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DVD Boosts Borders Bottom Line

13 Mar, 2003 By: Joan Villa

A “challenging” 2002 produced mixed results for Borders Group, covering both Borders Superstores and Waldenbooks, but sales strength from DVD, gifts and stationery rescued soft categories of books and music.

Same-store sales dropped 3 percent in the fourth quarter and 1.2 percent for the full year, the company reported. The company achieved record consolidated sales of $3.5 billion for the full year 2002, 2.9 percent higher than 2001, and boosted earnings per share 28 percent over the prior year to $1.36. Fourth-quarter sales slowed the momentum of the first nine months of the year, however, eking up a mere 1.4 percent to a record $1.2 billion, with earnings of $1.32 per share that were flat with the year-ago period.

“We are pleased to report another year of EPS growth for Borders Group and that we managed our business effectively through a challenging 2002," CEO Greg Josefowicz said. "This year, we remain focused on initiatives to improve sales productivity in what continues to be a difficult environment and will manage the business prudently on the expense and investment side."

During the year, the chain opened 41 new Borders stores in the U.S., ending 2002 with 404 domestic locations, and closed 53 underperforming Waldenbooks stores, bringing that division's total to 778.

This year, Borders plans to open 35 to 40 new domestic Borders stores and six to eight international locations, while closing some 40 to 50 Waldenbooks stores.

So far this year, Borders and Waldenbooks are both experiencing flat comparable store sales, leading the company to anticipate slightly positive to slightly negative same-store sales for the full year, with a possible decline in the low single-digit range for Waldenbooks. Total sales in the international segment are expected to increase in the high teens on a percent basis.

Assuming sales trends continue, the company is looking for break-even consolidated EPS for the first quarter. The company expects sales momentum to pick up in the second half, beginning in June with the release of the fifth book in the Harry Potter series, boosting consolidated earnings for the full year 5 percent to 12 percent in the range of $1.50 to $1.60 per share.

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