Big Chains Stumble at Start

Another weak quarter from Borders Group led to a 6.7% decline in total revenue for the country's three largest bookstore chains in the first period. Of the three, only Books-A-Million managed to post a sales gain in the quarter. Borders's sales in the quarter followed the same pattern as its competitors, with a mild uptick in April, which benefited from Easter. The company isn't providing any specific guidance for 2009, other than saying that it expects negative sales trends to continue through the year.

Commenting on results, Borders CEO Ron Marshall said that while Borders has done a good job reducing costs, it still needs to do a much better job to improve the top line and told analysts in a conference call last week that the retailer is committed to creating a “selling culture.” To get there, Borders is rolling out a plan to have its store employees re-engage and reconnect with customers, helping them to find the titles they want. Hand-selling is not a new concept, Marshall acknowledged, but it works.

Borders is also changing its product mix and replenishing its book inventory. A major factor in the sales decline in the period was the more than 20% fall in comp sales in the multimedia division, where the company removed about one-third of its inventory compared to last year's first quarter, CFO Mark Bierley said. With more space for books, Borders plans to significantly expand its children's department, rolling out expanded sections throughout the second quarter. The children's section carries books ranging from infant to young adult and had a 3.4% comp increase in the first quarter, led by an 18% comp gain in young adult, even excluding the Stephenie Meyer titles. Bargain and cookbook sections will also be expanded as will the health and wellness department.

Sales should also benefit from improved book selection. While the decision to reduce inventory last year as a way to cut costs was the right one, it did leave some gaps on the company's shelves, Marshall said. Working with publishers, Borders is addressing that issue, and new products “are flowing into stores,” Marshall said. He warned, however, that revising its book assortment as well as replacing multimedia titles with books could cause some sales disruptions that should be over by the end of the second quarter.

With multimedia comps way down, same-store sales at Borders's superstores fell 13.5% in the first quarter, and total sales were off 10.7%, to $536.7 million. Sales at the Waldenbooks specialty group fell 19.9%, to $76.9 million, as the company closed 11 stores and comps fell 5.5%. The company had an operating loss of $86 million in the quarter, compared to a loss of $30.1 million in last year's first quarter. Excluding one-time items, the loss was $15.9 million, down from $30.1 million.

While Bierley said Borders will continue to downsize the Walden division, closures will be done “in a rational way.”

Standard & Poor's Equity Research didn't like Borders's sales numbers and downgraded the stock last week.

Bookstore Chain Sales, 2008—2009
(In millions)