Ever-Shrinking Borders: Sales Fall 11.5 Percent On Loss of Over $51 Million

It was more enjoyable writing about the Slash concert . . .

Borders reported second quarter sales of $526 million, down 11.5 percent from a year ago (when sales were down 17.7 percent compared to 2008--when sales were also down.) For a little perspective, sales in this quarter were $617 million in 2009; $749 million in 2008; and $945 million in 2007.

The loss from continuing operations (to reflect the sale of Paperchase) was another $51.6 million, or 74 cents a share (perilously close to what shares themselves trade for), worse than $45.1 million a year ago. The operating loss of $37.7 million was also worse than the $25.7 million recorded a year ago. The loss came in part from "increased promotional discounts" required to prop up declining sales.

In the glimmers of "good news" offered, same-store sales fell by only 6.8 percent, which is actually an improvement, and their very small Borders.com business grew by 56 percent, at $15.5 million, reflecting the ebookstore they opened during the period and increased online physical book sales. Unfortunately, from a publishing perspective the store comp sales number is even weaker than it seems. The company said in this morning's investor call that the cafes actually increased while the declines were "largely due to our trade book category."

Overall debt of $262 million is actually higher than a year ago, by 2.7 percent, even though inventories continued to shrink, at $798 million this quarter, compared to $868 a year ago (reflecting some of those big returns that some publishers have been experiencing). The closely-watched trade accounts payable were $348.5 million, a little higher than six months ago but down from $401 million a year ago.

They proudly noted in this morning's investor call that one of their best strategies for improving performance is "opportunistically" negotiating early lease buyouts (like the one just announced in San Francisco). They have recently terminated seven underperforming leases before the end of their term.

With fresh financing, the company invested a little bit in capital expenditures this year, spending $7.7 million "focused on the development of the Borders eBook store." They say that "sales of the Kobo as well as pre-orders for the Aluratek and Velocity Micro devices have exceeded expectations."

The company says their consumer research "has indicated that most customers come to Borders to escape the pressures of everyday life." That's used in part to explain their "shifting our product mix to include additional non-book products that are both compelling and relevant, and providing an escape for our customers though an inspirational in-store environment and consistent customer service."