- Third quarter sales were $470.9 million, a decrease of 17.6% from the same period a year ago. Comparable store sales declined by 12.6%.
- The Digital and Kids Toys and Games categories outperformed all other categories, with Digital comparable store sales nearly doubling, and Kids Toys and Games comparable store sales increasing 6.6% for the quarter.
- The company incurred a loss from continuing operations in the third quarter of $74.4 million or $1.03 per share. For the same period a year ago, the company had a loss of $37.7 million or $0.63 per share.
"Our third quarter results reflect the business challenges facing Borders and the industry at large," said Mike Edwards, CEO, Borders, Inc. "While we are disappointed with third quarter results, my management team and I continue to vigorously address these challenges and our commitment to winning at retail is stronger than ever.
"We're pleased that our publishers and strategic partners have continued to support our business and brand initiatives. We have a comprehensive, executable plan in place that supports our goal of transforming the iconic Borders brand into a profitable economic model over time. I am happy to say that the elements of the plan we've executed thus far have been successful. Our Borders Rewards Plus program has generated more than $11 million in membership revenue since launching just one hundred days ago. Notably, Borders Rewards Plus members shop more frequently and have a higher than average ticket driven by significantly higher units per transaction.
"In terms of other successes, we've also made substantial improvements to our stores, expanding the Kids section in 51 locations to drive further sales increases in our Kids Toys and Games category, which is outpacing most other areas of the business. We recently completed the addition of Area-e digital shops to stores to position Borders as a destination for all things eReading, with a goal to grow our digital and eBook market share. I want to point out that these enhancements required some reconfiguring of store space, creating a disruption, which adversely impacted sales for the quarter. We also invested strategically in our Borders.com business, redesigning the site and adding a number of services, which we are confident will greatly enhance the customer experience. We see Borders.com as an extension of our bricks and mortar business, and we'll continue to make prudent investments in the site, not to displace our stores, but rather to support and enhance the in-store experience.
"We have a talented and experienced management team executing a strong brand transformation plan, grounded in the extensive consumer research we have conducted with the Boston Consulting Group. During Q4 and throughout 2011, we will continue to work with strategic partners to provide a compelling combination of book and non book product and service offerings to position Borders as the most relevant bookstore in the marketplace," concluded Edwards.
Third Quarter Results
All earnings/loss figures reported throughout this news release are on a GAAP basis unless otherwise noted, and exclude the results of discontinued operations.
Third quarter sales were $470.9 million, which is a decrease of 17.6% from the same period a year ago. Sales were negatively impacted by the closing of 204 bookstores between the end of the third quarter of 2009 and the end of the third quarter of 2010, including the closure of 191 small format stores. On a comparable store sales basis, sales declined 12.6%, driven primarily by the Adult Trade category. The Digital and Kids Toys and Games categories, however, both outperformed all other categories, generating 93.6% and 6.6% comparable sales increases, respectively.
Sales were also negatively impacted by Borders.com, which saw a third quarter decrease of 8.6% over the prior year to $12.5 million; however, fiscal year-to-date through the end of the third quarter, Borders.com sales increased 24.0% over the prior year to $43.3 million. Notably, the company made significant improvements to its e-commerce platform during the quarter and added a number of services in preparation for the fourth quarter and beyond.
The company incurred a loss from continuing operations in the third quarter of $74.4 million or $1.03 per share. For the same period a year ago, the company had a loss of $37.7 million or $0.63 per share. The company's third quarter loss from continuing operations was caused primarily by decreased gross margin. As a percent of sales, gross margin decreased from 18.5% to 15.4% in the third quarter, resulting primarily from the de-leveraging of fixed occupancy costs caused by negative comparable store sales. This decline was partially offset by improved shrink results due to operating controls implemented in our stores. SG&A expense as a percent of sales increased in the third quarter to 30.6% from 29.0%, but declined by $21.7 million.
The company maintained its operating disciplines during the quarter, as evidenced by the improved shrink results and reduction in SG&A spending in dollars. The company's aggressive expense reduction and store closure efforts, which have been ongoing for the past several years, have resulted in reduced payroll and operating costs, both in dollars and as a percentage of sales, although the impact of such efforts has been partially offset by de-leveraging due to negative sales trends. The company did strategically increase spending during the quarter in key areas, including the launch of Borders Rewards Plus and the redesign of in-store signage to improve the shopability of our bricks and mortar stores. Also impacting the quarter was the launch of our Area-e digital shops within our stores, and we invested in store payroll and capital spending related to this initiative.
Third quarter capital expenditures were $6.1 million compared to $4.9 million for the same period a year ago. Spending in the third quarter of 2010 was focused on the company's "Area-e" shops and the enhancement of Borders.com.
Debt net of cash at the end of the quarter totaled $331.1 million compared to $379.3 million last year, a $48.2 million or 12.7% decrease. Inventory at the end of the quarter was $895.8 million compared to $1.1 billion last year, a $233.7 million or 20.7% decrease. Although a portion of this reduction was the result of store closures, the implementation of improved inventory management procedures also significantly reduced inventory levels, without adversely impacting the in-stock levels in our stores.