05 December 2008

Borders Shares Fall Ahead of Earnings Report

Deepening concerns about holiday book sales and third-quarter earnings pressured Borders Group Inc. Friday as its stock dipped below a dollar during trading before rebounding slightly.

The number of customers walking into bookstores has fallen sharply in the past month and investors are concerned that Borders will show further signs of weakness when it reports quarterly results Tuesday. The book retailer is expected to post a loss of 50 cents a share, according to analysts polled by Thomson Reuters.

Borders' quarterly results follow Barnes & Noble Inc., the nation's largest bookstore chain by sales, which Thursday released disappointing third-quarter results and lowered its full-year earnings forecasts.

In 4 p.m. composite trading on the New York Stock Exchange Friday, shares of Borders, based in Ann Arbor, Mich., fell 19% to end at $1.11, after earlier slipping to 72 cents. Borders, which enjoyed a 52-week high of $13.23, had a market capitalization at day's end of $83 million.

Borders in March surprised publishers and investors by disclosing a possible cash crunch and putting itself up for sale. Borders has since sold off most of its foreign assets and reduced its debt, which totaled $465.7 million at the end of the second quarter ended Aug. 2, according to a Securities and Exchange Commission filing.

Borders' remaining international assets includes its U.K.-based Paperchase stationery business. Under terms of a deal struck earlier this year, Borders' right to compel a sale of that property to its largest shareholder, Pershing Square Capital Management LP, for a price estimated at $65 million, ends Jan. 15. Pershing Square is headed by activist investor William Ackman.

Despite investors' concerns, several publishers said on Friday that Borders is paying its bills. "They are paying us on time and we are shipping them books," said David Steinberger, chief executive of Perseus Books LLC, a unit of Washington private-equity firm Perseus LLC.

A spokesman for Bertelsmann AG's Random House Inc. declined to comment except to note that Random House continues to ship Borders new titles. Brian Murray, CEO of News Corp.'s HarperCollins Publishers, said Borders is paying its bills on time but noted that HarperCollins is being "prudent" about volume. "We are very aware that consumers aren't spending as they once did. We've reduced the quantities of our printings and are relying more on just-in-time resupply." News Corp. also owns Dow Jones, publisher of The Wall Street Journal.

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