Monday March 8, 9:38 pm Eastern Time
Company Press Release
SOURCE: Borders Group, Inc.
Borders Group Announces Record
Fiscal 1998 Results
ANN ARBOR, Mich., March 8 /PRNewswire/ -- Borders Group, Inc. (NYSE: BGP - news)
today announced record consolidated net income of $92.1 million for fiscal year ended January 24,
1999, the highest in the multi-media retailing industry for the third straight year.
Full Year Results
Consistent with the Company's guidance in its press release on January 27, the Company reported
earnings from stores, including international stores, of $1.24 per share, an 18.1% increase over prior
year earnings per share of $1.05. Borders on-line activities generated a loss of $0.13 per share
compared to a loss of $0.07 per share in the prior year. On a consolidated basis earnings increased
to $1.12 per share compared to $0.98 per share in 1997. Consolidated EBITDA increased to
$234.0 million or $2.84 per share.
Superstore Sales Grow - Borders Growth Rate Is Industry's Fastest
Borders superstores sales grew to $1,563.5 million, an increase of 23.7%, making Borders the
fastest growing book and music superstore chain in the industry. The sales improvement resulted
from a comparable store sales increase of 3.5% for the year, and 47 new store openings, bringing
total store count to 250. Waldenbooks reported sales of $941.6 million, a decline of 2.7% from a
year ago. The sales decline at Waldenbooks reflected a decrease in stores from 923 to 900 and a
comparable store sales decrease of 1.0%. Borders.com, which began operations mid-year,
generated sales of $4.6 million. Consolidated sales for the full year were $2,595.0 million, an
increase of 14.5% over the prior year sales of $2,266.0 million.
Gross Margins Increase
Gross margin as a percent of sales increased to 28.3% compared to 27.9% in 1997. The continuing
increase in gross margin resulted from improvements in shrink control, merchandise mix, and
occupancy. SG&A as a percent of sales increased slightly to 21.5% from 21.4% of sales in 1997.
The increase in SG&A resulted from increased Internet and international spending, which offset
operating leverage improvement in the domestic stores.
4th Quarter Results
Fourth quarter consolidated earnings increased to $1.06 per share, a 10.4% increase over prior year
earnings of $0.96 per share. Stores, including international stores, contributed earnings of $1.11 per
share offset by Borders on-line losses of $0.04 per share.
Fourth quarter consolidated sales rose to $945.5 million, a 10.1% increase over the prior year sales
of $858.8 million. Store sales, including international stores, rose to $942.9 million. Borders.com
generated sales of $2.6 million ending the year at an annualized run rate of $14 million.
Balance Sheet - Record Cash Flow
Year-end inventories increased to $1,019.6 million. The increase was primarily attributable to 47
new Borders stores and the additional stocking of the Borders Net Fulfillment Center. Short term
borrowings were $134.1 million compared to $127.3 million in 1997. Record cash flow funded
store openings, working capital requirements, strategic Internet and international initiatives and share
repurchase activity.
Comments From the CEO, Phil Pfeffer
In expressing his views on the year, Philip Pfeffer, CEO, said, ''Borders achieved record sales and
profits in 1998 and net income surpassed all book and music competitors for the third year in a row.
Borders is the fastest growing retail book and music superstore chain and provides its shareholders
an industry leading 14.0% return on average equity. We anticipate improving our performance again
in 1999.''
Borders Group is committed to three major areas of focus. The first is a continued emphasis to drive
sales. The second is the continuation of Borders' strategic plan to drive Borders on-line initiatives by
growing Borders.com and integrating Web based technologies into our stores to create a compelling
one- of-a-kind shopping experience (referred to as Borders Retail Convergence). The third area of
focus is continued international expansion to extend the Company's leadership position as the
premier global book and music retailer.
Drive Sales - New Stores, New Products, Enhanced Capabilities
-- Open approximately 50 stores in 1999, including five international
stores.
-- Team with Paperchase Products Limited to introduce a new product line
of stationery and lifestyle sidelines in several U.S. Borders
superstores in the spring. This product line is already in the
Borders superstores in the United Kingdom and is very appealing to our
customers with a resultant sales increase of 200 to 300 basis points
in those stores.
-- Continue expansion and enhancement of special order capabilities in
both Borders and Waldenbooks stores.
-- Expand the highly successful electronic gift card program to other
seasonal events including Valentine's Day, Mother's Day, Father's Day,
graduations and other gift giving occasions.
-- Restructure internal and external marketing activities within Borders
stores.
-- Redesign incentive programs to reward sales performance.
-- Install new directional signage package in all stores.
-- Expand the international kiosk program to approximately 30 kiosks.
Drive Internet Initiatives and Integrate Web Based Technologies - Improve
Service, Extend Platform, Leverage Investment
-- Drive Borders.com sales.
-- Leverage Borders Net Fulfillment Center which stocks over 10 million
book, music and video units for immediate delivery and services both
Borders.com and Borders in-store special orders via Borders Net
Express. The utilization of one facility to service two retailing
channels enables the Company to provide better service to customers
while leveraging the fixed investment. This same platform will also be
extended to serve Waldenbooks' customers.
-- Strengthen relationships with customers through Borders.com and
Bordersstores.com, a network of over 200 individual store web sites.
Early results of cross promotions between Borders.com and the stores
reinforce management's belief in the powerful potential of integrating
the Internet and stores through Web based technologies to create a
unique shopping experience (which we call Borders Retail Convergence).
-- Further enhance our customers' shopping experience by placing Borders
Net Express kiosks in stores, giving customers in-store access to the
full Borders database of over three million book, music, and video
titles. Integrating this technology will enable customers to perform
searches, read reviews, and purchase books, music and videos either in-
store or on-line while enjoying the in-store experience. In addition,
we plan to offer ship to home service.
Drive International Expansion - Build on Strong Performance
-- The Company currently operates 26 Books etc. stores in the United
Kingdom and a total of five Borders superstores, including a store in
Singapore, three in the United Kingdom and one in Australia.
-- Three of the international superstores are already among the five
highest sales volume stores in the chain. The strong performance of
the international stores confirms management's assessment of the
potential of this market.
-- Five additional Borders superstores are planned to open in 1999,
including our first store in New Zealand, in addition to three Books
etc. stores in the United Kingdom.
Borders Group, Inc. Financial Statements
(dollars in millions, except per share amounts)
Sales and Earnings Summary
Quarter Ended
January 24, January 25, %
1999 1998 Change
Borders $539.6 $450.1 19.9%
Waldenbooks 376.3 382.9 -1.7%
Other 27.0 25.8 4.7%
Total store sales 942.9 858.8 9.8%
Borders.com sales 2.6 0.0 N/A
Total sales 945.5 858.8 10.1%
Cost of goods sold,
incl. occupancy 635.2 577.3 10.0%
Gross margin 310.3 281.5 10.2%
Selling, general &
admin. expenses 159.2 145.5 9.4%
Pre-opening expense 3.6 3.6 0.0%
Goodwill amortization 0.7 0.7 0.0%
Operating Income 146.8 131.7 11.5%
Interest expense 4.7 3.2 46.9%
Income before taxes 142.1 128.5 10.6%
Income taxes 55.4 49.6 11.7%
Net income $86.7 $78.9 9.9%
Diluted EPS $1.06 $0.96 10.4%
Diluted weighted avg.
common shares (000's) 81,683 82,085 -0.5%
Segment Information
Store net income $90.3 $83.8 7.8%
Store diluted EPS $1.11 $1.02 8.8%
Borders.com net loss $(3.6) $(4.9) -26.5%
Borders.com diluted EPS $(0.04) $(0.06) -33.3%
Comparable Store Sales
Borders 1.7% 8.0%
Waldenbooks 0.0% 0.5%
Year-to-Date
January 24, January 25, %
1999 1998 Change
Borders $1,563.5 $1,264.1 23.7%
Waldenbooks 941.6 968.2 -2.7%
Other 85.3 33.7 153.1%
Total store sales 2,590.4 2,266.0 14.3%
Borders.com sales 4.6 0.0 N/A
Total sales 2,595.0 2,266.0 14.5%
Cost of goods sold,
incl. occupancy 1,859.4 1,634.3 13.8%
Gross margin 735.6 631.7 16.4%
Selling, general &
admin. expenses 557.6 484.9 15.0%
Pre-opening expense 7.8 7.2 8.3%
Goodwill amortization 2.9 1.6 81.3%
Operating Income 167.3 138.0 21.2%
Interest expense 16.2 7.2 125.0%
Income before taxes 151.1 130.8 15.5%
Income taxes 59.0 50.6 16.6%
Net income $92.1 $80.2 14.8%
Diluted EPS $1.12 $0.98 14.3%
Diluted weighted avg.
common shares (000's) 82,503 82,241 0.3%
Segment Information
Store net income $102.6 $86.2 19.0%
Store diluted EPS $1.24 $1.05 18.1%
Borders.com net loss $(10.5) $(6.0) 75.0%
Borders.com diluted EPS $(0.13) $(0.07) 85.7%
Comparable Store Sales
Borders 3.5% 8.0%
Waldenbooks (1.0%) 0.0%
Sales and Earnings Summary (As Percentage of Total Consolidated Sales)
Quarter Ended Year-to-Date
January 24, January 25, January 24, January 25,
1999 1998 1999 1998
Borders 57.1% 52.4% 60.3% 55.8%
Waldenbooks 39.8 44.6 36.3 42.7
Other 2.8 3.0 3.2 1.5
Total store sales 99.7 100.0 99.8 100.0
Borders.com sales 0.3 0.0 0.2 0.0
Total sales 100.0 100.0 100.0 100.0
Cost of goods sold,
incl. occupancy 67.2 67.2 71.7 72.1
Gross margin 32.8 32.8 28.3 27.9
Selling, general &
admin. expenses 16.8 16.9 21.5 21.4
Pre-opening expense 0.4 0.4 0.3 0.3
Goodwill amortization 0.1 0.1 0.1 0.1
Operating Income 15.5 15.3 6.4 6.1
Interest expense 0.5 0.4 0.6 0.3
Income before taxes 15.0 15.0 5.8 5.8
Income taxes 5.8 5.8 2.3 2.2
Net income 9.2% 9.2% 3.5% 3.5%
Condensed Consolidated Balance Sheet
January 24, January 25,
1999 1998
Assets
Cash and cash equivalents $42.8 $65.1
Inventory 1,019.6 879.1
Other current assets 70.9 74.2
Property and equipment, net 493.8 373.7
Other assets and deferred charges 33.5 33.3
Goodwill, net of accumulated amortization 106.0 109.5
$1,766.6 $1,534.9
Liabilities and Stockholders' Equity
Short term debt $134.1 $127.3
Accounts payable 607.2 480.7
Other current liabilities 247.5 273.4
Long-term debt and capital lease obligations 6.3 5.2
Other long-term liabilities 56.4 50.2
Total liabilities 1,051.5 936.8
Total stockholders' equity 715.1 598.1
$1,766.6 $1,534.9
Store Activity Summary
Quarter Fiscal Year Fiscal Year
Ended Ended Ended
January 24, January 24, January 25,
1999 1999 1998
Borders Superstores
Beginning number of stores 238 203 157
Openings 12 47 46
Ending number of stores 250 250 203
Ending square footage 6.8 6.8 5.5
Walden Mall Bookstores
Beginning number of stores 896 923 961
Openings 6 16 9
Closings (2) (39) (47)
Ending number of stores 900 900 923
Ending square footage 3.5 3.5 3.5
Borders Comparable Store Sales
Q1 Q2 Q3 Q4 Year
As Reported:
1998 4.5% 5.4% 3.6% 1.7% 3.5%
1997 9.5% 7.5% 7.3% 8.0% 8.0%
2 Year Comp: 14.0% 12.9% 10.9% 9.7% 11.5%
Excluding Non-Prototypical:
1998 5.8% 6.7% 4.6% 2.2% 4.4%
1997 10.8% 8.4% 8.4% 9.3% 9.2%
2 Year Comp: 16.6% 15.1% 13.0% 11.5% 13.6%
Regards
Neil
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