Borders Turnaround Aims To Meld Savings With Increased Appeal
April 01 2009 - 10:09AM
Dow Jones News
Borders Group Inc. (BGP) hopes to remedy its problems by
striking a successful - and very challenging - balance between big
cost reductions and bringing its core consumer back while adding
new ones.
"All in all, we are doing whatever is necessary to get back on
firm financial footing," said Chief Executive Ron Marshall during a
conference call Wednesday after the bookseller posted a 54% drop in
fourth-quarter net income amid a falloff in same-store sales and
margins.
Some of the bookseller's skills "have atrophied," Marshall said.
"We believe we can reinvigorate" them.
The effort involves doing "just about everything we do today
from store service to [information technology] to logistics better
than we've been doing it, a lot better, and we must establish a
discipline to do it better," Marshall said in his first earnings
call since becoming chief executive of the struggling bookseller in
January after a management shake-up.
Borders aims to continue paying down debt while improving cash
flow as it reestablishes itself as the venue for "serious readers,
not for being the lowest cost retailer or the one that necessarily
appeal to the masses," Marshall said.
Efforts include speeding up its order cycles to replace out of
stock products to better meet demand. Borders also plans to be less
promotional and less of a discounter, approaches that that are
being tested and not really missed by customers, and producing an
uptick in margin, Marshall said.
The company is also scaling back multimedia inventory, like CD's
and DVD's, freeing up space to expand and drive sales in certain
categories that it feels have more sales growth potential. These
areas include better children's books, cooking and wellness.
Borders is also expanding book clubs both in-store and
online.
On the cost savings side, the company has identified an
additional $70 million in new cost reductions and has already taken
actions to achieve them early this fiscal year.
Marshall said the company expects sales to decline throughout
the year, as it plans for "only minimal capital expenditures."
Booksellers have been caught in one of the worst consumer
spending environments in recent years. Borders has trimmed its work
force recently, as the struggling retailer looks to cut costs amid
its turnaround.
For the quarter ended Jan. 31, Borders reported net income of
$29.6 million, or 49 cents a share, down from $64.7 million, or
$1.10 a share, a year earlier. The latest quarter included charges
of $34.9 million. Excluding items, Borders' net income from
continuing operations fell to $1.05 a share from $1.26.
Revenue, meanwhile, dropped 14% to $1.09 billion.
Analysts polled by Thomson Reuters expected per-share earnings
of 95 cents on revenue of $1.15 billion. Consolidated gross margin
on an operating basis fell to 28.7% from 31%.
Same-store sales at U.S. Borders superstores fell 15%, while the
figure dropped 4.7% at the mall-based Waldenbooks segment, which
the company has been shrinking.
Sales in the international segment decreased 22%.
In March, larger rival Barnes & Noble Inc. (BKS) reported
its fiscal fourth-quarter net income dropped 30% amid weak store
traffic and a drop in holiday spending.
On Monday, Borders won a year extension to April 2010 of a $42.5
million loan from its largest shareholder, Pershing Square Capital
Management LP, and said it would allow its right to compel a sale
of its U.K.-based Paperchase gifts and stationery business to
Pershing Square to expire.
The company considered selling itself last year after disclosing
liquidity problems, but later decided against it. Borders has since
sold off most of its foreign assets and reduced its debt.
Shares were up 11%, or 7 cents, to 70 cents in early trading.
Borders' stock has slumped 92% from its 52-week high in
September.
-By Karen Talley, Dow Jones Newswires; 201-938-5106;
karen.talley@dowjones.com