Wednesday, September 05, 2007

Borders Earnings Call

Following on from last weeks earnings annoucement, Seeking Alpha posted the transcript of the earnings call held on the same day. Some highlights:

George Jones on execution at the store level:
Our progress on execution has been reached through a combination of efforts including an ongoing focus on improvement in retailing basics such as effective use of key items, impulse items, feature tables, end caps and so on -- you've heard me talk about this before and it's really showing it's working -- merchandise presentation, effectiveness of marketing and promotions, and consistency of execution. We've also made significant process in changing the culture of our stores organization in that they are dramatically increasing their focus on driving sales within their individual stores

Jones on the improvement in comp store sales:
We're particularly encouraged by the improvement in comparable store sales cross all business segments. Of course, record sales of Harry Potter and the Deathly Hallows led these results, but even without sales of Harry Potter -- this is important -- we improved our comp store sales in each operating segment. This is an important shift in the trend for us.
Jones on the impact of Borders Rewards in driving traffic to stores:
our unique mix of promotional offers and compelling content delivered via email to these over 20 million Borders Rewards members is really helping drive traffic to our stores. In fact, our transaction count at domestic Borders stores increased by .5% in Q2 and notably improved in ten of the 13 weeks of the period; the three that didn't were the first three weeks of the quarter so we had ten in a row where it mproved. Of course, Harry Potter was a big part of driving that traffic but only during the final two weeks and one day of the quarter.
Jones on the improvement at the Walden stores:
frankly, had been sort of treated like a stepchild for a while. In addition, we focused merchant team on the unique aspects of the mall business. Breaking this business out and focusing on its opportunities has greatly improved this operations and helped drive positive results.
Wilhelm on the sale of the international operations:
This process is moving forward as planned in both the U.K. and Australia-New
Zealand, yet it is more advanced for Borders U.K. as we started there a bit earlier.
Without identifying the specific issues, Wilhelm noted that they are "we're spending the necessary money to fix the merchandising systems." The merch system has been problematic for Borders over the past two years. He later noted that continued higher SG&A costs would be attributable in part to continued spending to fix the merchandising systems.

Jones in response to a question about supply chain efficiencies: wasn't as much of bad decisions that Borders made in terms of things they did wrong as it was things that we didn't do that perhaps our competitors did do more effectively. Distribution and supply chain and systems and things like that are good examples of these. terms of managing our inventory from the whole supply chain factor, part of the distribution centers, and as Ed said, I think they've made investments and we've done good things on those. The other part of it comes back to the systems which is I've certainly talked a lot about. We clearly still have deficiencies there on that. We don't have, if you look at versus what a normal retailer I would expect would have in terms of automated replenishment or what our competitors have, we've got a ways to go there.We still believe we have big, big opportunities in terms of managing our inventory levels more effectively with this type of efforts as well as systems. We have the distribution centers now in place and we expect as we get the systems in place we'll start catching up to where we really should be on our inventory turns.

Wilhelm: Well, improving turns from 1.6 which we've been at historically to 2 generates about $200 million of cash for us. So that's the proxy of what would come out of inventories.

Jones: Longer-term if we were able to get it, say, to 2.6 which is where our major competitor is now, it'd be $500 million

1 comment:

Mike said...

When Borders talks about increasing turns from 1.6 to 2, a 25% increase, I wonder if they realize that increasing turns generally is done at the expense of SALES. Any retailer can increase sales if they are willing to live with lower turns. What I believe they're positing is that they'll maintain sales AND increase turn by 25%. Congratulations to them if they can do it in any reasonable time period without massive investment.