Bookworms and investors alike want to know: When will Borders (NYSE:BGP) report?
According to the Associated Press, tomorrow's the day. The company itself, at last report, was looking to release its fiscal Q1 2007 numbers Wednesday morning. Whichever date is correct, here's what you'll want to know to put the news in context.
What analysts say:
- Buy, sell, or waffle? Nine analysts walk the Borders, sporting two buy ratings and seven holds.
- Revenues. Analysts expect to see a 5% improvement in sales year over year, to $890.2 million.
- Earnings. . And an ever-widening loss reaching $0.24 per share.
What management says:
Now, about that loss. In contrast to the numerous firms reporting less-than-hoped-for earnings this year and blaming the expensing of stock options for same, Borders clarified that its own widening losses will be caused by increased "costs associated with the nationwide launch of an enterprisewide customer loyalty program and the planned second-quarter opening of a new distribution center." So in part, the company is trying to shore up sales by bribing (sorry, "incentivizing") customers not to defect to Amazon.com (NASDAQ:AMZN) -- as my Foolish colleague Stephen Simpson admits to having done. In addition, Borders is simply investing more money in its business.
Don't expect to see the benefits of either of these initiatives tomorrow, however; just the costs. According to CEO Greg Josefowicz, "all of our growth will emerge in the fourth quarter."
What management does:
Tomorrow, you can expect to see more of the same trends (that are shown in the chart below). Gross margins will hold more or less steady, while operating and net margins, which show the costs of Borders' investment programs, will almost certainly continue their long-term slide.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
28.1 |
28.5 |
28.2 |
28 |
27.6 |
28 |
|
Op. |
5.8 |
5.7 |
5.4 |
5.1 |
4.6 |
4.4 |
|
Net |
3.2 |
3.4 |
3.2 |
3 |
2.6 |
2.5 |
One Fool says:
Borders typifies the cyclicality of retail: always massively profitable in Q4, always massively unprofitable in Q1. Scanning quickly through the last few years' numbers, I haven't found a single quarter in which Borders even came close to breaking even in a fiscal first quarter -- at least, not on a free cash flow basis. Accounting profits are another matter entirely. Twice in the past five years, in both Q1 2002 and Q1 2004, Borders managed to report a small profit under generally accepted accounting principles.
Analysts' expectations of such a massive loss tomorrow (or was it Wednesday?), and Borders' CEO's failure to even try to dissuade them of the idea, suggest that things are tough indeed in the book biz these days. That is, until you notice that rivals Barnes & Noble (NYSE:BKS) and Books-a-Million (NASDAQ:BAMM), which both share Borders' situation on the cash-profits front, haven't reported an unprofitable Q1 since 2003. That's when you begin to suspect that this problem isn't related to the retail book space; instead, it seems to lie entirely within Borders.
Competitors:
- Audible.com (NASDAQ:ADBL)
- Books-a-Million
- Overstock.com (NASDAQ:OSTK)
- Wal-Mart (NYSE:WMT)
David and Tom Gardner tapped Amazon.com for Motley Fool Stock Advisor , while Wal-Mart is a bargain-priced Motley Fool Inside Value recommendation.
Fool contributor Rich Smith does not own shares of any company named above.
