Bookstore Borders' Loss Widens as Sales Fall

(Dow Jones) - Borders Group Inc. continued to struggle Wednesday as its fiscal second-quarter loss widened as customer traffic and sales continued their sharp decline and margins kept falling.

The sales slide has weighed mightily on the No. 2 U.S. bookstore operator by sales, Dow Jones Newswires reported. Management has changed, thanks to an investment from financier Bennett LeBow that has helped prop Borders up amid declining consumer spending in the recession.

In July, it agreed to sell its Paperchase stationery and gifts business for $31 million to pare its heavy debt load, though its debt net of cash actually was 2.7 percent higher versus the year-ago period at $262.1 million.

Online sales at Borders.com were a bright spot, jumping more than 56 percent over last year, but at just $15.5 million for the quarter they are a long way from fixing Borders' large and more immediate problems.

An expanded rewards program for customers, that now offers deeper discounts and free online shipping to customers for a $20 annual fee, went into effect Wednesday, along with a $20 price reduction on two electronic-book readers it sells. Borders hopes this, along with better customer service and expanded nonbook offerings in its stores, like craft kits from Build-A-Bear Workshop Inc. (BBW), can drive the top-line turnaround it desperately craves.

For the quarter ended July 31, Borders' loss from continuing operations was $51.6 million, or 74 cents a share, compared with a year-earlier loss of $45.1 million, or 75 cents a share. Shares outstanding rose 15 percent, thanks to the purchase during the quarter by Vector Group Ltd.'s (VGR) chairman and tobacco magnate LeBow, of 11.1 million shares for $25 million. LeBow is now chairman and chief executive of Borders Group, with President Mike Edwards running the day-to-day operations of the stores.

Revenue fell 11.9 percent to $530.4 million, following last year's 18 percent drop, as same-store sales slid 6.8 percent, and gross margin slumped to 19.3 percent from around 23 percent amid higher promotional discounts. Same-store sales at the No. 1 bookstore chain, Barnes & Noble Inc. (BKS), which also is struggling amid a proxy fight and an potential sale of the company, unexpectedly fell during its most recent quarter, but by a much smaller degree.

Borders, a late entrant to the e-book market, has cut prices on its Kobo and Aluratek Libre readers by about $20, making the Aluratek less than $100 in an effort to attract customers.