Initial Thoughts on Borders Q3 Results

Borders Press Release

First and foremost, the number one problem at Borders (BGP) is its debt. That is falling and has been doing so steadily since the beginning of the year. Second was cash flow / expenses, and those are also going in the right direction. Cash flow is up and Borders will exceed its stated cost saving by 17%.

One has to remember that these results are in the face of a dismal operating environment for all retailers. The really good news is that in spite of it all, Borders is still making progress on its goals. As a shareholder, if the macro environment is lousy one cannot expect management to pull a rabbit out of its hat but as long as the company continues to progress on the stated path, progress is being made.

Two things stick out. Borders.com results fell below expectations and the mentioned "financing transaction" with Pershing. Both need to be listened to on the conference call on Wednesday morning. Off the top of my head, Borders can put Paperchase to Pershing for $65 million but owes Ackman $45 million from the loan earlier in the yearn. My guess is that the company wants to put Paperchase to Pershing and extend the repayment of the loan... just a guess.

Disclosure: Long BGP

Comments

[bookseller ...:]

Mr. Sullivan, please look more deeply into Borders financials before you proclaim anything. Borders has decreased their inventories by 25%--that is how they have paid down their debt. Books are essentially bought on consignment and can be returned for full credit less shipping costs. Borders has drastically cut its CD and DVD stock and has made deep cuts in its book backstock.

It has also made extreme cuts in payroll hours and employee benefits which may have contributed to better cashflow.

All these tactics have led to lower traffic, poor sales and a dull future. Bookstores cannot survive without adequate inventory. If you measure the average Borders to the average B&N you will see empty Borders stores.

Borders turnaround has nothing to do with the current climate. Since George Jones took over as CEO the company has spiraled downward abandoning strategies and falling into the discount war trap. This is a death knell--where is Crown Books now?

Borders tried to sell itself for almost a year with no apparent tire kickers. Now its market value is pathetic. On inventory and assets alone its market cap is a value.

2008 Nov 26 10:22 AM

[Lewis Glenn...:]

I read the entire statement about how Borders is doing, and how they are turning things around, and didn't see a single comment about their people. You know the booksellers and musicsellers and cafe staff? Other than the "management team", not one word about the folks who actually WORK at Borders. Is Borders going to make it? Not unless they remember who those folks are.

2008 Nov 26 11:34 AM