Borders' (NYSE:BGP) latest quarter may look much improved on the surface, but the numbers -- and investors' response to them -- remind me of the genre known as "pulp fiction." It may be exciting and titillating, but it's rarely good. After finishing the company's latest quarterly chapter, investors bid shares up 20%. For their sake, I hope this story turns out better than I think it will.
In fairness, shareholders have a right to be relieved that Borders reported a much less harrowing loss than observers expected. The bookseller's second-quarter net loss came in at $11.3 million, or $0.19 per share, a dime better than analysts' grim projections.
It's also good to hear that Borders has pared back its debt burden. Not long ago, the company spun a scary story about a potential liquidity crunch, and had to obtain financing from major shareholder Pershing Square Capital Management.
Still, like Gap's (NYSE:GPS) results last week, Borders is eking out these improvements by cutting costs and reducing inventory, not by drumming up or bolstering its core business. Short-term traders may be perfectly fine with that, but I see no reason for investors to cheer the company's long-term outlook. Its overall sales dropped 6.9% in the quarter, while same-store sales decreased 8.9%.
The lousy economy is already driving more and more people to discounters like Target (NYSE:TGT), Wal-Mart (NYSE:WMT), and Costco (NASDAQ:COST) to pick up their bestsellers. But even in a more favorable climate, bricks-and-mortar book retailers like Borders, Barnes & Noble (NYSE:BKS), and Books-A-Million (NASDAQ:BAMM) don't impress me. The future of Amazon.com's (NASDAQ:AMZN) Kindle may be in dispute, but I firmly believe that its digital delivery model, and Amazon's continued innovations elsewhere, bode nothing good for the company's more traditional rivals.
For all of today's euphoria, this still wasn't a profitable quarter for Borders -- just more of the same. If anything, I think today's stock surge might let some investors close the book on Borders while they can. Anyone else determined to hang on to this story should look for it in the "horror" section.
Pick up some related reading:
- Time to throw Barnes & Noble away.
- What were the big-league bookstores up to last quarter?
- Borders was one of several stocks not to buy in April.
