Chain Sales Up 5.7% In First Quarter

Total revenues for the nation's three largest bookstore chains rose 5.7% to $1.63 billion for the first quarter ended March 5, 2001. All three chains—Barnes & Noble, Borders Group and Books-A-Million—reported lower increases in the most recent quarter compared to last year's first period, and the 5.7% increase was nearly three percentage points lower than the 8.4% gain reported last year. Borders had the best performance in the quarter, with sales up 7.4% to $729.9 million. BAM's 4.7% increase was slightly higher than the 4.3% sales gain for B&N.

Borders's chief financial officer, Ed Wilhelm, said that sales in the first quarter were on track until the first three weeks in April, when business slowed considerably, the same experience described by B&N chairman Len Riggio in his comments on B&N's first quarter (News, May 28). And again similar to B&N's experience, Wilhelm said that sales picked up in the first three weeks of May at Borders's superstores, though sales continued to be sluggish at Waldenbooks. Comparable-store sales were up 2.0% at Borders's superstores and down 1.8% at Walden.

All three chains expect difficult same-store comparisons in the second quarter due to strong sales last July of Harry Potter and the Goblet of Fire. Borders is forecasting a 2.0% increase in comparable-store sales for its superstores in the period and a decline of 5.0% at Waldenbooks; B&N is looking for a 2.0% to 3.0% comp-sale gain. BAM didn't issue a forecast for same-store sales, but said its loss in the quarter will be higher than it was in last year's second period.

Charges Lead to Loss

Despite its 7.4% sales gain, Borders reported a net loss of $18.9 million for the quarter, which it attributed to the $18.1-million one-time charge it took as a result of its alliance with Ingram (News, Mar. 26) plus a $1.4-million charge related to the American Booksellers Association lawsuit. Income from continuing operations was flat with the first quarter in fiscal '01 at about $600,000.

Borders's superstore segment had an 11.4% sales increase in the quarter, to $550.6 million. Double-digit sales gains were reported in the superstore children's segment as well as DVD and gift and stationery operations. Book sales in general had about a 2.0% comparable-store sales gain in the quarter and sales were soft in the music and cafe departments. Revenues fell 3.9% at Walden to $176.8 million, with Borders president Greg Josefowicz noting that the chain was hurt by the general slowdown in mall traffic. International sales increased 13.9% to $52.5 million, led by a strong performance from its U.K. stores.

In a conference call, Josefowicz told analysts that the first quarter was an "active and productive" period for Borders. He was particularly pleased with Borders's deal with Amazon.com, which gives Amazon operational responsibility for Borders's e-commerce platform. After the August 1 relaunch, Josefowicz said the company has a number of other initiatives planned, including a new Web reserve program, allowing customers to use the site to see what books their local store has in stock and then reserving a title for pickup. Josefowicz said Borders is also considering a Web reserve program for Amazon customers, adding that the retailer "will continue to explore the full range of options within this exciting alliance."

During the quarter, Borders instituted an expense reduction program that included cutting costs in payroll, overhead and store operations. The combination of its cost control measures as well as a projected 3% gain in superstore comparable sales will result in Borders achieving a promised 15% increase in earnings for the current fiscal year, Josefowicz said.

In response to a question, Wilhelm noted that in its superstore operations, video sales now account for about 4% of revenues, gifts and stationery 3%, music 18% to 20%, with books accounting for the balance.

Quarterly Bookstore Chain Sales (in millions)
First Quarter