Following last week's announcement by Borders Group that it will not hit its sales and earnings targets for the third quarter—and was withdrawing forecasts for the fourth quarter and full year—Prudential Equity Group lowered its recommendation on the company's stock from neutral to underweight, meaning that it believes the company will underperform other retailers covered by the firm (which include Barnes & Noble and Amazon.com).
Although Borders did not elaborate on what caused it to revise its estimates, other than to cite "weaker than expected sales trends," Prudential believes slow foot traffic and continued problems in the media business are the two major factors behind the revised numbers. Sales of music have been a major trouble spot for Borders, and Prudential notes that Borders's repositioning efforts appear not to be taking hold.
Through October 16, comparable-store sales at Borders's superstores were down 0.7%, compared to predictions that sales would be flat to slightly up. Same-store sales at Waldenbooks were down 5.4%, compared to predictions of flat to down in the low single digits. International sales were up 5.8%, well below the forecast 9% to 12%. As a result, Borders said it expected to post a net loss in the quarter of 16 cents—20 cents, roughly double the loss of 8 cents—12 cents it had previously forecast.
