Tag: ackman

Ron Marchall has the experience, that cannot be argued. What I have not found yet are the ties to Bill Ackman and Pershing. This must be the reason for the delay in the Pershing financing agreement.

Borders Group (BGP) today announced several management changes–including the appointment of a new Chief Executive Officer–to more aggressively drive a turnaround of the company within today’s challenging economy. Effective today, Ron Marshall, who most recently was Principal of Wildridge Capital Management, a private equity firm he founded approximately three years ago, has been appointed President and Chief Executive Officer and will serve as a Director. Marshall, 54, replaces George Jones who served in that same capacity since July 2006.

Marshall brings more than three decades of financial and retail experience to Borders Group. Prior to founding Wildridge Capital, he was Chief Executive Officer for eight years with Nash Finch Company, a $5 billion food distribution and retail organization, where Marshall was responsible for a turnaround that included the quadrupling of earnings over a six-year period as well as a 40% improvement in EBITDA over the same period. Marshall earlier helped drive a turnaround of $4 billion supermarket retailer Pathmark Stores, Inc., where he served as Executive Vice President and Chief Financial Officer from 1994 to 1998. Preceding that, Marshall served in senior management positions in a variety of retail companies including Dart Group Corporation’s Crown Books division and Barnes & Noble college bookstores.

“Progress has been made by Borders Group over recent quarters within the challenging economy to reduce debt, improve cash flow, cut expenses, enhance inventory productivity and improve margins, but it is imperative that the company more aggressively attack these initiatives to address its long-term future,” said Borders Group Board of Directors Chairman Larry Pollock. “We are confident that Ron Marshall, with his strong financial and turnaround expertise, vast retail experience and specific bookstore background, is the right choice to lead a new management team and boldly take these efforts to the next level.”

“Borders is a powerful brand with millions of loyal customers who love to shop in the stores,” said Marshall. “These are tremendous assets that can be built upon once the balance sheet is strengthened and the company is on more solid financial footing. I’ve led turnarounds at other retail organizations and look forward to leading a new management team at Borders to drive profitability and help ensure lasting success for this great name in retail.”
In accordance with New York Stock Exchange rules, Borders Group reported that it will issue to Marshall by Feb. 1, 2009 an employee inducement award consisting of options to purchase 1.8 million shares of the company’s common stock. The options vest in installments over the three-year period following Marshall’s start date. Marshall will also be issued 200,000 options at the same time with similar terms as those of the employee inducement award in accordance with the existing company shareholder-approved long-term incentive program. A full description of terms will be contained within a Form 8-K disclosure the company intends to file this week.
Other Management Changes

In addition to Marshall’s appointment as Chief Executive Officer, other management changes were announced. Mark Bierley has been named Chief Financial Officer and Executive Vice President, Finance. He replaces Ed Wilhelm, who joined Borders Group in 1994 and held the Chief Financial Officer position for the past eight years. Wilhelm will stay on with the company for a transition period. Bierley has more than 20 years of financial and accounting experience and has been with Borders Group since 1996. He has progressed through a variety of management positions within the company, including inventory and financial posts, and most recently served as Senior Vice President, Finance.

Anne Kubek has been appointed Executive Vice President, Merchandising and Marketing. In that position, she replaces Rob Gruen, who is leaving Borders Group after approximately two years. Kubek has been with the company since 1990, beginning her career as an assistant manager of the Borders store in Rockville, Maryland, and progressing through a series of management positions within the store organization. She came to the corporate office in 1996 and over the years has served as Vice President, Field Human Resources; Vice President, Book Merchandising; Vice President, Borders Store Operations and most recently as Senior Vice President, Borders Stores, a post she has held since 2005.

Additionally, Dan Smith has been named to the new position of Chief Administrative Officer. Smith, who has been with Borders Group since 1995 in a variety of leadership roles, including his most recent position as Executive Vice President, Human Resources, retains his current responsibilities, but also takes on leadership of the company’s information technology group, which is headed by Chief Information Officer Susan Harwood, who remains with the company.
“The Board is pleased to bring forth the considerable talents of individuals with strong track records, well-rounded experience and tremendous industry knowledge within Borders Group to contribute in even more significant ways to the company under the leadership of Ron Marshall,” Pollock added. “This is a great team with outstanding skills. We are confident that they will keep the company moving on the right path toward what can ultimately be a strong long-term future.”

Sales Results-Holiday 2008

Borders Group also released its sales results for the nine-week holiday period ended Jan. 3, 2009. Total consolidated sales were $868.8 million, an 11.7% decline compared to the same period last year. Within the Borders superstore segment, total sales for the holiday period were $652.6 million, which is a 13.6% decrease compared to 2007. Comparable store sales at Borders superstores declined by 14.4% compared to the same period a year ago. On a same-store sales basis, the book category at Borders declined by 11.0% for the period. Borders.com sales for the nine-week holiday period were $20.3 million. Overall, holiday sales started slow and improved during the latter part of the season.

Within the Waldenbooks Specialty Retail segment, total sales for the holiday period were $161.7 million, a 16.4% decrease compared to the same period one year ago. Comparable store sales for Waldenbooks declined by 8.0% compared to holiday 2007.

Total International segment sales were $34.3 million for the period, a 1.4% decrease compared to the same period a year ago. Comparable store sales at Paperchase stores in the U.K. decreased by 6.5% for the holiday period year over year.

“While our recent holiday sales results reflected the difficult retail environment and additional challenges within specific categories of our business, the company’s sales performance and cash generation were within the range of our internal financial plans for the holiday period,” said Borders Group Chief Financial Officer Mark Bierley. “We continue to aggressively implement the range of initiatives that we launched in mid-2008, which have allowed us to reduce expenses and improve working capital to drive improved cash flow and debt reduction.”

Is this a desperation move? Don’t think so. I think it is more of a “Jones took us as far as he could” and now someone else is needed to complete the transition. George Jones did a good job digging the company out of the hole his predecessor left him.

Marshall brings fresh eyes to the situation and a background from PE that inevitably will bring some creative solutions that the company needs to navigate the current credit markets.

Not selling, holding pat…

Disclosure (“none” means no position):Long BGP
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This does make sense…

The WSJ Reports

Borders Group Inc. has agreed to accept books from HarperStudio on a nonreturnable basis, departing from a decades-old publishing tradition.

Under the terms of the deal, the nation’s second-largest bookstore chain by revenue will get a deeper discount on initial orders of books published by the new imprint of News Corp.’s HarperCollins Publishers — 58% to 63% off the cover price, instead of the usual 48%. In exchange, Borders won’t return any unsold books to HarperStudio, instead probably discounting them in the store. (News Corp. owns The Wall Street Journal.)

“The idea of taking inventory and then shipping it back isn’t a good idea for anybody. We’re open to all publishers to discuss alternatives to the traditional return model,” said Robert Gruen, executive vice president of merchandising and marketing at Borders, of Ann Arbor, Mich.

Under standard industry practice dating to the 1930s, retailers can send back whatever new titles don’t sell for full credit, with publishers paying for shipping. This has created a mass of titles that are trucked from one warehouse to another until they eventually are sent back to the bookstore chains, where they are sold for a significant discount to the list price.

People in the industry estimate that between 30% and 40% of all consumer adult titles are eventually returned to their publishers.

“Returns have never made sense in our business, and with the recent economic downturn, publishers and booksellers are more open than before to experimenting with models that might decrease waste and increase profit,” said Robert Miller, president and publisher of HarperStudio. When he started the imprint earlier this year, Mr. Miller said he intended to shake up traditional book-publishing economics.

Pro’s are that the new arrangement instantly increases margins or, should Borders elect not to go that route, they are now able to become more competitive on prices to the consumer without pressuring current ones. The key to making it work is inventory. It now become more important than ever to maintain proper levels to maximize sales of new titles at higher prices.

Borders this year has shown that it is able to do that and having control of the website from Amazon (AMZN) does give them a far more profitable clearing house for unsold titles.

This is a very good move, what needs to happen next is clarity on the “alternative financing arrangement with Bill Ackman and Pershing.

Disclosure (“none” means no position):
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Three little words have cast doubt on the retailer that otherwise is doing everything it said it would.

In reviewing the last earnings call Borders (BGP) has made significant progress this year on all stated goals..

* Debt down over 30%
* Cash flow from negative $100m to plus $9 million
* Cost cuts surpassed the $120 million goal to $140 million now
* The new concept stores have exceed expectations
* Borders.com has over 30 million Rewards Members and adds over 120k a week.

Here is the problem:
“Regarding Paperchase we retained the right to exercise the put option to sell Paperchase to Pershing Square Capital Management for $65 million and we are also in discussions with Pershing Square regarding an alternative financing transaction.

Of course no assurance can be given as to whether an alternative financing transaction will be entered into or contemplated.”

Later, in response to a question, CEO Jones says:
Matthew Fassler – Goldman Sachs:
“Related to the other deal you’re looking at with Pershing you talked about retaining the put on Paperchase but you said you’re looking at an alternative strategic transaction to the extent and if you’re free to shed any light on what kind of transaction that might be we’d be interested.”

Edward Wilhelm
“We do have, we have retained the rights to the put, and the disclosure in the release was an alternative financing transaction. And we can’t comment any further then what was in the release.”

Matthew Fassler – Goldman Sachs
“Would that be presumably a more comprehensive transaction that goes beyond Paperchase?”

Edward Wilhelm
“We really can’t comment any further.”

George Jones
“The key thing to note though is we still have the right to the put so anything we do is obviously going to be favorable for the company.”

The lack of any further clarity leaves people wondering. Now, of course folks think the deal will be favorable to the company. But, does it mean it will stop it from Chapter 11 or does it mean it will provide additional liquidity to increase concept store openings? Does it mean credit markets are closed to the retailer or does it mean thy can just get a better deal from Pershing? Does it mean Ackman may just buy the rest of the company for the $25 million it will cost him at these prices and just spin it out in a few years and they want to avoid that?

You could go one for another 20 scenario’s and until Borders or Ackman come out and settle folks down, the stock will languish. Do I think the company is in trouble? No. But, I have no ammunition to make the argument when they give us nothing.

I know some folks who have spoken the Wilhelm as essentially said the same things and the reply was that they “understood but could not announce specifics now”. We do not need specifics…just a direction..

Disclosure (“none” means no position):Long BGP
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Reader Justin submits: Why Sears (SHLD) is NOT going bankrupt?

In this volatile market, anyone can say anything to put downward pressure on a stock. In many cases deserved, in some cases absurd, and in the case of Sears a little of both.

Let’s start with the deserved part. Obviously, retail is doing terrible this year as an investment. However, the woes at Sears go beyond the macro environment. They have made bad decisions in some cases, suffered from management turnover, and communicated very little beyond what’s required by a public company. On top of that, they recently lost a well-respected, activist shareholder, Bill Ackman. Bill has taken an absolute beating on his investments in Sears, Target, and Borders, so he may have had about all the fun he can handle in retail. In short, it hasn’t been all that pretty, but the shares reflect much worse.

The absurd is the idea that Sears has some kind of solvency risk as some have floated. Why is this absurd? Here’s my case:

1. Last quarter Sears generated FCF (free cash flow) of over $400 million. Target, a “good” retailer actually had no FCF last quarter, they burned over $900million. In fact, Target hasn’t generated FCF in the last 3 quarters. Over the same time frame Sears generated a staggering $1.5 BILLION in FCF. So yes Sears is making money hand over fist in this environment even with mediocre execution.

2. Eddie Lampert’s investment fund ESL owns over 50% of Sears. And Sears makes up over ½ his fund. And his fund is still making investments in other equities. Now if you are thinking that ½ your fund may evaporate into insolvency or you are worried about investor redemptions then you preserve cash if not generate cash by selling positions. What you don’t do is make more investments, which is what he’s doing.

3. Sears announced the purchase of additional shares of Sears Canada in November. Why spend your cash on buybacks and now additional shares in Sears Canada if you are worried about your cash position?

4. I’ve been to several Sears and Kmarts in recent weeks and they are all hiring.

In conclusion, Sears is hiring people, buying shares in, generating FCF, and ESL continues to make investments. None of these indicate to me that there’s any solvency concern by the controlling shareholder.

Disclosure (“none” means no position):Justin is long SHLD
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Have not had a chance to go through the numbers yet and want to wait until the conference call tomorrow but here is the news and some initial thoughts…

Borders Group, Inc. (NYSE: BGP) today reported results for the third quarter, ended Nov. 1, 2008. On an operating basis, the consolidated loss from continuing operations for the third quarter was essentially flat with the same period a year ago at $39.0 million or $0.64 per share, compared to $38.4 million or $0.65 per share in the third quarter of 2007. On a GAAP basis, the company reported a consolidated third quarter loss from continuing operations of $172.2 million or $2.85 per share compared to a year ago when it recorded a GAAP loss of $40.0 million or $0.68 per share from continuing operations. The GAAP basis loss includes non-cash, non-operating charges totaling $133.2 million in the third quarter, consisting primarily of deferred tax and fixed asset impairments. Comparable store sales for Borders superstores decreased by 12.8% in the third quarter, and with music excluded, declined by 10.6%. Same-store sales at Waldenbooks decreased by 7.7% for the period.

“Borders has successfully reduced debt, improved operating cash flow, lowered expenses, improved gross margin-excluding occupancy-and improved inventory productivity during a time of extreme economic challenge,” said Borders Group Chief Executive Officer George Jones. “We stated at the beginning of this year that strengthening our balance sheet is our top priority and we are delivering results. We’ll remain keenly focused on these critical initiatives, and in addition, will increase our efforts to drive further gross margin improvement. All of the changes we are making will position Borders Group to compete more effectively.”

Debt, including the prior-year debt of discontinued operations, was reduced from a year ago by 34.2% or $273.1 million at the end of the third quarter to $525.4 million. This compares to debt of $798.5 million at the end of the third quarter last year. The debt reduction year-over-year was driven primarily by improved management of inventory, lower capital expenditures and proceeds from the previously announced sale of the company’s Australia/New Zealand/Singapore businesses, which took place in the second quarter of this year.

Operating cash flow from continuing operations improved by $110.0 million, as the company recorded fiscal year-to-date cash flow of $9.4 million compared to cash use of $100.6 million for the same period in 2007. Borders Group reduced inventory by $304.2 million at cost-or 19.5%-at the end of the third quarter compared to the end of the third quarter a year ago.

Management is now on-track to reduce fiscal 2009 operating expenses by $140 million compared to its previous target of $120 million. As a result, the company expects to save $70 million this year versus its original $60 million target for 2008. Beyond these operating expense improvements, the company believes there is additional opportunity to improve its realized gross margin through a more effective use of promotions and discounts. Early initiatives enabled the company to generate gross margin rate improvement-excluding occupancy-of 30 basis points in the third quarter and the company believes there is substantial room for further improvement.

Strategic Alternatives Update

Management provided an update to its previously disclosed strategic alternatives process, which included the exploration of a wide range of options, among them the sale of the company and/or certain divisions, including Paperchase Products Ltd. With respect to the sale of the company, management is no longer contemplating a transaction. Regarding Paperchase, as previously disclosed, Borders Group retains its right to exercise its “put” option to sell its Paperchase business to Pershing Square Capital Management for $65 million and is also in discussions with Pershing Square regarding an alternative financing transaction. No assurance can be given as to whether an alternative financing transaction will be entered into or consummated.

Additional Consolidated Q3 Results

All earnings and loss figures presented throughout this news release are provided on a continuing operations basis, unless otherwise noted.

Borders Group achieved third quarter consolidated sales of $682.1 million, a decrease of 10.0% over 2007. Consolidated gross margin as a percent of sales on an operating basis decreased by 1.4% from 22.2% to 20.8% in the third quarter as the negative impact of de-leveraging occupancy costs more than offset the gross margin benefit of a favorable sales mix and lower shrink. Excluding occupancy, third-quarter consolidated gross margin increased by 30 basis points compared to the prior year. On a GAAP basis consolidated gross margin as a percent of sales decreased by 0.6% from 22.1% to 21.5% in the third quarter.

On an operating basis, SG&A as a percent of sales in the third quarter decreased 0.1% from 28.7% in the same period last year to 28.6% resulting from de-leveraging caused by negative sales trends that were offset by the benefit of expense reductions. The expense reduction initiatives helped reduce SG&A dollar expenses by $22.3 million in the third quarter compared to the prior year. On a GAAP basis SG&A as a percentage of sales increased 1.3% from 28.7% to 30.0%.

Non-Operating Adjustments

GAAP consolidated net loss and loss per share figures reported in this release include the impact of non-operating adjustments, which in the third quarter totaled a net after-tax charge of $133.2 million. The net after-tax charge is comprised of deferred tax asset impairments of $107.0 million, store asset impairments of $31.1 million, as well as other items totaling $12.6 million, including severance costs, store closure and relocation costs, professional fees related to the strategic alternatives process, an adjustment to the U.K. lease guarantee liability and amortization of debt issuance costs. These costs were offset by income related to the fair market value adjustment of the warrant liability and a related tax benefit of $12.7 million as well as income received from a landlord lease termination of $4.8 million after tax.

Domestic Borders Superstores

Total third quarter sales at domestic Borders superstores were $548.4 million, a decrease of 10.9% over the same period in 2007. As stated, comparable store sales decreased by 12.8% for the period compared to last year, a result significantly impacted by a steep decline in customer traffic that was most pronounced in the months of September and October. Excluding the music category, same-store sales declined by 10.6% for the third quarter compared to one year ago.

Sales through Borders.com in the third quarter totaled $11.9 million, which is below management expectations due to the challenging sales environment. As a result, Borders Group does not expect Borders.com to break even this year as previously stated.

On an operating basis, Borders superstores reported an operating loss of $37.8 million in the third quarter compared to an operating loss of $30.8 million in the same period a year ago. The loss resulted primarily from negative same-store sales, which were partially offset by expense reductions. On a GAAP basis, Borders superstores reported an operating loss of $80.3 million in the third quarter compared to an operating loss of $31.9 million in the same period a year ago.

The company opened two new Borders superstores in the U.S. during the period and ended the third quarter with a total of 519 domestic superstore locations.

Waldenbooks Specialty Retail

Comparable store sales decreased within the Waldenbooks Specialty Retail segment by 7.7% in the third quarter. Total sales in the segment were down by 16.6% in the third quarter to $91.5 million, as the number of stores was reduced from 521 at the close of the third quarter 2007 to 467 at the end of the third quarter this year.

Company expense reduction initiatives and better gross margin performance drove an improvement in the third quarter operating loss for the Waldenbooks Specialty Retail segment. On an operating basis, the operating loss was $13.2 million in the third quarter this year compared to $19.4 million in the third quarter last year. On a GAAP basis, the operating loss for the Waldenbooks Specialty Retail segment was $17.7 million in the third quarter this year compared to $20.5 million in the third quarter last year.

International

In the third quarter, sales within the International segment (which consists primarily of Paperchase) totaled $30.3 million, which is down 6.2% compared to the same period a year ago. Excluding the impact of foreign currency translation, sales would have increased by 2.7%. On an operating basis, the segment generated an operating loss of $1.6 million in the third quarter this year compared to operating income of $1.8 million in the third quarter last year. On a GAAP basis, the segment generated an operating loss of $1.8 million in the third quarter this year compared to operating income of $1.8 million in the third quarter last year.

Next Financial Release

Borders Group plans to issue holiday sales results in mid-January. Fourth quarter 2008 results will be issued March 19 after market close with a conference call for investors the following day, March 20, at 8 a.m.

So, where are we? First and foremost the #1 problem at Borders is its debt. That, is falling and has been steadily since the beginning of the year. Second was cash flow / expenses and those are also going in the right direction. Cash flow is up and Borders will exceed it stated cost saving by 17%.

One has to remember that these results are in the face of a dismal operating environment for all retailers. The really good news is that in spite of it all, they are still making progress on their goals. As a shareholder, if the macro environment is lousy one cannot expect management to pull a rabbit out of their hat but as long as they continue to progress on the stated path, progress is being made.

Two things stick out. Borders.com results fell below expectations and the mentioned “financing transaction” with Pershing. Both need to be listened to on the conference call tomorrow am. Off the top of my head Borders can put Paperchase to Pershing for $65 million but owes Ackman $45 million from the earlier in the year loan. Just guessing but I think they want to put Paperchase to Pershing and extend the repayment of the loan…just a guess.

More after the call tomorrow…

Disclosure (“none” means no position):Long BGP
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