Chains Post Big Gains in First Quarter

Total sales at the nation's three largest bookstore chains jumped 11.1% for the first quarter ended May 1, to $1.91 billion. All three chains—Barnes & Noble, Borders Group and Books-A-Million—acknowledged that they were facing weak comparisons from a year ago, when business was terrible, and all also said comparisons with last year's second quarter, when Harry Potter and the Order of the Phoenix was released, will be much tougher.

Sales in B&N's bookstore segment rose 11.8%, to $966.5 million, for the first quarter, and operating profit in the segment was $27 million, up from a $1-million loss in last year's comparable quarter. Superstore sales increased 13%, to $910.2 million, driven by a 9.4% gain at stores open at least one year. The company also opened nine superstores in the quarter and closed three.

Sales at Dalton fell 13%, to $39.7 million, due to seven store closings. Same-store sales rose 6%. B&N's Sterling Publishing division, plus a small contribution from Calendar Club, added about $16 million in the quarter.

Company CEO Steve Riggio said during a conference call that gains in the most recent quarter were driven by "extraordinary hardcover sales." Riggio credited the unprecedented media coverage for books by Richard Clarke, Ron Suskind, Bob Woodward and John Dean. Overall, sales of political books were up 30% in the quarter, and Riggio said he expects the category to remain strong throughout the year. Other titles that benefited from media coverage included How to Get Rich and the tie-ins to TV's Queer Eye for the Straight Guy and The Passion of the Christ film. In fiction, The Da Vinci Code is selling at about twice the rate this year as it was at this point in 2003, Riggio said.

The success of media-driven titles prompted Riggio to tell analysts that the industry appears to be more tied then ever to hot media books. The positive side, he said, is that when the books hit they drive customer traffic that leads to sales of other titles. There can be a drought, however, in weeks without a hot book. B&N's own publishing program, Riggio noted, is built around "tried and true" titles that can be steady backlist sellers such as its baseball encyclopedia, which Riggio said is selling well. B&N also has its own Da Vinci title, Cracking the Da Vinci Code, released as a $9.95 hardcover a few weeks ago. The self-publishing program contributed about 6% to total sales in the quarter.

Faced with Potter comparisons, same-store sales at B&N's superstores in the second quarter are estimated to fall 2% to 3%. Comp sales for the full year, however, are forecast to increase by 2%. Riggio reiterated that B&N was keeping its full-year forecast conservative because years that have both an Olympics and presidential election have not been good ones for the company as the media shifts its coverage away from authors to cover those events. He told analysts that he wasn't aware of too many hot titles for the fall, although he expects a new Tom Wolfe title, a gift book about Princess Diana and an illustrated edition of The Da Vinci Code to do well.

Riggio said B&N has high expectations for former president Bill Clinton's My Life, although he declined to predict if his book would outsell Hillary Clinton's autobiography. Riggio noted that B&N was one of the few stores that was an early supporter of Hillary Clinton's book last year and took an aggressive in-stock position. The former president's book, however, much like Potter, "will be carried everywhere," Riggio said.

First-quarter sales at Borders Group rose 10.4%, to $838.1 million, and the company swung from a $4.8-million net loss in last year's first quarter to net income of $3 million. Books continued to be Borders's strongest category, with strength in such areas as diet and politics. Like B&N, Borders sold twice as many copies of The Da Vinci Code in the most recent quarter as it did last year.

Sales at the company's superstores rose 10.7% in the quarter, to $577.3 million, driven by a 4.3% increase in comparable-store sales and the opening of four new outlets. Borders CFO Ed Wilhelm said book comps "were slightly better" than store averages, while the multimedia segment of DVD and music was "slightly positive" on a same-store basis. Wilhelm said he was happy with the comparable-store performance at Borders, noting that "it is the kind we need" to drive earnings up by the 12% to 15% in the year that the company has predicted.

Walden sales inched ahead to $150.8 million from $150.3 million, with same-store sales up 5.6%. Wilhelm noted that Walden had been particularly hard hit by last year's weak first-quarter performance. The increase in comparable-store sales offset the closing of five stores in the period. "Big books" drove the gains at Walden, Wilhelm said.

Total sales in the international group increased 29%, to $102.7 million, driven by new store growth, comparable-store sales increases and favorable currency exchange rates. Excluding the impact of foreign currency translation, total international sales would have increased 12%.

Because of Potter, Borders expects second-quarter same-store sales to fall by low to middle single digits at its superstores and by middle to high single digits at Walden. Borders chairman Greg Josefowicz noted that because sales of Potter were "for the most part contained in the second quarter," the company remains on track to see superstore comp sales increase by low single digits in the year, while comp-store sales at Walden will be flat.

Sales at Books-A-Million rose 10.2%, to $108.5 million, and the chain had operating income of $2.5 million, compared to a loss of $674,000 in last year's first quarter. Same-store sales were up 7.1%; BAM remodeled nine stores and relocated two others in the quarter, although no new outlets were opened, BAM president Sandy Cochran said. The company still plans to open up to eight stores this year, she said. Sales were good throughout the quarter, Cochran said, led by the diet, politics and religion book categories.

Like B&N and Borders, BAM is expecting a difficult second quarter, but the strong start prompted the company to boost its earnings expectations for the full year.

Quarterly Bookstore Chain Sales
(in millions)