Modest Gain in Chains' Third Quarter

Total revenue at the nation's three major bookstore chains rose 2.4% in the third quarter, to $2.07 billion. The pattern was a familiar one, with Barnes & Noble and Books-A-Million posting a better sales performance than Borders Group.

B&N and BAM both reported same-store sales at the superstores up 2% in the third quarter, but comp sales were down 0.7% at Borders's domestic superstores. An 18% decline in music sale comps offset a 1% same-store sales increase in books at the superstores, said Borders CFO Ed Wilhelm. Sales at Waldenbooks fell 10.5% due in part to store closings and a 5% decline in comp sales. And for the first time, Borders acknowledged that problems implementing the Retek merchandising system had affected sales at Waldenbooks. The company has been installing the system for about two years (Foreword, Mar. 20), and new CEO George Jones said that while the retailer at one point thought all the bugs in the system would be fixed by the fourth quarter, that has proven not to be the case. Jones would not speculate on how long it will take to correct Retek's problems, but said, "It will not be a quick fix." Until Retek is operating smoothly, Borders will not implement the system in its superstore operation. Jones noted that getting a handle on its technical infrastructure is a high priority and that a search is on to hire a new CIO.

Retek is not Walden's only problem, Jones said. The product mix is "antiquated," Jones said, and new offerings will be introduced in the first quarter of fiscal 2007. The company will also accelerate the rate at which it closes Walden outlets and will shut "at least 80 stores" in the next fiscal year, Wilhelm said.

Internationally, sales rose 14.9%, but comp sales were down 0.3% at Borders's superstores due to weakness in the U.K. Given the difficult retail environment in the U.K., Jones said, Borders will be exploring "strategic alternatives" for its Books etc. division.

In the conference call discussing third-quarter results, Jones assured analysts that while the period's financial performance was in line with expectations, it was not in line with where he sees the company going. A new strategic plan is being developed, and details of the plan will be discussed early in 2007. An important part of that plan will be Borders's plans for its music departments, which need an overhaul, Jones said. While music will remain a smaller part of superstore offerings, the company needs to react better to market trends, he said.

Looking at prospects for the fourth quarter, Borders and BAM executives agreed with earlier predictions made by B&N that the holiday season should be a reasonably good one. Borders forecasted that same-store growth at its superstores will range from flat to up in low single digits, the same range predicted by B&N.

Bookstore Chain Sales, 2005—2006
(in millions)