Borders Group plans to open 15 to 20 superstores in the U.S. in 2005, plus 10 to 12 international stores. It will remodel up to 100 outlets, more than double the number it revamped in 2004 and also plans to rebrand 75 to 100 Waldenbooks as Borders Express, but will limit its publishing program to bargain books, executives said in a conference call with analysts discussing results for 2004. Total revenue in 2005 is forecast to increase 7%.
Sales in 2004 increased 4.9%, to $3.9 billion, helped by a better-than-expected fourth quarter, in which sales rose 4.3%. Improvement in the period was driven by a 2% increase in book sale comps and higher DVD sales, which offset continued softness in music, executives said. After a year of weak customer traffic, the fourth-quarter customer count was "up slightly," executives said.
For the full year, sales at Borders's superstores rose 4.8%, to $2.47 billion, with same-store sales up 0.6%.
The company opened 19 superstores in the year and closed two, finishing the year with 462 outlets. Sales at Walden fell 5% in 2004, to $779.9 million, as the company closed 38 outlets, and same-store sales fell 2%. The international sector had the largest increase in the year, with sales increasing 25.3%, to $510.7 million, as Borders opened five stores abroad.
In their discussion with analysts, both Borders chairman Greg Josefowicz and CFO Ed Wilhelm were relatively bullish about 2005, citing confidence that the company's remodeling program combined with a stronger book release schedule, especially in fiction, should produce solid sales gains. Josefowicz didn't point to any big fiction titles (other than Harry Potter), but cited the "breadth of offerings" slated for 2005, especially later in the year. He said Borders is "still in a period" when bestsellers are not selling as strongly as they have traditionally. The July release of Potter will be something of a mixed blessing, Josefowicz indicated; while Potter will increase Borders's sales in the quarter, margins will be hurt because of the heavy discount at which it is selling the title. The unprecedented sales of political books in 2004 will make for difficult comparisons for nonfiction, although Josefowicz is hoping for big things for David McCullough's 1776.
Josefowicz said Borders has seen enough success with the remodeling of its superstores to accelerate the program this year. A major feature of the remodeling effort is to devote less space to slow-moving music products and add room for books, gifts and stationery, and cafe. Josefowicz anticipated that 70 superstores will add a Paperchase stationery department in 2005, while about 150 outlets will get Seattle's Best Coffee cafes. In all, Borders is projecting same-store sales at its superstores to increase by low single digits this year.
The company will focus its rebranding of as many as 100 Walden outlets as Borders Express in many of the same markets where superstores are being refurbished. The company spends about $30,000 per store to change a Walden outlet into a Borders Express, an investment it expects to recoup within two years. Borders did not disclose how many Walden outlets it will close this year, although comp-store sales are expected to be "flattish."
