Borders Group 3rd-quarter loss widens

[December 10, 2010]  NEW YORK (AP) -- Borders Group Inc. said Thursday its third-quarter loss roughly doubled as its traditional book sales continued to fall due to tough competition from online retailers and discount stores and growing challenges from electronic books.

The No. 2 traditional book seller in the U.S. also said the amount it can borrow under its credit facility has been reduced because the value of its inventory has fallen and it could violate its credit agreement by the next year's first quarter if its liquidity doesn't improve.

Borders said in a call with analysts that it is in discussion with other possible lenders to replace its financing and is also considering selling some assets to improve its liquidity. It plans to close 16 stores during the fourth quarter, including four by ending leases early and the rest when their leases run out.

But CEO Mike Edwards said vendors are supportive and its stores have plenty of inventory. New CFO Scott Henry said stores' in-stock position is similar to a year ago.

Shares fell 10 cents, or 7.3 percent, to $1.27 in aftermarket trading.

Borders reported a loss of $74.4 million, or $1.03 per share. That compares with a loss of $37.7 million, or 63 cents per share in the quarter a year earlier.

Its revenue fell 18 percent, to $470.9 million from $571.4 million.

Revenue in stores open at least a year fell 12. 6 percent. The figure is a key gauge of a retailer's financial health because it excludes stores that open or close during the year.

"Our third-quarter results reflect the business challenges facing Borders and the industry at large," said Edwards. But he said Borders is at the beginning of a process to "vigorously address these challenges."

The report comes two days after activist investor William Ackman offered to finance a Borders bid for its much larger rival, Barnes & Noble Inc. On the call, Edwards reiterated earlier statements that he welcomes Ackman's participation.

"We previously expressed to Barnes & Noble our interest in such a business combination and look forward to continuing those discussions," he said, declining to comment further.

Barnes & Noble has declined to comment.

Borders has been reported losses for years, but its results worsened in recent quarters with heightened competition from Barnes & Noble and larger merchants including Amazon.com, Wal-Mart Stores Inc. and Target Corp. The growing electronic book market is another challenge, although Borders is hoping to benefit from that.

The company, based in Ann Arbor, Mich., launched its e-bookstore over the summer and added services to its website during the third quarter.

Borders is also expanding its selection of e-readers in its stores and children's toys and games offerings as it tries to return to profitability. Revenue rose in those categories in stores open at least a year, Borders said.

The company is also testing stores in Washington and New York by expanding cafe menu offerings, more electronic devices and larger sections devoted to children.

One bright spot during the quarter: Borders revamped its loyalty program, adding a paid option that delivers more discounts, and more than 580,000 customers have signed up. The program generated $11 million in revenue.

But Simba Information senior trade analyst Michael Norris said good results for the loyalty program was the only positive. Borders is continuing to perform worse than its chief rivals, Barnes & Noble and Books a Million, which both also face losses but not like Borders, he said.

Barnes & Noble reported a fiscal second-quarter loss bigger than analysts expected last week. But its revenue in stores open at least a year fell just 3.3 percent, compared with Borders' double-digit drop.

[Associated Press; By MAE ANDERSON]

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