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<DAILY TROUBLE>
Friday, December 18, 1998

Books-A-Million Inc.
(Nasdaq: BAMM)
Phone: 205-942-3737
Website: www.booksamillion.com
Price (12/17/98): $15 5/16

HOW DID IT FIND TROUBLE?

Turn the page if you've read this one before. A fledgling retailer gets an enhanced website. Poof. A triple on November 25. Poof. A triple again on November 27. Then, poof! It went away.

That is where we begin this bitter, dark chapter. One where the pitfalls of gluttony can be cruel to momentum chasers. After two dazzling days when the stock was atop the most actively traded list, the good fortunes turned on Books-A-Million.

After frenzied trading on the Thanksgiving holiday bookends, the weekend should have given investors a chance to reflect on the newfound valuation. Not quite. Monday morning found the shares peaking at $46 1/2. That is when this holiday best seller turned into turkey leftovers.

BUSINESS DESCRIPTION

Alabama-based Books-A-Million owns and operates 172 bookstores located primarily in the Southeast. The outlets range from the namesake superstore concept stores, which also go by the name Books & Co., and smaller Bookland locations, which carry a limited amount of books and greeting cards.

Online, the company offers its Millionaire's Club, which, for $5 a year, allows steep discounts of up to 46% off bestsellers, 37% off in-stock hardcovers, and 28% off available paperbacks.

FINANCIAL FACTS

Income Statement
12-month sales: $344.4 million
12-month income: $4.4 million
12-month EPS: $0.26
Profit Margin: 1.3%
Market Cap: $226.4 million

Balance Sheet
Cash: $3.5 million
Current Assets: $223.9 million
Current Liabilities: $142.5 million
Long-term Debt: $46.9 million

Ratios
Price-to-earnings: 58.9
Price-to-sales: 0.66

HOW COULD YOU HAVE SEEN IT COMING?

Books-A-Million sold literary works online even when the stock was fetching pocket change in early November. Did the fundamentals change so dramatically to merit a stock rising 1500% from low to high last month? Of course not. Books-A-Million may very well prove to be no more of a market share threat to established players like Amazon.com (NYSE: AMZN) or Barnes & Noble (NYSE: BKS) than K-Tel (Nasdaq: KTEL) was to CDnow (Nasdaq: CDNW) and N2K's (Nasdaq: NTKI) Music Boulevard.

However, if the timing is right, anything is possible. Books-A-Million nailed it by announcing the debut of its enhanced website just as Internet stocks were staging an intense rally. With same-store sales off 3.9% at the brick and mortar superstores over the first half of fiscal 1999, the company certainly needed some form of rejuvenation and got it -- albeit temporarily.

The following week The Wall Street Journal Interactive Edition singled out the company as one of many online e-tailers where insiders were selling as the shares were climbing. Fools didn't have to wait that long to be wary. There was little to Books-A-Million to command Rule Breakers attention. A slow growing yet profitable brick and mortar retailer? Sure. An online phenom? Probably not.

WHERE TO FROM HERE?

It's an uphill battle for Books-A-Million from here. Amazon.com and Barnesandnoble.com have already signed exclusive sponsorship deals with the best-traveled websites. The pie was carved out and the newcomer will have to find ways to make something out of the crumb remains.

The network of superstores isn't going to serve as a big enough platform to draw traffic to booksamillion.com. It hasn't worked out for the much larger Borders (NYSE: BGP), and it's going to be even harder for this smaller fellow latecomer.

The book club is an interesting attempt at creating a niche, but even if it shaves a few pennies off Amazon.com's discounted prices, will the $5 annual fee prove to be more a nuisance hurdle than an attempt to create a feeling of exclusivity on the cheap?

You don't want to write off Books-A-Million entirely. Yet you certainly don't want to chase it when odds are, if you wait a few weeks for the momentum players to walk away, you can have the shares at a more reasonable price -- and be locked in place when the next rally comes along.

-Rick Aristotle Munarriz
(tmfedible@aol.com)


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