PORTLAND, Ore. – Borders Group Inc. shares soared more than 19 percent Wednesday after it posted better-than-expected earnings for the second quarter. But analysts remained leery, saying that tough competition and a weak economy continue to pose big challenges for the bookseller.
Borders Group CEO George Jones told investors on a conference call that the company will keep up its focus on cost-cutting and build on its momentum from the quarter.
Ann Arbor, Mich.-based Borders reported after the market closed Tuesday that it narrowed its losses in the second quarter, losing $9.2 million, or 15 cents a share, compared with a loss of $25.1 million, or 43 cents a share for the same quarter of last year.
The company said many of the restructuring steps, launched in 2007, are paying off – including limiting its music business, selling a foreign business unit and slashing its debt during the quarter.
“We continue to have the focus and discipline in place to drive substantial improvement, even in the midst of a very challenging consumer environment,” Jones said.
He also said: “Obviously we are not satisfied with posting a loss but we clearly have this going in the right direction and are making significant progress towards our profit goals.”
Borders shares gained $1.03, or 19.2 percent, to $6.39.
But the company did see sales slump as consumers limited discretionary spending and it failed to find a buyer for Paperchase, another business unit that was expected to be sold to help boost the company.
While the results show that Borders has costs and margins under control, it “has yet to prove it can stabilize these metrics and the top-line, let alone grow,” wrote Stifel Nicolaus & Co. analyst David Schick in a note to investors Wednesday.
“With constant, and really mounting, pressure from online delivery, online e-books, and retail discounters, (Borders) clearly has a tough environment in which to turn around,” he said. “In a sense, that makes margin stabilization more impressive.”
Stifel issued a “hold” rating on Borders.
Goldman Sachs wrote that the results “did not surprise to the upside, limiting our enthusiasm” and planning to revisit its estimates on the company Wednesday.
The company, which has been restructuring and selling some business units, said that it lost $11.3 million, or 19 cents a share, from its continuing operations, compared with a loss of $18.1 million, or 31 cents a share, last year.
Analysts polled by Thomson Reuters had anticipated a second-quarter loss of 29 cents per share, on average.
Total revenue fell to $758.5 million from $812.4 million. Borders said comparable-store sales for the quarter fell 8.9 percent, due in part to the release of a book in the Harry Potter series last year and current declines in music sales.
