Yesterday's Bloomberg article:
Borders Group Shares Fall After 2nd Earnings Warning
Ann Arbor, Michigan, Jan. 27 (Bloomberg) -- Borders Group Inc. shares fell 15 percent after the No. 2 U.S. bookseller warned for the second time this month that fiscal 1999 earnings will miss forecasts because of slow sales.
The operator of about 1,200 Borders, Waldenbooks and Brentanos stores said it expects earnings for the year ended Sunday of $1.11 to $1.13 a share, less than the average estimate of $1.16 from analysts polled by First Call Corp.
The bookseller already warned three weeks ago it wouldn't make $1.22 a share expected by analysts because of severe winter weather. The retailer has also been hurt by leading Internet booksellers Amazon.com Inc. and Barnes & Noble Inc. Borders introduced its Web site later than its two rivals and hasn't invested nearly as much money, analysts said. Borders shares fell 3 1/8 to 17 1/8. ''The Internet has really thrown a monkey wrench into this whole business,'' said analyst William Armstrong of Fahnestock & Co., who rates Borders shares ''buy.''
The shares earlier fell to 16 3/4, the lowest since December 1996. The stock, which peaked at 41 3/4 in July, fell 20 percent with the earlier warning on Jan. 7.
Amazon.com, the leading online seller, late yesterday said its loss widened less than expected in the fourth quarter as sales quadrupled to $252.9 million. ''At least some of their sales are coming at the expense of brick-and-mortar stores,'' Armstrong said.
Separately, Ann Arbor, Michigan-based Borders today said it acquired a 19.9 percent stake in Paperchase Products Ltd., a retailer of stationery and art materials in the U.K., for an undisclosed sum. It also plans to test a new line of stationery in several U.S. Borders superstores this spring.
Borders expects to report its fourth-quarter and full-year earnings results on March 8.
Online Losses
Borders' online business, Borders.com, is expected to generate a loss for the year of 12 cents to 13 cents a share on sales of $4.6 million, the retailer said. More than half of the site's sales volume came in the fourth quarter. It expects the site to generate a loss of about 21 cents to 24 cents a share in 1999 on sales of about $25 million.
Amazon's sales in 1998, meantime, totaled $610.0 million, and Barnesandnoble.com is expected to report full-year revenue of about $65 million. All three sites have yet to make a profit, as marketing and development costs exceed revenue.
Some investors said Borders is doing the right thing by not trying to compete head-to-head online with Amazon.com, and focusing instead on areas such as international expansion. ''It's too late for them to develop a significant online standalone business,'' said portfolio manager Brian James of Loomis, Sayles & Co., which sold its Borders stake before Christmas. ''There's probably room for one successful Internet bookseller, and that's Amazon.''
Unlike the Internet, international expansion is an avenue of growth with the potential for near-term profits, analysts said.
Borders marked its entrance overseas with its 1997 acquisition of U.K. bookseller Books etc. and the opening of a Borders store in Singapore. Today, it operates 31 stores in the U.K., Singapore and Australia.
Slow Sales
Sales at Borders superstores open at least a year in the fourth quarter rose 1.7 percent. It had forecast a gain of as much as 2.5 percent earlier this month, and said sales would have risen as much as 5 percent without bad weather and holiday promotion of gift certificates.
So-called same-store sales at the Waldenbooks chain were unchanged in the fourth quarter. ''Comparable sales levels achieved in 1998 are totally unacceptable,'' said Chief Executive Phil Pfeffer in a statement.
The retailer three weeks ago blamed the slowing fourth- quarter sales in part on storms that crippled many parts of the Midwest during the New Year's weekend. About 36 percent of its Borders stores are in the Midwest.
It also said that while holiday sales of gift certificates increased about 40 percent, they're not booked as revenue until the certificates are redeemed. Borders sold electronic gift cards, similar to debit cards used in bank machines.
Barnes & Noble, meantime, said earlier this month same-store sales at its namesake superstores rose 5.7 percent in the five weeks ended Jan. 2. Barnes & Noble's superstores are more geographically diversified than Borders stores, which helps insulate it from regional weather problems, Armstrong said.
Initiatives
In addition, Barnes & Noble's aggressive advertising of its Web site may have also helped bring more shoppers into its stores, he said.
Borders officials told analysts and investors on a conference call today that it needs to do a better job communicating value in its stores, James said.
The company said it plans to more aggressively market the Borders brand this year. Initiatives will include cross promotions between stores and Borders.com, improving customer service and the speed of special-order deliveries, and expanding the electronic gift-card program, it said.
Borders also plans to open a record 50 to 55 stores this year, including the five new international stores. |
