Here is the presentation for tonights ValuePlays TV show
Tag: bgp
Here is the presentation for tonights ValuePlays TV show
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Borders…….One Foot Out the Door
Recently sold 1/2 of my position in Borders Group (BGP) after sticking out its near annihilation in Q1 of this year.
Why? Trends
There are two new trends and Borders is not at the head of either of them….
I own a Blackberry and have started listening to books on it while I do research and blog late at night. The #1 app for the Blackberry to do this is from Audible.com. Who owns Audible? Amazon (AMZN). Being a Borders shareholder and a team player I of course looked there first but was unable to find the ability to buy a title on Borders.com and then listen to it on my Blackberry.
Now, it may be possible to do it, but it was not readily apparent so either it does not exists or is hidden. Following my “I’m not that different that most folks” mantra I have to think scores of other Blackberry users are doing the same thing and Borders is not capturing that crowd
Reason #2
eBooks. Amazon (AMZN) and its Kindle are clearly #1 is this very rapidly growing category. But, with the growth there, a strong #2 can do very well especially if they have the option to combine it with an actual bookstore to capture all audiences.
Borders has the Sony reader and an eBook section on its website. They were, by default #2 but failed to capitalize on that standing and now have this:
From Engadget
Barnes & Noble (BKS) and AT&T (T) already went ahead and offered free WiFi to iPhone users (and everyone else, albeit inadvertently) last year, and it’s now finally gone and given up on those pesky subscription fees altogether. As the pair of companies jointly announced today, that new and welcome change is now already in place at all Barnes & Noble stores in the US that offer WiFi, and the bookstore is not-at-all-coincidentally taking advantage of the opportunity to promote its recently launched eBookstore, to say nothing of its forthcoming e-book reader. Last we heard, they still have actual books and stuff there, too.
In the release Barnes & Noble said:
Customers Can Download Barnes & Noble Free Apps and Get Access to the World’s Largest eBookstore — Exclusive Content, Customer Reviews, Information about In-Store Events, Locate a Store, and Much More..
In short Borders sat back while BKS passed them in the category. Again there is no apparent eBook store on the Borders site so it would appear this medium is not a huge category.
What recently was the #1 iPhone free app? The Barnes and Noble app. Barnes and Noble has figured out the way it would seem to tie the eBook/online/smart phone/book store crowd together.
Borders? Nothing. Now again Borders may have these items out there, but if they do, they have done an abysmal job promoting them and it is costing them.
What to do then? Borders is well on its way to fixing it financial house and that ought to propel shares back above an area I need to eek out a small profit on what I have left for my efforts there. After that, I’m not so sure.
Remember last summer when it was rumored BKS was looking at buying BGP? Maybe this was the reason for passing, they had plans to beat them rather than join them…
This goes to why you just can’t buy cheap and ignore. You have to follow the business environment surrounding what you own. If it changes negatively and in my opinion Borders has, then you must re-evaluate your thesis. While I will most likely not lose any money (most likely make 5%-10%) on Borders, the big opportunity in it is fading and I feel I have far better options elsewhere.
Disclosure (“none” means no position):Long BGP, none
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Wall St. Media 7/8
Talking with Doug (@wsmco) about Natural Gas (UNG), News Corp. (NWS) and Borders (BGP).
See more great investing video at Wall St. Media
Disclosure (“none” means no position):Long all securities listed above…
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Wall St. Media 7/8
Talking with Doug (@wsmco) about Natural Gas (UNG), News Corp. (NWS) and Borders (BGP).
See more great investing video at Wall St. Media
Disclosure (“none” means no position):Long all securities listed above…
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Brick & Mortar Books Dead?
Saw this and thoughts it was very interesting given the talk out there of the “demise” of brick and mortar book retailers especially as it related to both Barnes and Noble (BKS) and Borders (BGP).
From Media Bistro
After just one week in the Apple App Store, the brand-new Barnes & Noble iPhone app has grabbed the number one slot on the “Top Free Apps” list in App Store’s “Books” category–unseating two Amazon digital reader applications from the top spots.
With the new Barnes & Noble app, readers can shop, read reviews, and explore web-only extras via smartphone. While these rankings are constantly shifting, the new app has overtaken both the Amazon Kindle (AMZN) for iPhone (AAPL) and Amazon-owned Stanza e-reader in popularity–perhaps a good omen for Barnes & Noble’s future in the smartphone market.
Here’s the most geeky and interesting feature on the bookselling app, from the release: “Barnes & Noble has partnered with LinkMe Mobile from Evryx Technologies, Inc. and Spotlight Mobile, Inc. so that users can simply snap a photo to search millions of products. Using the iPhone or iPod touch camera, just snap a photo of the front cover and within seconds get product details, editorial reviews, and customer ratings–even find and reserve a copy in the store closest to you.”
To me this is a tell that there will always be something “tactile” as my friend @wood83 says when it comes to both books and the sales process for them. The Barnes & Noble reader has the advantage of tying the online/store shopping experience together (shame on Borders for not having this done yet). Now this is not a negative for either Apple or Amazon but a huge plus for Barnes. Successfully tying in the web with the store at all levels give them a unique model that is effectively unmatched.
We seem to be in a series of “death of” loops now. Everyday I turn on something electronic I am hearing about the “death of buy and hold”, the “death of value investing”, the “death of (place item here)”. Ignore them all.
Is the book business changing, perhaps forever? Yup. Is the experience of going to a bookstore going away? No.
Disclosure (“none” means no position):Long BGP, none
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Thursday’s Links
Taxes, Reading, Shoe, Jobs
– We live in a world without traditional borders. The US tax rate MUST compete internationally or we will lose jobs. There is no debate on that. NY & California have seen that with their wealthy resident as they decided to move rather than pay exorbitant taxes. Nations will suffer the same fate
– Interesting polls on what people tend to read re: their views.
– Now, I’m not a fan of the guy but this is is bit much. But, it does go to the hyper-sensitive nature of Israel right now feeling isolated. That is very, very dangerous
– What is dissapointing is that the MSM is letting this go. There IS NO way to measure what the administration claims. Why do they continue to let them claim it?
Disclosure (“none” means no position):
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Goldman Takes A Closer Look at Borders
Goldman Sachs (GS) last week released the following note on Borders Group (BGP). Not sure many of you have notice but Borders has jumped from $2.50 to $4.50 in less than a week.
Price jump aside, what is even more promising is that their reasoning backs what we have been talking about here for the better part of 6-8 months now. Borders is heading in the right direction in a simply brutal environment….
In a group that has moved, BGP stands out as an underappreciated turnaround situation with significant potential upside off a low base. We are raising our 12-month price target sharply, to $4.50 from $2.00, reflecting BGP’s solid 1Q performance relative to expectations, strong short-term cash flow dynamics, and the more generous multiples being rewarded to levered turnaround stories in the early stages of economic recovery. The firm’s new management team is driving financial discipline, with significant cost controls, and implementing merchandising improvements, i.e. driving the children’s business, gradually exiting music and video, and reducing cycle times with vendors. BGP faces structural and financial risks, but there is a price for every security, and its riskadjusted upside has become increasingly appealing as the firm emerges from financial distress, and EBITDA looks poised to stabilize off 2008 troughs.
Implications
We are raising our 2010/2011 EPS estimates to ($0.16)/($0.08) from ($0.60)/($0.40), respectively, reflecting the 1Q beat, as the company delivered a loss of ($0.31) per share, vs. our ($0.49) and last year’s ($0.53), reflecting both gross margin and expense upside. We are flowing additional margin improvement through to the year, and expense control to 2Q & 3Q, noting that the firm does cycle substantial expense cuts at 4Q. We are also introducing a 2011 estimate of ($0.07).Valuation
Our new $4.50 target, up from $2.00, is derived using risk/reward EV/EBITDA analysis. Note that the stock appears quite inexpensive on FCF yield, but that cash flows are not sustainable at these levels given the depressed state of cap-ex relative to D&A.
So what happens to Borders? My friend on twitter @Dasan thinks the paper book biz is headed the way of the CD via amazon (AMZN). I disgaree. While an increasing number of folks will get digital books, children’s books will never be digitized and books, unlike a CD are a hands-on experience for most folks.
That being said, Borders and Barnes & Noble (BKS) need to merge. While they cannot compete separately with Amazon’s Kindle, Border’s deal with Sony’s Reader can enable them to compete combined. Further, rather than competing with each other on price, the combined entity would see margin improvement in the physical stores & give them more bargaining strength with suppliers. Anit-trust issues are minor as Wal-Mart is a huge book retailer and the combined entity would still be dwarfed by Amazon. There is store overlap but working off that excess is less of a concern that the benefit they would see from a merger.
Let’s not forget that it was just last year that BKS looked at BGP but declined to make an offer. Let’s also not forget this was last year at a time when credit markets were collapsing and BGP’s turnaround was in doubt by many. Now that both of those issues are far less urgent, do not be surprised to see BKS take another look at its brick and mortar rival.
Pershing Square ans Bill Ackman have become a 40% shareholder.
Patience is required on this one. This is a hold because selling now, to try and buy back in later could cost you. I can easily see a scenario in which we wake up one day and either BKS or another private equity firm make an offer for the company.
Disclosure (“none” means no position):Long BGP
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Borders Still Progressing…..
Smaller operating loss, increased cash flows and 45% less debt, all very good things. Shareholders, unfortunately for those who bought shares 2 years ago are still paying for the sins of past management. But, this marks the third consecutive quarter of very good improvement in a dismal operating environment.
Work still needs to be done on Borders.com. The site is sluggish and ordering can be difficult. Customer service is responsive BUT, Borders needs to eliminate the necessity to even need them which seems to be all too frequent. On the positive side, the site is very visually appealing and the Rewards Program and the affiliate relationships do offer tremendous savings. But, to bring it to the next level as a destination purchasing site…..it needs to be faster….much faster and the ordering glitches need to be eliminated.
Disclosure (“none” means no position):Long BGP
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The Destruction of the Starbucks Brand
Hat tip reader Chris for alerting me to this. Can you imagine Coke (KO) saying is was shifting its focus to the Sprite brand OR Anheuser-Busch (AHBI) saying that Busch Beer was going to be its focus this year? If not, then read this:
From Yahoo Finance
Starbucks Corp. is hoping its Seattle’s Best Coffee chain will be its growth engine during the recession.
Even as Starbucks shutters hundreds of namesake locations, cuts jobs and shaves other costs, it is seeking franchisees to open new cafes and kiosks of Seattle’s Best Coffee nationwide.
Since Starbucks took over the chain in 2003, most new Seattle’s Best Coffee cafes have opened inside Borders (BGP) bookstores and kept a relatively low profile. Many consumers don’t know there’s a connection: Seattle’s Best Coffee’s logo is red, Starbucks’ is green, and there is no mention of Starbucks inside Seattle’s Best Coffee stores.
Not only could opening more franchised cafes help Starbucks — which reports its second-quarter earnings Wednesday — expand without increasing its operating costs. Promoting Seattle’s Best Coffee also could help Starbucks pursue two distinct streams of the coffee market simultaneously.
Seattle’s Best Coffee’s food, including ice cream and hot sandwiches, targets a broader market than the pastries and sandwiches and high-end juices and protein drinks at most Starbucks. And its much milder beans have been available since January in more than 2,800 Subway restaurants.
“It gives them an opportunity to reach out to a different audience,” analyst Darren Tristano of Technomic Inc., a food industry consulting firm, said of the plan to open more Seattle’s Best Coffees.
Starbucks says the slightly lower prices and milder taste of Seattle’s Best Coffee make it an especially viable vehicle for growth now, though the company declined to say how many new stores it hopes to open or where.
“We believe that the Seattle’s Best Coffee brand can play a unique role in helping capture a larger share of the coffee segment by providing options and a variety to a broader spectrum of customers,” Starbucks Chief Executive Howard Schultz said in January when he announced the plan.
Relying on growth from Seattle’s Best while at the same time closing thousands of Starbucks location is the closest thing you’ll ever see to an admission from Schultz that the Starbucks brand has been catastrophically mismanaged to the point it is now a negative.
Offering breakfast sandwiches did not work. Promotion that offer discounted drinks failed. Spending millions on new coffee machines? Nope. Bringing back Howard Schultz? Fail. “Gold cards” for frequent customers? Nada.
On a side note. Did anyone think the promotions were really going to work? Remember? “buy a coffee in the morning, save the receipt and come back between 2:17 and 2:28 and get a $2 something”. Of course I am being sarcastic but the reality of the promotion was not much different.
The result? Management has finally thrown in the towel and decided to go with the secondary brand. This is not a slap at Seattle’s best, I think they do a fine job at what they do. This is a slap at management that is forced to do one at the expense of the other.
The Starbucks brand has been so possibly irreparably harmed that folks in Seattle are slowly moving the company is a different direction. Sad.
For investors, if you think there has been a fundamental change in consumer behavior and “cheap is chic” then do not expect any rebound or significant improvement anytime soon…
Disclosure (“none” means no position):
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What to Short When The Rally Dies??
So, I have been droning on for what seems an eternity (few weeks) that I feel this market rally is just over done and due for a fall. I still feel that way but am getting to the point I am going to put some money where my mouth is.
Now, don’t get me wrong. I have been very happy to be wrong for the last month as the rally has been very good to me. Core large long holdings like Dow Chemical (DOW) (which was significantly added to at $6.80 in March and again at $9 in early April), AutoNation (AN), Sears Holdings (SHLD) and Wells Fargo have all seen tremendous share price increases of at least 50% since the March lows (am still down 10% in Wells Fargo overall though). This makes up for the gut wrenching carnage in January and February although Sears and AutoNation are up 50% and 60% YTD respectively.
Even Borders (BGP) has finally shown signs of life almost tripling in a few weeks (still down 40% in this small position).
That being said, I cannot escape the fact that the economic fundamentals of the economy do not warrant the general market rally we have seen. It is also possibly true that the drop we saw early this year was overdone meaning part of this rally is simply correcting an over reaction to the downside in March. I am hesitant to fully buy into that though.
There are over 6 million folks without jobs now, the housing industry is simply in shambles and getting worse, foreclosures are surging, Q1 GDP is decidedly negative and Q2 looks only marginally if any better. Commercial Real Estate is the next time bomb to drop on banks and that fuse is only just beginning to burn and the Federal Reserve is just about all out of ammo unless they want to start paying people to borrow. In short, not too much to be optimistic about..
Do I short CRE with the SRS ETF? Not for me. REIT’s are already on death doorstep so buying in there might be a bit like going hunting and shooting a deer caught on a trap, not very satisfying or meaningful.
Short financials with FAZ? Not too sure about that one either. While the rally there has been spectacular and unwarranted, it has become clear that the US Government will stop at nothing, including changing accounting rules, bogus “stress tests” and more capital infusions to make sure the banks are propped up. That being said, I am hesitant to bet against the guy with the ability to change the rules of the game on a whim to make sure he wins.
Short the dollar with UDN? Now, while, the dollar may be headed for devaluation because of massive Treasury actions, when compared to many other currencies, it may actually gain in value vs them. Its perverse. In fact, since December that is what has happened. Being “less bad” than the other guy isn’t really a reason to invest.
I think the safest way to so it is the simple SH Short S&P ETF, PSQ to short the Nasdaq or DOG to short the DOW. It tracks to daily price fluctuation of the overall index without exposing the holder to the negative returns of the leveraged ETF’s. The 3X’s ETF’s are only good for short term trades and the volatility will scare most folks. That and the downside pain is fast and furious and the longer you hold them, any downside you experience exceeds any upside you see later unless it is dramatic.
These can protect you from a market sell-off and unlike the leveraged ETf’s, not hurt you bad should the market continue to rally (which it can, markets are not rational by any means). I like the SH the best of the lot. Should I go into it, the position will not be all too large, just enough to take the bite out of what I think is the upcoming sell-off
Here is a good list of ETf’s
Disclosure (“none” means no position):Long Stocks listed, none in ETF’s
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Borders and It’s Inventory
Been reading a lot of comments on Borders (BGP) recent quarter. The general theme is that Borders is cutting inventory too much, can’t cut it anymore, and in doing either is risking not carrying titles people want.
Some clarifaction is necessary.
Notes from the recent earnings call Q&A:
Ron Marshall
What’s important is while I don’t think that we’re going to have another grand announcement on cost reductions this year. I think what you will see and what we’ll be able to talk about as the quarters click off is a continual improvement in some of our core processes. One of the things we’ve talked a lot about is reducing cycle times inside our organization.
A really good example is we used to order from most of our large vendors once every 12 weeks, essentially once a quarter. We’ve already compressed that cycle time from 12 weeks to four weeks. Four weeks isn’t the right number, its either two weeks or one week but four weeks is a lot easier and a lot better to deal with then 12.
As we do that the ability to take additional inventory add as we compress safety stock and obviously it’s easier to forecast four weeks out then 12 weeks out. You’ll see some inventory improvements but you’ll also see some operating cost improvements as we’re only handling the product once rather than two or three times.
David Weiner – Deutsche Bank
Obviously you’ve been cutting inventories pretty substantially. Can you talk about what impact that has on your credit line availability, I think your total line is over a billion dollars but as you cut inventories how does this impact the amount that maybe you can actually borrow?
Mark Bierley
I think the key thing here is we look at the productivity of the inventory. If we’re taking inventory out we’re taking out inventory that quite frankly we own. So it allows us to recapture cash flow and improve our overall liquidity position. What we’re doing with inventory and Ron described it as getting smarter in terms of the replenishment, how frequently we order, how we order our front list.
We’ve sped up our return channel back through the returns process from our stores this year. Quite frankly just getting to a point where you’re improving the overall optimization of that inventory and quite frankly good things come from that in the cash flow and the liquidity standpoint.
The reduction in inventory expense is not just a function of “not carrying books” but one of a more just in time inventory system. It is also clear from the comments that Borders intends to further reduce this time between orders another 50% to 75%.
The inevitable error that occurs when ordering once a quarter is that excess must be requested to avoid shortfalls. There is almost no way to avoid it. By increasing the frequency the cash flow consequences are hugely positive and the inventory levels that must be carried at any given point are dramatically reduced.
Disclosure (“none” means no position):Long BGP
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Borders Files 8-K: Debt Reduced 39%
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 eliminated any liquidity concerns for at least the next year.
NN ARBOR, Mich., March 30 /PRNewswire-FirstCall/ — Borders Group, Inc. (NYSE: BGP) and Pershing Square Capital Management, L.P. today announced a one-year extension of the $42.5 million senior secured term loan from April 15, 2009 until April 1, 2010. The loan will be extended on its current terms, including an interest rate of 9.8%, which is substantially below market for comparable financing. At the same time, Borders Group is resetting the strike price on Pershing Square’s 14.7 million warrants to $0.65 per share, and the company will allow its option to “put” its U.K. based Paperchase gifts and stationery business to Pershing Square to expire.
“We are pleased to have the continued support of our largest shareholder as we focus on getting our company’s financial house in order,” said Borders Group Chief Executive Officer Ron Marshall. “The extension of the loan gives us some necessary breathing room, which is important in the current economic environment. We are also pleased to retain Paperchase, which is a successful and important business throughout the U.K. and other markets as well as in our Borders superstores throughout the U.S.”
Pershing Square currently owns 10.6 million shares of Borders common stock, or 18% of the shares outstanding. If Pershing executes its 14.7 million warrants, it would own 25.3 million shares, or 33.6% of the total.
Borders (BGP) is scheduled to release result today at 4pm (Central time?). Do not expect aq miracle. What you want to see is expenses falling, debt falling and sales at least stabilized. after what has happened the last 6 months, accomplishing that would be a huge boost.
Disclosure (“none” means no position): Long BGP