Borders Cancels Sale Plans; Stock Teeters at Dangerous Low

| About: Borders Group, (BGPIQ)

Borders Book Stores (BGP) posted a third quarter loss of $0.64 per share against analysts’ expectations of a much smaller loss of $0.50 per share (see conference call transcript). The results also showed a third quarter revenue decline of 9.4%. While the report did contain bad news, it had some brighter notes as well. The CEO of Borders, George Jones, said that the results were largely due to the economic storm being faced by many retailers. While one competitor, Barnes & Noble (NYSE:BKS), also reported a substantial drop in same store sales for the period, (NASDAQ:AMZN) reported a hefty increase of 15% in sales of books, CDs and other media according to the Detroit Free Press.

The biggest announcement from Borders, however, was that the company is no longer for sale. Since March of this year, the company had been unsuccessfully seeking a suitor to buy the company’s core business. CEO Jones said that the company is no longer considering selling itself, and is prepared to survive the current economic downturn. He did leave open the possibility of selling the company’s Paperchase Products division. Square Capital Management is said to be in talks to pick up the division for an estimated $65 million. Borders did make some gains in reducing costs.

The company expects to reduce expenditures by $140 million in 2009, $20 million more than their previous estimates. Borders also reported a reduction in outstanding debt of nearly $275 million versus the same quarter a year ago. Inventory levels were also reduced by 19.5% during the year. With holiday sales expected to be among the worst in recent history, and consumer spending down by a full percentage point, top line numbers for the company don’t look set to improve in the near future.

With the company’s stock plummeting by more than 50% after the release of the news, Borders shares have fallen more than $12 from their 52 week high to less than $1 per share on Wednesday morning. Any potential suitors would have been smart to wait until after the fourth quarter results announcement to see just how low the Borders’ shares can go. While the company says it is no longer for sale, we may see them revisit that decision within the next two quarters. No matter how much they cut costs, the company needs to turn a profit at some point. That may be difficult for quite some time given the current consumer spending trends.

Disclosure: no positions