Shelving the Booksellers

I watched Borders (NYSE: BGP  ) shares rise 7% in yesterday's trading, and rolled my eyes. I guess the stock was rallying on news of rival Barnes & Noble's (NYSE: BKS  ) healthier quarter. Me, I think those investors would have been better off just picking up a good book.

While Barnes & Noble didn't have Harry Potter to enchant the quarter, the company did manage to swing to a profit. B&N reported net income of $4.4 million, or $0.07 per share -- but only because of a $0.09-per-share tax benefit. Even backing out the benefit, it did exceed its guidance, for a net loss of $0.06 to $0.10 per share.

B&N's sales increased 5.7% to $1.2 billion, with comps up 2.6%. It also increased its guidance for the year and boasted of its $0.15-per-share dividend.

Borders reported far gloomier news last night after market close. (In other words, too late for the investors who'd bid it up to take it back.) Although total sales increased 5.3%, The company suffered a wider loss for the quarter, at $161.1 million, or $2.74 per share. That includes a one-time loss of $116.5 million related to selling its U.K. and Ireland book store operations. On an operational basis, Borders booked a $39.1 million net loss, or $0.66 per share.   

In Borders' press release, CEO George Jones touted the company's progress toward a turnaround, noting rising comps at all three of its business segments for two consecutive quarters.

Even though Borders' shares have fallen precipitously in the last year, I still think they're way too pricey. A PEG ratio of 3.81 hardly entices me. I'm not particularly high on Barnes & Noble, either. Even if it hits the high end of its improved guidance, it'll still only manage anemic earnings growth of roughly 3%. Meanwhile, it's trading at 18 times forward earnings -- well ahead of its mere 10% expected growth rate for that year.

Both companies still have major competition to contend with. Even if its new Kindle e-book reader fizzles out, Amazon.com (Nasdaq: AMZN  ) will remain a formidable rival in books, movies, and music.

Despite my love of books, I'd avoid investing in Borders or Barnes & Noble for now. Like many of the volumes on their shelves, you're likely to find a better deal elsewhere in the retail sector.

For related Foolishness, see the following articles:


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 540587, ~/Articles/ArticleHandler.aspx, 10/22/2014 4:45:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement