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Borders' Loss Grows

Borders Group (BGP) posted a wider-than-expected loss on flat sales, the bookseller reported on Tuesday.

In its quarter ended April 27, Borders lost $4.8 million, or 6 cents a share. The results marked a significant decline from last year's earnings, when the Ann Arbor, Mich.-based company earned $3.9 million, or 5 cents a share.

The company's revenues were unchanged year-over-year at $758.2 million.

Analysts surveyed by Thomson First Call were expecting the bookstore chain to lose 5 cents a share. Borders warned in April that it wouldn't meet its earlier guidance of breakeven in the first quarter, but declined to give a specific loss target.

The losses could continue in the second quarter, Borders warned. The company expects to post a bottom line ranging from a penny-per-share loss to a 3-cent per share profit in the current quarter. Analysts currently expect the retailer to earn 2 cents per share in the second quarter.

For the full year, Borders now expects to earn between $1.40 and $1.46 a share. Wall Street had estimated that the company would earn $1.44 a share for the year. Borders warned in April that its full-year results wouldn't meet its prior guidance of between $1.50 to $1.60 a share, but didn't update its projections.

As in recent quarters, the company's mall-based Waldenbooks division posted especially weak sales. Revenue at Waldenbooks dropped 11.6% year-over-year to $150.3 million. Meanwhile, on a same-store basis, which compares like outlets open for more than one year, sales at Waldenbooks fell 8.8%.

After closing 53 Waldenbooks stores in fiscal 2002, Borders shuttered 6 more in the first quarter, giving it 774 total. The company has said it plans to close 40 to 50 Waldenbooks shops in fiscal 2003.

But Waldenbooks wasn't the only division weighing on Borders' results. Overall sales at the company's eponymous division increased by just 0.6% over the prior year period to $521.5 million. Meanwhile, same-store sales fell 5% year over year.

The company's international division was the only bright light from the revenue perspective, showing an increase in sales of 25.9% to $79.6 million. Borders acknowledged that the company benefited from a weaker dollar compared with last year, but didn't say how much that affected results at its international division.

Revenue wasn't the only problem for Borders. The company's gross profit margin, the difference between what it charges for its products and what it pays for them, declined by $10.2 million from the year-ago quarter. As a percentage of sales, gross margin dropped by 1.34 percentage points to 25.1%.

The fall off in gross margin was a result of the same-store sales decline combined with fixed occupancy costs, the company said in a statement.

The company also lost ground on its operating expenses, which increased by $3.3 million over the year-ago quarter. Such expenses increased by 45 basis points to 25.63% of sales.

Again, the company blamed the same-store sales declines for the increase in operating expenses. Cuts in expenses did not keep up with the sales shortfall, the company said.

Borders shares closed regular trading down 16 cents, or 1%, to $16.30. In after-hours trading on the Island ECN, Borders shares were up 26.9 cents to $16.569.

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