I finally got around to reading the Borders (BGP) earnings call and the takeaway for me at least was very positive.
A couple of things struck me:
Despite a 2% comp sales increase number last year, guidance for the current year was, in the words of CEO George Jones, "very conservative," especially "given the current environment."
DVD "shrinkage" (read: theft) was $20 million last year. The company has both made changes to security measures and will be reducing the number of titles sold and the expectations are for this number to fall dramatically.
The Borders Rewards program now sports a membership of 25 million people. The importance of this is huge. It allows Borders to track purchases from its members and then tailor promotions to maximize their value. Retailers have been using these programs for years but Borders is only now getting involved. The tie in with the upcoming website launch will allow email-to-purchase marketing previously not available on this scale to the company.
The heavy costs involved with rolling out the site are done. Their estimates were not given but, looking at the site, one ought to assume they were substantial. It is important to note that in the previous year, Borders reaped no benefits from that investment. This year it will both reap the benefits and see a decrease in costs. CEO Jones said that he expects CapEX to fall from $200 million to "around" $140 million.
Sale of assets
The minimum that will be raised is the $125 million offered by Ackman. The company only has a market cap of just under $400 million at the current share price. It could conceivably buy back 25% of the shares and have cash left over for operations or debt repurchases.
So where does this leave us? A cursory look shows $80 to $100 million in cost cuts available without any real effort or impediment to operations. The inventory reductions should be over an additional $100 million as the stores (not the company) begin stocking fewer titles.
Borders lost $157 million last year and it looks as though it could easily cut its way to break-even or better this year now that much of heavy lifting in investment has been done. This assumes the above guidance is correct. Should that guidance prove to be conservative, results could improve even more.
Disclosure: Long BGP.