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Why Did the Borders Cross the Street?

I really, really don't like one-product companies. Sometimes they get bought out, and sometimes that one product goes on to be a superstar, but the Coca-Colas (NYSE: KO  ) of the world are few and far between. I mention that as a lead-in for Borders (NYSE: BGP  ) -- not because I think that it's a one-product company, but rather because a single product (like, say, a Harry Potter edition) can have a powerful impact on performance.

As we already knew from Barnes & Noble (NYSE: BKS  ) , this was a quarter without any must-read books, and Borders suffered the brunt of it. Total revenue was down 4%, gross margins shrank, and the company posted an $18 million loss versus the slight profit of a year ago. Comps were down across the board, with comps in the core namesake U.S. business dropping more than 5%. Ironically, although the international business was the only segment to post sales growth, it was the biggest contributor to the company's higher loss this quarter.

In the wake of this quarter and current conditions, management took down guidance for the rest of the year by a fairly meaningful degree. I'm not sure that you can really point to good news in that, other than the fact that it perhaps resets expectations to a more realistic level.

As time goes on, I find it more difficult to stay excited about Borders as a long-term value idea. Sure, people read and will continue to do so. And while there may not be another series of books like Harry Potter for some time, there will always be something coming along sooner or later. And I'll even go one further and give Borders the benefit of the doubt on the ongoing store remodeling.

But at the end of it all, Borders just isn't the best bookseller out there. Moreover, book retailing is hardly the best sector of retail. So, here you have what is not-the-best company in what is not-the-best sector in an environment where economic commentators are increasingly worried about consumer spending. Seems to me there are easier ways of making a buck in the market today.

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Coca-Cola is aMotley Fool Inside Valuerecommendation. Take the newsletter for a 30-day free trial.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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Related Tickers

12/31/1969 7:00 PM
BGPIQ.DL $0.00 Down +0.00 +0.00%
Borders Group CAPS Rating: *
KO $42.15 Down -0.30 -0.70%
Coca-Cola CAPS Rating: ****
BKS $10.25 Down -0.35 -3.30%
Barnes and Noble CAPS Rating: *