Chain Sales Rose 3.7% in 2001, to $7.51 Billion

Total sales from the nation's three top chains increased 3.7%, to $7.51 billion, for the fiscal year ended February 2. Books-A-Million, which bought 19 former Crown Books outlets in the year, had the largest gain, with sales up 5.8%, to $442.9 million. Sales at Barnes & Noble's bookstore division rose 3.6%, to $3.68 billion, and sales at Borders Group increased 3.5%, to $3.39 billion. In the fiscal year ended February 3, 2001, the three chains' sales increased 9.0%. (The comparisons between the two years are skewed by the fact that there were 53 weeks in 2000, including 14 weeks in the fourth quarter, compared to 52 weeks in the most recent year and 13 in the quarter).

Despite the sales improvement, earnings before interest, taxes, depreciation and amortization (EBITDA) fell 7.1% at B&N, to $328 million in the year. Maureen O'Connell, chief financial officer for B&N, said the decline was primarily due to lower comparable-store sales in the year and margin pressure from the company's Readers' Advantage program. The company's GameStop video game chain posted a 48% sales increase, to $1.21 billion, with EBITDA up 128%, to $64 million.

Borders reported that income from continuing operations, excluding unusual items, rose 13%, to $109.3 million, for the fiscal year ended January 27. The improvement in net income was led by the company's superstore operations, where earnings increased 26%, to $85.9 million. Net income at Walden fell 4%, to $46.2 million, while the net loss from international operations was cut to $7.5 million from $10.5 million. Borders expects its international stores to become profitable in 2003. Company chief financial officer Ed Wilhelm attributed the profit improvement to higher sales combined with cost controls.

In addition to reporting a 5.8% sales increase, BAM announced that net income jumped 29%, to $4.0 million, last year. The improvement in sales and earnings in the year were led by BAM's book segment, which offset declines in music and collectibles.

The company has removed its music offerings from most of its stores and has increased its book selection, a move that has helped improve operating margins. BAM chairman Clyde Anderson noted that BAM earned almost no operating profit on its music sales. Other factors that helped boost the chain's operating margin, which rose to 0.9% from 0.7%, included the addition of more book vendors, lessening BAM's dependence on discounted bestsellers. During the year, the company's children's department did well, and the history category, led by John Adams and Black Hawk Down, also had solid gains.

Anderson said he "feels good about the book business," explaining that the things the company has been working on are beginning to take hold. The retailer is installing a new POS system throughout the chain and plans a major remodeling for about 20 of its superstores. Less extensive remodeling is planned for at least 60 other stores. The company has somewhat scaled back its new superstore-opening plans to between six and eight; in January it said it expected to open between eight and 10 superstores.

Sluggish Start

Looking ahead to 2002, Wilhelm said that despite a weaker than expected performance from its superstores early in the quarter, the company is still forecasting earnings per share to be three cents to four cents in the period. The slow start has prompted Borders to lower its forecast for comparable-store sales growth at its superstores from 2% to flat or slightly down. Wilhelm said the soft February was due to the public's interest in the Olympics plus weak new titles. Sales have picked up a bit in March, and Wilhelm is looking for solid gains in April and May.

Same-stores sales at B&N's superstores increased 0.7% in February, slightly below plan. Like Wilhelm, B&N blamed the Olympics plus heavy snowstorms in the Midwest over that last weekend in February for the weaker than expected showing. Comparable-store sales at Dalton were down 2.1%. Nevertheless, B&N still expects comparable-store sales at its superstores to increase 3% to 4% in the current fiscal year.

BAM's Anderson said that sales in February were "okay." Children's book sales were good, but he observed that "fiction is suffering. We could use a hot book or two." The company is still expecting earnings per share in the current year to be in the range of 29 cents to 31 cents per share, compared to 24 cents earned last year.

Quarterly Bookstore Chain Sales
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