ANN ARBOR, Mich., Aug. 25 /PRNewswire-FirstCall/ -- Borders Group, Inc. (NYSE: BGP) today reported results for the fiscal second quarter of 2009, ended Aug. 1.
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Second quarter results, compared to the same period a year ago, include the following highlights:
- Adjusted EBITDA was $6.9 million compared to $14.9 million in the prior year quarter. On a year-to-date basis, adjusted EBITDA was $9.9 million compared to $0.6 million in 2008.
- SG&A expenses, on an operating basis, were reduced by $35.8 million.
- Inventory was reduced by $201.3 million, including a reduction in multimedia inventory of $57.3 million.
- Debt, net of cash, at the end of the second quarter was $242.5 million, a reduction from the prior year of $179.3 million, or 42.5%. Debt, net of cash, compared to year-end levels was reduced by $40.1 million, or 14.2%.
- Total consolidated sales were $616.8 million, down $132.4 million, or 17.7%.
- Comparable store sales declined by 17.9% and 10.8% at Borders superstores and Waldenbooks Specialty Retail stores, respectively. Excluding multimedia, comparable store sales at Borders declined by 13.0%.
- On an operating basis, the company generated a loss from continuing operations of $12.7 million or $0.21 per share compared to a loss of $10.5 million or $0.18 per share a year ago. On a GAAP basis, the loss from continuing operations was $45.6 million or $0.76 per share compared to a loss of $11.3 million or $0.19 per share a year ago. The $0.76 per share loss includes $0.55 per share of non-operating charges that were primarily non-cash.
"The second quarter was a transitional one as we made significant space and inventory reductions to strategically position declining categories for profitability while further developing businesses that have potential," said Borders Group Chief Executive Officer Ron Marshall. "While this transition impacted sales in the short run, our stores are now better positioned to drive improved sales in the back half of the year. Further, we are pleased that even with the level of transformation we undertook in the second quarter, our financial disciplines remained intact and we continued to strengthen our balance sheet by cutting debt, generating positive cash flow, reducing inventory and tightly managing working capital. The big changes for the year are behind us now and the challenge is to deliver on the opportunity we have created to drive sales."
Consolidated Results
All sales and earnings/loss figures reported throughout this news release are on a continuing operations basis unless otherwise noted.
Second quarter consolidated sales were $616.8 million, down 17.7% from a year ago. On an operating basis, Borders Group generated a second quarter loss of $12.7 million or $0.21 per share compared to a loss of $10.5 million or $0.18 per share for the same period last year. On a GAAP basis, the second quarter loss was $45.6 million or $0.76 per share compared to a GAAP loss of $11.3 million or $0.19 per share a year ago. The second quarter GAAP loss includes non-operating, after-tax charges--primarily non-cash--totaling $32.9 million.
Excluding non-operating charges, SG&A as a percent of sales improved over last year by 0.2% from 26.0% to 25.8% due to the company's aggressive expense reduction initiatives, which were partially offset by de-leveraging due to negative sales trends. Expense reduction initiatives helped reduce SG&A dollar expenses by $35.8 million compared to the prior year. On a GAAP basis, SG&A as a percent of sales was flat with last year at 27.4%.
Operating cash flow in the second quarter was $40.6 million compared to $71.1 million one year ago when the company first initiated a significant inventory reduction program.
Second quarter capital expenditures were $2.0 million compared to $27.1 million in 2008 as the company continued to manage capital prudently. Debt, net of cash, at the end of the second quarter totaled $242.5 million compared to debt, net of cash, at the end of the second quarter a year ago of $421.8 million, a reduction of 42.5%. Inventory was reduced by 18.5% as the company reduced its second quarter inventory investment to $889.0 million compared to year-ago inventory of $1.1 billion.
Non-Operating Adjustments
The table below details the non-operating adjustments for the second quarter and the year to date.
Non-Operating Line Item
Adjustments Item Impact Q2 2009 YTD 2009
Consulting, Cash Gross Margin $4.7 million $8.9 million
professional and and SG&A
other fees
Store closure and Cash Gross Margin $0.9 million $0.7 million
related items and SG&A
Severance and Cash Gross Margin $1.6 million $2.0 million
other compensation and SG&A
costs
Asset impairments Non-cash Asset $0.7 million $0.8 million
and other Impairments
writedowns
Accelerated Non-cash SG&A $2.8 million $7.1 million
depreciation-
multimedia
space reduction
Term loan Non-cash Interest $1.1 million $2.7 million
cost/discount Expense
amortization
International Non-cash Warrant/Put $0.0 million $16.2 million
"put" expiration Expense
Warrant liability Non-cash Warrant/Put $14.7 million $47.6 million
fair value Expense
adjustment
Total pre-tax $26.5 million $86.0 million
non-operating
adjustments
Normalized income Non-cash Income Taxes $6.4 million $17.0 million
taxes (Benefit)
Total after-tax $32.9 million $103.0 million
non-operating
adjustments
$0.55 EPS $1.71 EPS
Borders Superstores
Total sales at Borders superstores, including Borders.com, in the second quarter were $513.6 million, down 17.4% from a year ago. Comparable store sales decreased by 17.9% at Borders superstores in the second quarter. Excluding multimedia, which was substantially transitioned out of stores throughout the second quarter, comparable store sales at Borders declined by 13.0%.
On an operating basis, the segment generated a second quarter operating loss of $9.0 million compared to an operating loss of $3.1 million for the same period a year ago. On a GAAP basis, the segment generated an operating loss in the second quarter of $17.4 million compared to an operating loss of $7.7 million the prior year.
Two Borders superstores were closed in the second quarter, ending the period with 513 locations.
Waldenbooks Specialty Retail
Total sales in the second quarter within the Waldenbooks Specialty Retail segment were $74.5 million, a 23.1% decline compared to the same period in 2008 as the number of stores was decreased to 370 at the end of the second quarter this year compared to 468 stores that were open at the close of the same period a year ago. The company closed six Waldenbooks locations in the second quarter of this year. Comparable store sales in the second quarter at Waldenbooks decreased by 10.8%.
On an operating basis, the segment generated an operating loss of $2.9 million in the second quarter compared to an operating loss of $6.7 million for the same period in 2008. On a GAAP basis, the segment generated a second quarter operating loss of $3.1 million compared to an operating loss of $7.7 million for the same period in 2008.
International
Total sales within the International segment (which consists primarily of Paperchase) totaled $28.7 million in the second quarter, which is down by 5.6% compared to a year ago. Excluding the impact of foreign currency translation, segment sales increased by 10.4% for the period.
On an operating basis, the segment generated an operating loss of $1.0 million in the second quarter compared to an operating loss of $1.3 million for the same period in 2008. On a GAAP basis, the segment generated a second quarter operating loss of $1.7 million compared to an operating loss of $1.4 million for the same period in 2008.
Conference Call Today
Management will review second quarter results on a conference call today at 10 a.m. Eastern. This call is being web cast by Thomson Financial and can be accessed at the Borders Group corporate Web site at www.bordersgroupinc.com. A replay will be accessible on the Web site through Sept. 25. In addition, a replay phone service will be available toll-free 800-229-6237, or for international calls, at 402-220-9680. The phone service will be available through Sept. 8 until 11:59 p.m. Eastern.
Next Financial Release-Q3 2009
Borders Group plans to issue fiscal third quarter 2009 results Nov. 24.
About Borders Group
Headquartered in Ann Arbor, Mich., Borders Group, Inc. (NYSE: BGP) is a leading retailer of books, music and movies with more than 25,000 employees. Through its subsidiaries, the company operates approximately 1,000 stores worldwide primarily under the Borders((R)) and Waldenbooks((R)) brand names. For online shopping, visit Borders.com. For more information about the company, visit www.borders.com/investors.
Safe Harbor Statement
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by the use of words such as "expect," "planning," "possibility," "opportunity" "goal," "will," "may," "intend," "anticipates," and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address matters such as the company's future financial condition and performance (including earnings per share, liquidity, sales, inventory levels and capital expenditures), its cost reduction initiatives and plans for the expansion of product categories. These statements are subject to risks and uncertainties that could cause actual results and plans to differ materially from those included in the company's forward-looking statements.
These risks and uncertainties include, but are not limited to, consumer demand for the company's products, particularly during the holiday season, which is believed to be related to general economic and geopolitical conditions, competition and other factors; the availability of adequate capital--including vendor credit--to fund the company's operations and to carry out its strategic plans, adverse litigation results or other claims and the performance of the company's information technology systems.
The company's periodic reports filed from time to time with the Securities and Exchange Commission contain more detailed discussions of these and other risk factors that could cause actual results and plans to differ materially from those included in the forward-looking statements, and those discussions are incorporated herein by reference. The company does not undertake any obligation to update forward-looking statements.
Borders Group, Inc.
