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Borders Group Second Quarter Earnings Beat Expectations -- With Help From DVD

26 Aug, 2001 By: Hive News

Borders Group Inc., reporting results for the second quarter of 2001 ending July 29, announced that consolidated earnings per share were break even, which beat the company's previous guidance of a $.01 loss per share projected for the quarter.

Total sales within the Borders segment were in line with expectations at $511.1 million for the second quarter, a 10.1% gain and a comparable store sales increase of 2.0%. Net income for the Borders segment was $8.4 million for the quarter, up 25.4% over second quarter 2000.

``A consistent program of building on the strength of our core business while exercising strong expense discipline will help Borders Group deliver solid sales and earnings growth for 2001,'' said Greg Josefowicz, president and c.e.o. of Borders Group.

Consolidated sales, including the Borders segment, International and Waldenbooks, were $739.8 million, an increase of 5.9% for the quarter compared to 2000. Income from continuing operations was $0.1 million, which is up compared to the break even from the same period last year. Gross margin for the second quarter was 25.2% compared to 25.8% last year as anticipated, primarily reflecting higher occupancy costs as a percent of sales. SG&A as a percent of sales improved to 24.3% compared with 25.1% the year prior due to strong expense control across all segments.

Second-quarter sales in the Borders segment increased by 10.1% over last year to $511.1 million. Net income was $8.4 million, compared to $6.7 million one year ago, an increase of 25.4%. At 2.0%, comparable store sales in Borders superstores were in line with the company's projections for the quarter, and as expected, were heavily influenced by comparisons to last year's July release of the fourth installment in the Harry Potter series.

Category management initiatives continued to bring about double-digit comparable store sales increases in gifts and stationery and DVD. In children's, overall sales were strong, yet same store sales suffered due to Harry Potter comparisons. The presence of Title Sleuth computer search stations in all Borders stores remained an influential factor in driving special orders sales to a double-digit comparable store sales increase.

The company successfully re-launched its e-commerce site, Borders.com, which is now co-branded with Amazon.com. The new site brings customers the continued convenience of an online shopping option with the benefits of Amazon.com's leading e-commerce platform. The new site features links to BordersStores.com, a separate site operated by Borders. This site has been completely redeveloped and now offers an online link to bricks and mortar stores including an exclusive store inventory feature that gives customers the option of checking availability of items in all Borders stores.

On a consolidated basis, management remains comfortable with analyst consensus estimates of about a penny loss per share for the third quarter and $1.38 earnings per share for the full year. Borders superstore comparable store sales of approximately 3% are expected for the upcoming quarter and for the full year. It is anticipated that Waldenbooks will generate comparable store sales of -1% to -2% for the third quarter and for the full year.

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