from $23.1 million to $26.8 million.
Gross Margin Dollars, Percentage Drop
Gross margin dollars dropped 21.4% for the quarter, from $182 million to $143 million. As a percentage of sales, gross margin fell from 29.2% to 23.2%.
Borders Targets Niche Audiences
In the face of declining overall sales, Borders has been taking steps to target niche audiences and improve sales in certain key categories. During the quarter, Borders launched a
new blog aimed at
science fiction fans and a special
summer promotion aimed at kids 12 and younger.
Shortly after the end of the quarter, Borders
expanded its selection of games and toys for children. As part of the heightened focus on kids’ products, the children’s department in Borders stores will feature a dedicated kids’ specialist to answer questions and make recommendations. In addition, Borders is adding a picture book feature wall and separate section for readers ages 8-12 in its stores. Furthermore, Borders plans to roll out in-store Borders Ink Teen Shops at select locations to serve young adult, graphic novel and manga (Japanese animation) readers. Items will include books as well as related products such as lunchboxes and lifestyle goods.
Borders operates approximately 1,000 stores worldwide under the Borders and Waldenbooks brand names.
