Borders Reports Comp Stores Flat

Borders reported second quarter revenues of $945.1 which were up 10.4% over the same period last year. Superstore comp sales were up 4.6% but the Harry Potter book accounted for virtually all of this gain. The company reported a loss of .43 cents per share or .23 per share excluding non-operating charges. The street had been expecting .34cents a share on revenue of $916mm. In expectation of the results, which were released after the market closed the stock was down $.90.

"Progress is clearly being made at Borders Group as we continue to execute our strategic plan and are beginning to see improved performance," said Chief Executive Officer George Jones. "Harry Potter certainly gave us a big boost in sales across all businesses, yet even without it, we achieved positive same-stores sales results that are directly attributable to our focus on execution and more effective use of the Borders Rewards loyalty program to drive increased traffic to our stores. We have significantly more work to do, and we remain committed to staying on-track to deliver sales and earnings growth consistent with the long-term financial goals we set forth in our strategic plan."

Other items of note:

• 2nd Q net loss of $25.1mm versus $18.4 last year. On an operating basis the loss of $15.3mm ($.26/share) compares with $14.5mm ($.23/share) last year
• Gross margin increased by 1%
• SG&A increased .9% due to non-operating charges: legal settlement expenses, promo discounts, higher expenses for 'strategic initiatives'
• Debt net of cash was $662.9mm versus $476.7 in the same period last year
• Comp Superstore sales were up 4.6% with HP; 0.4% without HP
• Operating Income: On an operating basis superstores contributed $2.4mm in the quarter versus $10.4mm a year ago
• Walden comp sales were flat excluding the Harry effect. Jones dangerously suggested that the improvement versus the last seven quarters was likely to continue.
• Walden operating income was slightly better than last year which represents significantly better performance than the superstores.
• Non Operating items included $3.5mm to settle a legal case in CA, severance costs for execs, store closure and relocation costs and professional fees.
• The company also said it had adjusted some of its loan covenants to enable the sale of the international business and to potentially enable some refinancing options. The company also formally terminated the previously (surprising) announcement about seeking term financing of $150-200mm.

CNN

Press Release

GalleyCat Rants: We Are Reading Dammit

The recent report regarding reading habits provoked a lot of discussion - most of it pointless - but this related comment on GalleyCat is spot on. I also saw this Guardian article and continue to wonder why people who should know better continue to generalize and draw dopey conclusions.

22 hours in Las Vegas is either too long or too short depending on your view point but either way what on earth was John Freeman doing spending his possibly limited waking hours looking for a bookstore? In short, the strip is not all Vegas has too offer and perhaps if he spent less time at the pool and perhaps doing some real research he wouldn't have written the article at all.

Barnes & Noble's Potter Quarter (Updated)

B&N CEO Steve Riggio commented that “Record breaking sales from J.K. Rowling’s Harry Potter and the Deathly Hallows was the principal driver behind our comparable store sales growth in the quarter,” which grew 4.4% versus the same period last year. Comparable on-line sales grew 18%. Total store revenues grew 7.3% for the period. Negating the impressive results was the revenue impact without Harry: Store sales only grew 1% and online 7.3%.

Financial markets have been noting any softness in any large retailer's results over the past several weeks and while Harry was an important factor in B&N's results, the 1% gain is an important indicator that B&N continues to make the right moves in a challenging marketplace. It will be interesting to see how Borders reports on Monday. Attention may be focused on the Harry effect and commentators may seek to eliminate these sales as an anomaly. The Harry phenom is an unnatural occurrence but in the process B&N were able to sell 1.7mm copies - they got the consumers into the store and while details are sketchy these consumers did in fact buy other titles. Riggio said the title continues to sell well.

The company also said they are confident that they will achieve their stated financial goals for the year.

For the quarter operating income of $13mm was half the amount in the same quarter 2006. The margin was 1% versus 2% last year. For the six months, operating income was $5mm versus $41mm last year. The company's gross margin was lower by a full percentage point and selling and marketing expenses for the six months were $40mm. Both line items contributed to the margin erosion.

B&N was trading up on the day.

Press Release
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Update:
Some follow-up comments from the B&N conference call (Transcript from SeekingAlpha):

Riggio on the loyalty card and discounting:
We've got a strong balance sheet, good cash flow, and we thought it was the right time to take a piece of our profits and put it in the hands of the customers, and we're very pleased with the results since the launch last year. Customers love the card. They like the extra discount and we're seeing extra growth

Klipper on store growth:
Every year we say 30 to 40 stores, and it's really depending on the timing and when the development happens across America. We could clearly turn that up and open more stores if we so choose, but our criteria is extremely high. We're opening best location, not best available location, as we have in the last seven or eight years. The opening pace, we're very comfortable with it. I think there's a lot of business out there.

Riggio on Potter 'attachment'
The attachment rate is the same as it always was. It's a little more difficult to determine, frankly, because people spend two, three, four hours in the store and buy product and check out. Then at midnight, all they want is the one book. So our sense of it was that it drove sales in some categories more than others, I think especially in our cafe. But it's all behind us now. We think it was great for business, and we don't think it's over, because the book continues to sell well. All the other volumes are really doing well.

Riggio on the publishing year
I guess the thing that we try to point out most often is that while the business tends not to have lots of peaks other than Harry Potter, it also doesn't have many valleys and it's a relatively stable industry. On balance, we think this year was a bit better in the publishing season than last year, but so much is dependent on the second half of the year. September looks like a good release schedule, but we'll have to see what the customers say about all these books.

Toulantis on the on-line growth:
No. I think that while it's true if you exclude the actual sales from the Harry Potter book itself, the comparable online sales increase of 7.3% is obviously higher than recent trends, but the effect of the Harry Potter sale was to drive perhaps more interest, more traffic, and I think that drove to some more conversion. So we saw more traffic and more conversion in the quarter Again, I think a lot of it was around Harry Potter, so people coming to buy that book also when they come online, were buying some additional items.

Agatha Christie's Poirot in Comics

The BBC reports (and has some pictures) from four new Agatha Christie titles that are being reproduced as comics. Sounds like a new and innovative way to bring attention to old mystery classics. I had a great deal of difficulty finding these titles on any web site but eventually was able to find them on Amazon.co.uk by using the name of the editor. Here is the list.

Apparently there is a Christie festival coming up in September.

Update: IHT covers the same story this morning. And I am sure the others will catch up later in the day.

Headline Guaranteed to Get Attention

It is the silly season and there is no less evidence of that in a report from the New York Post's page6 which noted that a new title from S&S will document the required etiquette for orgies and sex games.

"Be accompanied by a trusted boyfriend, girlfriend or friend; bring protection," she advises about orgies. "As a general rule, it is the uglier men who perform the best, simply because they have more to prove." She also recommends three New York City sex clubs.

(I don't have the addresses).

Curiously, in the title description on Amazon.com there is no mention of the above chapter.

Twenty-first-century women are called upon to perform any manner of tasks, recall even the most random bits of information, and all the while carry on a charming conversation. Thankfully, from historian and British television personality Francesca Beauman comes this indispensable and authoritative survival guide that will allow women to tackle any problem and work any party with ease, style, and grace. Everything But the Kitchen Sink is a compendium of delightfully witty facts, figures, diagrams, lists, charts, quotes, and practical advice. True, you may not ever need to know how to roast a hedgehog, treat a shark bite, or say "No, thank you. Please leave me alone" in Russian. But isn't it good to know you can?

Looks like anyone buying this book is in for a surprise.

Poll: Those who never attend church read twice as much.

According to an associated press IPOS survey those who consider themselves liberals read more - but only slightly. The bible and other religious books were the largest category with 2/3rd responding that they read this type of content. Further details from Boston.com:

There was even some political variety evident, with Democrats and liberals typically reading slightly more books than Republicans and conservatives. The Bible and religious works were read by two-thirds in the survey, more than all other categories. Popular fiction, histories, biographies and mysteries were all cited by about half, while one in five read romance novels. Every other genre -- including politics, poetry and classical literature -- were named by fewer than five percent of readers. More women than men read every major category of books except for history and biography. Industry experts said that confirms their observation that men tend to prefer nonfiction.

As the title of this post suggests, the poll also confirmed that organized religion is the enemy of publishers. I’m not sure how this jells with the above noted religion readers, but those who responded that they never attended religious services read twice as much compared with those who attended frequently.

Those likeliest to read religious books included older and married women, lower earners, minorities, lesser educated people, Southerners, rural residents, Republicans and conservatives.

Twenty five percent of the respondents said they had not read a book in the past year. One respondent would rather sit in his pool (evidently not one of the people Kassia vacations with) than read. While the article describes Americans has hardly ravenous readers, I wonder who we are compared with. Personally, I am well on my way to reading 15+ books this year and I am rapidly clearing out my inventory.

(Not sure what Pat Schroeder is on about...)

Trip Advisor Buys Facebook Application

I'm not much of a joiner but I grudgingly set up a Facebook page when I got several invites and I am still not convinced it is up to much. All the cool kids are doing it so why not me? Facebook is an open application platform (and if I were remotely technical this would really excite me), which enables a multitude of developers to build mini applications that Facebook users can 'load' to their page and use. These applications cover any number of uses and I have loaded one for books, questions and a travel application named 'where I've been'.

Here is my 'map':



















According to the NYT the developer of this application is now $3.0mm richer via Trip Advisor. Trip Advisor is itself a fun site to browse if you are looking to find out what other travelers have said about airlines, hotels, destinations that you may be thinking about visiting. What they will do with this application is any one's guess. Perhaps I am cynical but the application as it exists is akin to notches on a bedstead - more bragging rights perhaps than anything useful.