Borders Swings To Loss, But Barnes & Noble Profit Rises 3%

Bookseller Borders Group , in a significant strategy shift, said on Thursday that it would close nearly half of its Waldenbooks stores, weigh options for its international units, and start selling books through its own Web site.

The company, which also posted a quarterly loss, said it would focus on its U.S. superstores.

The moves come as the No. 2 U.S. bookstore chain behind Barnes & Noblecontinues to face lower-priced competitors ranging from superstores such as Wal-Mart Stores to Internet sites.

Barnes & Noble, meanwhile, reported its profits rose 3% helped by stronger sales. Sales were helped by fewer markdowns of best sellers and supply-chain improvements, the company said.

To Reduce Size of Waldenbooks

Borders plans to reduce the size of its Waldenbooks U.S. mall-based book chain, which has been struggling with declining same-store sales, to about 300 stores by the end of 2008 from 564 in 2006.

In addition, it will explore alternatives for the majority of its international segment, including its UK, Ireland, Australia and New Zealand superstores and Books etc. chain.

Borders had already been remodeling stores with expanded cafes and higher-margin stationery products, but its expenses have tripled since 2005.

Now the company will cut back on remodeling until it finishes developing a new prototype. The first store under the new design should open in early 2008.

Other plans include modifying the Borders Rewards program, which has nearly 17 million members.

The strategy shift will probably yield earnings-per-share growth in 2008, the Ann Arbor, Michigan-based company said, after a year of "transforming and stabilizing -- but not significantly improving -- financial performance" in 2007.

The company will also be responsible for its own online sales starting in 2008, ending its alliance with Inc. . Borders was slow to the Internet, launching a Web site in September 1998 before linking up with Amazon in 2001.

Borders Swings To Loss

Borders posted a net loss of $73.6 million, or $1.25 per share, for the fourth quarter ended on Feb. 3, compared with year-earlier net income of $119.1 million, or $1.78 per share.

Excluding items, earnings were $94.8 million, or $1.61 per share, missing the analysts' average forecast of $1.62 per share, according to Reuters Estimates.

Consolidated sales rose 2.9% to $1.5 billion. The analysts' average forecast was $1.47 billion.

Borders said it aimed to achieve same-store sales growth at a low- to mid-single digit percentage rate at its U.S. superstores by 2009. Fourth-quarter U.S. superstore same-store sales fell 2.8%.

The company also said it would publish exclusive and proprietary books, hoping to develop its own bestsellers, highlight the Borders brand and drive high margin sales, a tactic similar to Barnes & Noble.

Barnes & Noble Profits Up 3%

Brazil's President Luiz Inacio Lula da Silva.
Brazil's President Luiz Inacio Lula da Silva.

Barnes & Noble posted a 3% rise in quarterly profit on Thursday. For the quarter ended Feb. 3, the New York bookseller reported net income of $127 million, or $1.84 a share, compared with $123 million, or $1.76 a share, a year earlier.

Included in the latest results was a charge of 3 cents a share, related to the planned closure of a Memphis Internet distribution center.

Its sales rose 7% to $1.88 billion from $1.75 billion.

Looking ahead, Barnes & Noble projects a fiscal first-quarter loss of 8 cents to 12 cents a share, which includes charges from the distribution center's closing and costs related to the review of the company's stock-option practices.

Excluding those, the company sees its bottom-line results coming in between a loss of 1 cent a share and earnings of 5 cents a share. The mean estimate of analysts surveyed by Thomson Financial was for earnings of 1 cent.

On the other hand, Borders said it would not provide sales and earnings outlooks as it works on its plans, or comment on analysts' forecasts.

Borders shares, which closed at $21.43 on Wednesday, have fallen 16% from the 52-week high hit on March 31, 2006.

The stock trades at nearly 29.8-times next year's expected earnings, compared with a multiple of 22.5 for Barnes & Noble.