Banks, GM, DUI, Intimidation, Lead Paint
– Walking away from foreclosures
– Read this article from 2006 on GM, has anything changed?
– DUI on a bar stool?
– This is juvenile
– Just when we thought these suits were finally over
Disclosure (“none” means no position):
Borders filed its 8-K for Q4 this am.
Highlights:
• On a full-year basis, cash flow from operations improved by $128.6 million at year-end as SG&A expenses were reduced by $96.5 million and inventory was reduced by $326.8 million.
• Debt at year-end was reduced by $217.8 million to $336.2 million—a 39.3% reduction.
• Total consolidated 2008 sales were $3.2 billion, down 8.8% from 2007. For the fourth quarter, total consolidated sales were $1.1 billion, down 12.9% from a year ago.
• Comparable store sales for the fourth quarter at Borders superstores declined by 15.3% and declined by 4.7% at Waldenbooks Specialty Retail stores. For the full year, same-store sales declined by 10.8% at Borders and declined by 5.1% at Waldenbooks.
• On an operating basis, the company generated fourth-quarter income from continuing operations of $63.8 million or $1.05 per share compared to income of $74.3 million or $1.26 cents per share for the same period a year ago. On a GAAP basis, including non-operating charges, fourth quarter income from continuing operations was $28.9 million or $0.48 per share compared to income of $67.3 million or $1.14 per share a year ago.
“Our top priority is getting our financial house in order by continuing to reduce expenses, pay down debt and improve cash flow,” said Borders Group Chief Executive Officer Ron Marshall. “We are working with vendors and others to enhance cooperation and are pleased to have the continued support of our largest shareholder with the recently announced extension of our financing agreement with Pershing Square. At the same time, we are focused on driving sales through improved execution and by re-engaging with our customers. Borders is a strong brand with millions of loyal customers. I am confident that by shoring up our financial foundation and reclaiming our position as the bookseller for serious readers, we will ultimately secure a viable future.”
Fourth quarter consolidated sales were $1.1 billion, down 12.9% from a year ago. For the full year, consolidated sales were $3.2 billion, an 8.8% decrease from 2007. On an operating basis, Borders Group generated fourth-quarter income of $63.8 million or $1.05 per share compared to income of $74.3 million or $1.26 per share for the same period last year. On a GAAP basis, fourth-quarter income was $28.9 million or $0.48 per share compared to GAAP income of $67.3 million or $1.14 per share a year ago. The fourth quarter GAAP income includes non-operating charges—primarily non-cash—totaling $34.9 million. For the full year, on an operating basis, the company posted a consolidated loss of $16.2 million or $0.27 per share in 2008 compared to a loss of $0.4 million or $0.01 per share in 2007. On a GAAP basis, the full-year loss was $184.7 million or $3.07 per share, compared to a loss of $19.9 million or $0.34 per share in 2007. The GAAP full-year loss includes an after-tax, non-operating charge of $168.5 million, also primarily non-cash.
Excluding non-operating charges, SG&A as a percent of sales improved in the fourth quarter by 1.8% from 20.7% to 18.9% due to the company’s aggressive expense reduction initiatives, which were offset by de-leveraging due to negative sales trends. Expense reduction initiatives helped reduce SG&A dollar expenses by $52.1 million in the quarter. On a GAAP basis, SG&A as a percent of sales decreased in the fourth quarter by 0.3% from 20.6% to 20.3%. For the full year, SG&A as a percent of sales on an operating basis improved by 0.6% from 25.4% to 24.8% due to expense reductions, which drove an SG&A dollar decline of $96.5 million. On a GAAP basis, SG&A as a percent of sales for the full year increased by 0.4% to 25.9% compared to 25.5% in 2007.
Operating cash flow improved in the fourth quarter by $18.3 million to $219.6 million compared to $201.3 million for the period in the prior year. For the full-year, operating cash flow improved by $128.6 million to $233.6 million from $105.0 million in 2007.
Full-year capital expenditures were $79.9 million compared to $131.3 million in 2007 as management took aggressive action to reduce capital expenditures. In the fourth quarter, capital expenditures totaled $6.2 million and further reduction is planned. Year-end debt totaled $336.2 million compared to debt at the end of 2007 of $554.0 million, a decrease of 39.3%. Inventory productivity improved as the company reduced its 2008 year-end inventory investment to $915.2 million compared to 2007 year-end inventory of $1.24 billion, a 26.3% reduction.
Borders Superstores
Total sales at Borders superstores in the fourth quarter were $816.1 million, down 14.8% from a year ago. For the full year, total sales were $2.6 billion, down 9.4% from 2007. In the fourth quarter, comparable store-sales decreased by 15.3% at Borders superstores with books generating same-store sales of -11.7% and non-book categories generating same store sales of -21.1% for the period. For the full year, comparable store sales at Borders stores decreased by 10.8% with books generating same-store sales of -8.2% and non-book categories generating same store-sales of -16.1%. Borders.com sales were $26.4 million in the fourth quarter and $45.7 million for 2008, which included eight months of operation.
Operating income on an operating basis in the fourth quarter was $86.5 million compared to $102.1 million for the same period a year ago. On a GAAP basis, operating income in the fourth quarter was $17.1 million compared to $87.4 million the prior year. For the full year, operating income on an operating basis was $17.7 million compared to $56.9 million in 2007. On a GAAP basis, there was an operating loss of $100.9 million compared to income of $30.6 million in 2007.
The company opened one new Borders superstore in the U.S. during the fourth quarter and closed five, ending fiscal 2008 with a total of 515 superstore locations.
Waldenbooks Specialty Retail
Total sales in the fourth quarter at Waldenbooks Specialty Retail stores were $195.6 million, a 14.3% decline compared to the same period in 2007. For the full-year, total segment sales were $480 million, a decline of 14.7% from the prior year. Comparable store sales in the fourth quarter decreased by 4.7% and decreased by 5.1% for the full year.
In the fourth quarter, on an operating basis, operating income was $16.0 million compared to operating income of $26.5 million for the same period in 2007. On a GAAP basis, operating income was $11.5 million compared to $25.5 million for the same period in 2007. For the full year, on an operating basis, the operating loss was $16.7 million compared to an operating loss of $17.3 million for the same period in 2007. On a GAAP basis, the full year operating loss was $27.5 million compared to an operating loss of $21.4 million for the same period in 2007.
The company closed 84 Waldenbooks Specialty Retail locations in the fourth quarter, bringing the fiscal 2008 closure total to 112. Borders Group ended fiscal 2008 with a total of 386 locations in this segment.
International
Total sales within the International segment (which consists primarily of Paperchase) totaled $43.2 million in the fourth quarter, which is down by 21.7% compared to a year ago. Excluding the impact of foreign currency translation, segment sales would have increased by 0.2% for the period. For the full-year, International sales were $136.7 million, down by 5.8% compared to 2007. Excluding the impact of foreign currency translation, sales would have increased by 4.7% for the year.
On an operating basis, operating income for the fourth quarter was $6.0 million compared to income of $7.0 million a year ago. On a GAAP basis, operating income in the fourth quarter was $5.5 million compared to income of $6.6 million the prior year. For the full-year, operating income on an operating basis was $4.5 million compared to $8.4 million in 2007. On a GAAP basis, full-year operating income was $3.7 million compared to $8.0 million in 2007.
When you look the results, it makes sense for Borders to keep Paperchase rather than put it to Ackman as was agreed to yesterday. It is a stable and profitable segment.
Yesterday I said I was looking for increased cash flow and cost cutting.debt reduction. All three have been accomplished and when one consider the environment out there, the near 40% reduction in debt and quite impressive.
Borders is on its way. Engineering a turnaround in the worst economic climate in 30 years in not easy. Clear progress is being made. It won’t happen overnight, but, when the economy does rebound, a very lean and a far less debt laden Borders will turn results quickly.
Disclosure (“none” means no position):Long BGP
This makes perfect sense and goes to a post I wrote 3/18 on the subject.
Sears Holdings, the giant retailer controlled by Mr. Lampert’s hedge fund, ESL Investments, bought 400,000 shares of Sears Canada on Monday, people with knowledge of the transaction told DealBook.
Add that to stock purchases made in December and early March, totaling 60,000 shares, and Sears now owns about 74 percent of its Canadian counterpart.
So what’s Mr. Lampert up to? He won’t say, and a spokesman declined to comment. But analysts and investors believe Sears could soon try to buy the remaining shares of Sears Canada that it doesn’t already own.
In the past year, Sears has been hurt by falling consumer spending. And the retailer faces the expiration next March of a $4 billion revolving credit facility it uses to pay suppliers and fund other working capital needs. Securing a new loan of that size could carry a hefty interest rate, given Sears’ already leveraged balance sheet, the ongoing credit squeeze and a continued drop in the company’s earnings.
But acquiring Sears Canada would actually reduce the company’s overall debt-to-earnings ratio and, therefore make it much cheaper to obtain a new multi-billion dollar loan. What’s more, it would cost Mr. Lampert and Sears virtually nothing.
Analysts point out that Sears Canada has more than $630 million in cash on its balance sheet and swaths of valuable real estate. Mr. Lampert could easily use Sears Canada’s own cash to finance a deal, or he could use Sears’ stock, which would be even cheaper.
According to a recent analysis by RBC Capital Markets, Sears could buy the remaining shares of Sears Canada for 23.38 Canadian dollars per share — an 18 percent premium to the current stock price — and still have cash that leftover that can be consolidated onto its balance sheet.
Sears Canada is also performing better than its American counterpart and any deal would be accretive to the combined company’s earnings.
Still, Mr. Lampert will have to deal with an old nemesis: fellow activist investor William A. Ackman, whose Pershing Square Capital Management owns 17.2 percent of Sears Canada and would likely to demand a big premium for its shares.
Under Canadian law, Sears must get the approval of all minority shareholders before making a deal for the whole company. That could lead to a showdown with Mr. Ackman, who isn’t shy about demanding a higher price.
Over two years ago, Mr. Ackman led a group of shareholders that rejected Sears’ first offer for Sears Canada. The price, $18 a share, or $792 million, was deemed too low by Pershing Square and other investors who voted down the deal. Mr. Lampert decided to walk away.
Mr. Ackman seems to believe another bid could be coming soon — Pershing purchased over a million shares of the thinly traded company in the last quarter. With the $4 billion revolver coming due next year, Mr. Lampert may not be so quick to walk away this time.
Lampert can effectively run his stake up to 83% before he is forced to deal with Ackman. At that point, he can simply just let his stake sit. Ackman has said in the past he want to avoid situations in which he cannot be a majority shareholder as he has no power to effect change.
It will come down to a test of patience. Lampert wants Sears Canada for it cash, Ackman owns shares for the buyout premium he thinks he’ll get from Lampert. Can Lampert wait longer for the cash than Ackman will wait to find a better use for the money he has invested in Canada shares?
One must also assume not much will happen on either front for a while. Lampert will probably just keep buying what is on the open market until he is only forced to deal with Ackman.
Either way it will make for a fun spectator sport this summer/fall
Disclosure (“none” means no position):Long SHLD
Something just has not been sitting well with me about the budget numbers being thrown around. I went and did dome digging and what I found was just scary…..really scary.
First things first. Here is the analysis of the proposed budget:
CBO Analysis of Obama Budget
Here are the main assumptions (click to enlarge):
Note: I excluded anything past 2012 because projections over a year or two are rarely accurate much less 5 or more.
Those numbers, just do not add up to me, for instance:
1- Rising unemployment and a sharp increase in GDP
– Since 1950 (as far back as CBO numbers go) there have been 18 instances in which unemployment rose year over year. In only 5 of those 18 did GDP also rise that year. The average GDP swing was 1.9% vs the 5.3% predicted by the CBO for 2009/2010. Of those 5, only two featured years in which the base year was a negative number. 1974-74 rose from -.5% to -.2% and 1991-91 rose from -.2% to 3.3%.
Put another way, the dramatic GDP increase the CBO predicts will happen in 2009/2010 in spite of rising unemployment has no actual prescedent in the past 60 years.
2- Inflation:
– The CBO projects inflation to run at an annual average rate of .725% from 2009-2012. Again, since 1950, we have only experienced a single 4 year span of inflation averaging anywhere close to this number. That was 1953 to 1956 when it averaged .57%. Good news? Not really. The 1953-58 period also featured GDP falling from 5.9% to 1.3% while unemployment rose from 2.9% to 6.8%. Both of these scenarios run counter to current CBO projections of increasing GDP and decreasing unemployment over the same span.
Note: It is extremely important to note the 1950’s and 1960’s had very low inflation as a rule due to the US being on the gold standard. Government could not “print” money the way they do now. Since the US went off the gold standard in 1971, inflation has averaged 4.4%. So despite an unprecedented and almost unfathomable increase in the money supply (inflationary) from the Federal Reserve and US Treasury in the past 6 months, the CBO predicts inflation to run 17% of its historical average. Almost defies logic.
Other possible issues. Foreigners are already balking as buying US debt due to the non-existant interest rates is now pays. That will force the Fed to raise rates to fund that massive deficit. The result will increase mortgage rates, consumer loan and business credit rates, slowing growth. Warren Buffett has called the current US Treasury market the “mother of all bubbles”. When it pops (they always do) the Fed will have no option but to rapidly raise interest rates to stop the selling and entice buyers. That will be a severe drag on any recovery
Oil, AIG, Skype, Options
– Time to start looking at this again
– The government scam for bank profits
– Coming to Blackberries and iPhone
– Do 90% really expire worthless?
Disclosure (“none” means no position):