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Borders' Loss Balloons

The retailer says the sales environment was worse than expected.

Struggling book retailer

Borders Group

(BGP)

reported a wider loss for its first quarter, blaming the results on a tougher-than-expected sales environment.

Shares were slipping $1.01, or 4.3%, to $22.31 in after-hours trading.

The Ann Arbor, Mich.-based company's loss swelled to $35.9 million, or 61 cents a share, from $20.2 million, or 31 cents a share, a year ago. The results were worse than analysts' expectation for a loss of 38 cents a share.

Sales increased 2% to $885.8 million, edging past Wall Street's forecast of $876 million. Same-store sales, or sales at stores open at least a year, decreased 1.9% at the company's domestic Borders stores.

"Our first quarter results were generally in-line with our internal expectations, although the current sales environment was more challenging than we anticipated and that trend has continued," CEO George Jones said in a statement.

Book sales at Borders were slightly negative, the company said, while DVD sales were relatively flat and music sales continued to decline. Borders said the gifts and stationery category had positive same-store sales.

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Sales at Waldenbooks, a smaller mall-based chain, sank 15% in the quarter to $108.1 million. International sales rose 22% to $153.7 million.

The bottom line also was pulled down by a decline in gross margin as a percent of sales, which fell to 22.4% from 23.3%. Borders attributed the decline to increased promotional discounts, occupancy costs and nonoperating charges.

The company said it is focused on executing its strategic plan and improving results, including returning to earnings-per-share growth in 2008.

In March, Borders announced a plan that included exploring strategic alternatives for the majority of its international segment and cutting the number of Waldenbooks stores from 564 at the close of 2006 to about 300 by the end of 2008.

Borders' weaker first-quarter results come less than a week after larger rival

Barnes & Noble

(BKS) - Get Barnes & Noble, Inc. Report

said it

swung to a first-quarter loss amid charges and a loyalty program that cut into margins.