Borders Boosts Expectations

There is quite a calming effect whenever I step into book superstores such as Borders (NYSE: BGP  ) or Barnes & Noble (NYSE: BKS  ) . If I didn't have kids I'm sure I would spend a great deal more time in these stores sitting in a comfy chair, with a chocolate-covered graham cracker in one hand and a book in the other. I don't think you can help but gain knowledge by osmosis being around all of those books.

Partnering has become a key ingredient to any growing business; in the case of Borders Group, an outsourcing of noncore tasks might pave the way to better results. The company recently signed a licensing agreement with Starbucks' (Nasdaq: SBUX  ) subsidiary Seattle's Best Coffee to operate Seattle's Best cafes in more than 400 Borders Books & Music stores. Borders also has partnered with Internet expert Amazon.com (Nasdaq: AMZN  ) to be its online storefront.

Michigan-based Borders not only surpassed second-quarter expectations but also raised its full-year 2004 outlook. The company's earnings of $0.11 per share topped both the analysts' consensus estimate of $0.07 per share and its own expectations of $0.06 to $0.08 per share. Despite a difficult comparison with last year's Harry Potter-led results, this year's sales benefited from a blockbuster performance by Bill Clinton's autobiography, My Life.

Borders raised its forecast for 2004 to a range of $1.72 to $1.77 per share, from its previous range of $1.70 to $1.75 per share, representing 13% to 16% growth over 2003. This earnings expectation includes low single-digit same-store sales growth, which should be aided greatly by 20% to 25% international segment expansion.

The company is sticking to its plan to strengthen same-store sales and enhance shareholder value through a combination of share repurchase and cash dividends. While the company may be gaining consistency, the shares, which are trading at 12.3 times the 2005 earnings estimate of $1.91 per share, appear to fairly valued relative to the 11.5% earnings growth rate.

Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.