I love to read. Fiction, nonfiction, magazines, whatever -- I'm not terribly discriminating. Curiously, though, I rarely finish one book in its entirety before starting a new one. As a result, I have an eclectic mix of books stacked up on my bedside table right now -- a dusty science fiction relic, a history of the Revolutionary War, Clive Cussler's novel Black Wind, and the bible of value investing, Ben Graham's TheIntelligent Investor -- each one bookmarked at various stages of completion.
You'd think a bookseller like Borders Group (NYSE:BGP) would thrive off the voracious reading appetites of people like me. But then, I didn't get any of my four books from a Borders bookshelf. They came from, respectively, a local used bookstore, an annual college book bazaar, Wal-Mart's (NYSE:WMT) Sam's Club, and Amazon.com (NASDAQ:AMZN). Maybe that points to why fourth-quarter sales at the nation's second-largest bookseller inched up only 4.3% to $1.37 billion.
Competition abounds in the book industry, which has been limited to slow, single-digit revenue growth. Still, larger rival Barnes & Noble (NYSE:BKS) has managed to post modest same-store sales gains of around the 1% mark over the past couple of quarters, while comps at Borders Superstores have been negative. Borders did report a 0.8% fourth-quarter improvement, but Books-A-Million (NASDAQ:BAMM) posted a solid 2.7% gain, and I'm betting that Barnes & Noble, which is scheduled to announce its results next week, will also show a stronger year-end performance.
Borders' mall-based Waldenbooks chain also continues to struggle, with sales dropping 5% for the year to $780 million amid flagging comps and the closure of 43 underperforming stores. The company is converting many of these units to Borders Express stores. In all fairness, though, Barnes & Noble's mall-based counterpart, B. Dalton, hasn't fared much better lately.
One bright spot for Borders is in its international operations. Net income in that segment jumped by almost 50% during the quarter, and full-year sales, aided by favorable currency translations, rose by 25% to top the half-billion mark.
With books becoming commodities, there are few opportunities to raise prices, and that has kept margins in check. The situation is particularly true for hot best-sellers; Scholastic's (NASDAQ:SCHL) July release of Harry Potter and the Half-Blood Prince will widely be available at a discount. However, Borders did manage an 8.7% increase in earnings last quarter to $1.62, from an uptick in revenues only half that size. Further, the company has branched out into sales of DVDs, music, stationery, and gifts.
Borders' reasonable valuation makes for an attractive cover, but a quick flip through the pages reveals a capital-intensive business with slow growth and thin margins. There are lots of stocks on the shelves out there; I'd rather take a different one to the checkout counter.
Peruse these other looks at the book biz:
Fool contributor Nathan Slaughter owns none of the companies mentioned.
