Chains Report Flat First-Quarter Sales

Total revenue from the nation's three largest bookstore chains was flat, at $1.72 billion, for the first quarter ended May 3. Barnes & Noble and Borders Group reported virtually no change in sales compared to last year's first period, while Books-A-Million had a 1.9% sales decline.

Sales at Barnes & Noble's bookstore group inched up 0.2%, to $864 million, a figure that includes revenue from Sterling Publishing. The operating loss was cut to $1 million from $19 million. Sales at the company's superstores rose 0.6%, to $803.5 million, due to the opening of four new outlets. Comparable-store sales fell 5.2% in the quarter, although the 1.8% decline in April was a marked improvement over same-store sales for February and March. Sales at Dalton fell 24% in the quarter, to $45.9 million, due to a 14% drop in comp-store sales and the closing of 13 stores. The remaining $14.6 million in sales came from other ventures, including publishing and the Calendar Club division.

B&N CEO Steve Riggio said the Iraqi war, the weak economy and a "precipitous decline" in some key book areas were the main factors behind the soft first-quarter results. Sales were down in the hardcover bestseller, computer and travel segments. As a group, comparable sales of books was slightly worse than the 5.2% decline reported for the superstores, while sales of music were slightly better. DVD and cafe sales were up.

There were some bright spots in book sales, Riggio said, pointing to such segments as history, current events, health and fitness, romance, graphic novels, teen fiction, humor and Spanish-language books. Those categories, Riggio noted, largely coincide with the categories where Sterling is strongest. The performance in those segments "provides evidence that we can increase sales in categories we choose to emphasize through better store placement, visual merchandising and value pricing," Riggio said. B&N will roll out those marketing initiatives in the lifestyles category this summer in such categories as cooking, gardening and children's books.

B&N's new Barnes & Noble Classics line has gotten off to a fast start. Riggio reported that the classic titles are "outselling all competing editions combined." More classic titles, as well as more publishing programs, are set for later this year.Riggio said that despite the improvement in April, the company remains cautious about sales for the rest of the year because of the uncertain retail climate. For the second quarter, B&N projects that same-store sales at its superstores will range from flat to up 2%, although it sees earnings slightly falling in the period.

The somewhat bullish outlook for the second quarter is due to the June 21 release of Harry Potter and the Order of the Phoenix and Hillary Clinton's Living History. Riggio predicted that Phoenix "will be the fastest selling book in our history," and he estimated that the chain will sell one million copies of the title over a short period of time.

Books Weak at Borders

Overall revenue at Borders Group for the first quarter ended April 27 was $758.2 million, exactly even with last year's first period. The company posted a net loss of $4.8 million, compared to net income of $3.9 million in the first quarter of 2002.

Results were weak in both of Borders's domestic operations. Sales at superstores rose 0.6%, to $521.5 million, driven entirely by the opening of eight new stores, as comparable-store sales fell 5%. Actual book sales were roughly flat in the quarter, while comparable book sales were down by slightly more than 5%. Sales of computer, travel and history books were all down, while sales of fitness and diet books were up. Sales were also up in cooking and romance, two categories where category management has been completely installed. Music was the worst performing segment at the superstores; the company continues to shrink its music sections while expanding its selection of DVDs. DVDs and gifts and stationery were strong performers in the quarter. Sales at Waldenbooks fell 11.6% in the quarter, to $150.3 million, due to a combination of an 8.8% decline in same-store sales and the closing of six outlets.

Sales in the international segment rose 25.9%, to $79.6 million, and the net loss was trimmed to $4.2 million from $4.7 million. Borders executives said the performance of the international segment "is moving in the right direction."

Borders chief financial officer Ed Wilhelm explained that while the retail environment remains a challenge, "sales trends have stabilized" after a disastrous February and March. Bad weather and, more importantly, the Iraqi war kept customer traffic down, Wilhelm said, noting that during the combat phase of the war, Borders's superstore sales were off 10% and sales were down 20% at Walden. Between April 9 and May 19, same-store sales improved, but were still down, falling 3% at Borders and 6% at Walden.

Wilhelm and Borders chairman Greg Josefowicz said they expect sales to improve in the second half of the year, beginning with the release of Phoenix. Sales should also receive a boost from the further implementation of category management; a number of new categories, including business and mystery, are set to be converted to category management soon. For the year, Wilhelm predicted that same-store sales for superstores will be slightly down, with earnings flat to slightly up. Same-store sales at Walden are expected to decline in the low- to mid-single-digit range, with earnings falling 10%.

Despite the difficult retail climate, Josefowicz said the company is "locked in" to opening 35 to 40 domestic stores this year. The stores will have a "slightly smaller footprint," Josefowicz said, adding that in 2004, the company will cut the number of new superstore openings by as many as one-half.

The Iraqi war was cited as the main factor in dropping total first-quarter sales at Books-A-Million to $99.4 million, a 1.9% decline from last year's first quarter. The net loss was cut to $1.0 million from $1.3 million. Although comparable-store sales for the entire chain fell 2.9%, sames-store sales for books declined 7%. The decline in book sales was somewhat offset by sales increases in the gift, collectible and cafe categories. The bright spots among the book segments were diet and health, which had a 21% sales increase, and current events, particularly conservative titles.

Similar to B&N's Riggio and Borders's executives, BAM chairman Clyde Anderson said sales trends have improved since the end of the war, and he expects sales to begin to improve when Phoenix is released in June. Preorders for Phoenix have exceeded BAM's expectations and Anderson said BAM's initial buy would be about 150,000 copies.

Quarterly Sales at the Largest Bookstore Chains (in millions)