Borders Group Reports First Quarter 2010 Results

ANN ARBOR, Mich., May 27 /PRNewswire-FirstCall/ -- Borders Group, Inc. (NYSE: BGP) today reported results for its first quarter ended May 1, 2010. Highlights include:

• Operating loss in the first quarter was $33.5 million compared to $29.1 million in the same period a year ago.
• Loss from continuing operations in the first quarter improved to $64.5 million from $86.0 million in the same period a year ago, reflecting less warrant expense compared to a year ago. On a per share basis, loss from continuing operations in the first quarter improved to $1.08 per share from $1.44 per share in the same period one year ago.
• Adjusted EBITDA for the first quarter was a loss of $9.3 million on total consolidated sales of $542.4 million compared to income of $3.0 million on sales of $641.5 million for the same period a year ago.  
• Debt net of cash at the end of the first quarter was $294.7 million, a $14.5 million or 5.2% increase from the prior year.
• Comparable store sales in the domestic segment in the first quarter declined by 11.4%.  

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"Our top line remained challenged during the first quarter, yet we were able to soften the impact on our bottom line through continued cost controls," said Borders Group Interim President and Chief Executive Officer Mike Edwards. "The $25.0 million equity investment by Bennett S. LeBow -- coupled with our recently announced debt financing -- strengthens our balance sheet and enables us to continue to aggressively execute a number of key financial and strategic initiatives that will transform the Borders brand.  These include improving the store network to increase profitability and productivity and maximizing the digital opportunity, including growing Borders.com. We have already taken significant steps to achieve our company objectives including executing key aspects of our digital strategy. To that end, we've made the Kobo eReader -- the first of many eReading devices we will carry -- available to our customers, are preparing to launch our eBook store and mobile apps powered by Kobo next month, and are on track to introduce our 'Area-e' digital shops in August."

Consolidated Results

All earnings/loss figures reported throughout this news release are on a GAAP basis unless otherwise noted.

First quarter total consolidated sales were $542.4 million, down 15.4% from the same period a year ago. The company generated a first quarter loss from continuing operations of $64.5 million or $1.08 per share compared to a loss from continuing operations of $86.0 million or $1.44 per share for the same period a year ago, reflecting less warrant expense compared to a year ago.  Operating loss in the first quarter was $33.5 million compared to $29.1 million in the same period a year ago.

Gross margin as a percent of sales decreased 2.5% from 22.4% to 19.9% in the first quarter. The de-leveraging of fixed occupancy and distribution costs caused by negative comparable store sales primarily drove this decline.  The negative impact of these items was partially offset by the shift from lower margin multimedia product to higher margin book, cafe, kids and gifts and stationery merchandise.  

SG&A as a percent of sales improved in the first quarter 0.8% from 26.9% to 26.1%, and declined in dollars by $30.9 million.  This decline in dollars was due to the company's aggressive expense reduction initiatives, which were partially offset by de-leveraging due to negative sales trends.

At the end of the first quarter, inventory investment was $836.2 million, down $56.8 million or 6.4% from the prior year. The inventory decline was primarily attributable to the closure of 214 bookstores between the end of the first quarter of 2009 and the end of the first quarter of 2010.

Cash used for operating activities in the first quarter was $28.2 million compared to cash generated by operations of $2.4 million for the same period a year ago.

First quarter capital expenditures were $5.0 million compared to $2.4 million for the same period a year ago.  Spending in the first quarter of 2010 was focused on the development of the Borders eBook store on Borders.com and the integration of the company's small format stores into the Borders superstore computer system, an investment Borders Group made to merge all stores into a single platform.

Debt net of cash at the end of the quarter totaled $294.7 million compared to debt net of cash at the end of the prior year quarter of $280.2 million, a $14.5 million or 5.2% increase, primarily due to our recently completed financing arrangements.  

Segment Results

Beginning with this news release, the company will report two segments: the Domestic segment, which includes bookstores and Borders.com, and the International segment, which includes Paperchase stores and the franchise business.

Domestic

Total sales within the domestic segment in the first quarter were $520.0 million, down 16.1% from a year ago. Comparable store sales in the domestic segment decreased by 11.4% during the first quarter.  Beginning in the first quarter of 2009 we substantially reduced the music and movies categories to a more tailored assortment, and factoring out multimedia, comparable store sales in the domestic segment decreased 6.8% during the quarter.  

Operating loss in the first quarter was $33.2 million compared to $29.3 million for the same period a year ago.

The company closed six domestic bookstores during the first quarter, ending the quarter with a total of 680 domestic bookstore locations.

International

Total first quarter sales within the International segment were $22.4 million, which is up 3.7% compared to the same period a year ago. Excluding the impact of foreign currency translation, first quarter total sales decreased 2.5%.

The International segment generated an operating loss of $0.3 million in the first quarter compared to operating income of $0.2 million for the same period a year ago.

Conference Call Today, May 27, at 10 a.m. Eastern

Management will hold a conference call today at 10 a.m. Eastern. The call will be webcast by Thomson Financial and can be accessed at www.bordersgroupinc.com. A replay will be accessible on the Web site through June 27. In addition, a replay phone service will be available toll-free at (800) 947-6619 or for international calls at (203) 369-3973. The phone service will be available through June 10 until 11:59 p.m. Eastern.

About Borders Group

Headquartered in Ann Arbor, Mich., Borders Group, Inc. (NYSE: BGP) is a leading specialty retailer of books as well as other educational and entertainment items. The company employs approximately 19,500 throughout the U.S., primarily in its Borders® and Waldenbooks® stores. Online shopping is offered through borders.com. Find author interviews and vibrant discussions of the products we and our customers are passionate about online at facebook.com/borders, twitter.com/borders and youtube.com/bordersmedia. For more information about the company, visit borders.com/media.

Safe Harbor Statement

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as "expect," "planning," "preparing," "possibility," "opportunity," "goal," "will," "may," "intend," "anticipates," "working toward" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the company's future financial condition and performance (including earnings per share, the profitability of Waldenbooks, liquidity, cash flows, debt levels, market share growth and other sales information, inventory levels and capital expenditures) and its strategic initiatives such as the expansion of product categories, including eBook content and eReaders. These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the company's forward-looking statements.

These risks and uncertainties include, but are not limited to, consumer demand for the company's products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, competition and other factors; the availability of adequate capital – including vendor credit – to fund the company's operations and to carry out its strategic plans; adverse litigation results or other claims, the performance of the company's information technology systems and, with respect to eBook content and eReaders, the availability to the company of anticipated content levels and a variety of competitive devices.

The company's periodic reports filed from time to time with the Securities and Exchange Commission contain more detailed discussions of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and those discussions are incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.

SOURCE Borders Group, Inc.