Stronger than expected third-quarter results at the nation's two major bookstore chains led execs at those retailers to predict that their companies will be able to overcome a generally soft retail environment and post solid gains over the holiday season. Barnes & Noble said it expects comp-store sales to increase in the low single digits in the fourth quarter; Borders did not put a number on its expectations, but company CEO George Jones said the company is “much better prepared” for the holidays this year compared to 2006, and said he expects both same-store sales and profits to improve.
B&N CFO Joseph Lombardi said B&N's forecast was based largely on positive trends in the third quarter—when sales rose 5.7%—continuing into the fourth quarter. Jones said customer traffic, driven mainly by promotions through its Borders Rewards membership club, increased in 22 out of the last 23 weeks, through the third quarter, and traffic continued to rise early in the fourth quarter. Borders reported a 5.3% increase in sales in the period.
While Jones credited more effective promotions to the 22 million members in its Borders Reward program for boosting third-quarter sales, Barnes & Noble CEO Steve Riggio said increased media focus on books spurred sales. In particular, Riggio said author appearances on 60 Minutes sparked sales of Alan Greenspan's The Age of Turbulence, Clarence Thomas's My Grandfather's Son, Joel Osteen's Become a Better You and Valerie Wilson's Fair Game. In addition, the Oprah effect “was stronger than typical,” Riggio said, citing “the sheer number of books” she mentioned on her show for boosting sales. Riggio and Jones said books by brand-name adult authors did well in the quarter, and both men called Stephanie Meyer's Eclipse a huge hit.
Riggio said he was mildly concerned that if the writers' strike against the Hollywood studios continues, books that need exposure on such programs as The Daily Show and The Colbert Report could suffer, possibly dampening holiday sales. Jones played down the impact of the strike and said he thought the affordability of books would make them good gift items in a tightening economy. In an allusion to lead paint concerns in toys, Jones also noted that books are “safe.”
In the third quarter, B&N's sales gains were led by a 14.5% increase in sales through B&N.com, which Riggio attributed in part to the October 1 launch of the redesigned site. Sales through stores rose 4.5%, to $1.0 billion, with comp sales up 2.6%.
Sales at Borders's superstores rose 5.6%, to $615.8 million, with same-store sales up 1.1%. Same-store sales of books increased 3.1%, while the music segment continued to struggle, with comp sales off 13.1%. Transactions at superstores rose 2.8% on a comp basis, but Jones acknowledged that the discounts the company is offering to its members have curtailed growth in the amount of money spent in stores per person. That isn't the case in the Waldenbooks segment, where transaction size and number of transactions both rose 1.8%, leading to a comp sales increase of 3.6%. The reduction in the number of Walden outlets by 131 resulted in an overall 11.4% decline in sales, but Jones said a number of Walden stores are doing significantly better than expected and, as a result, the planned number of stores to be closed will be reduced. There were 521 Walden outlets at the end of the third quarter, and the chain could end up with about 400 stores, compared to an initial estimate of about 300.
