Borders Group (NYSE: BGP), a book retailer that competes with Barnes & Noble (NYSE: BKS), Wal-Mart (NYSE: WMT), and Amazon (NASDAQ: AMZN), reported fourth-quarter earnings on Tuesday, and I'm happy to say that they beat analyst projections! I'm sad to say, however, that beating the analysts doesn't make me want to buy this awful stock.
According to this news source, Borders delivered adjusted income equal to $1.05 per share. The market was looking for $0.95 per share. Beating by a dime is a pretty wide margin and something to celebrate. If you're a healthy company, that is. Borders is not a healthy company. It's had all kinds of problems. For instance, Zac Bissonnette recently reported on the bookseller's debt problems and how it needed to secure a loan to stay running. Elizabeth Harrow discussed the terrible holiday-selling season and the replacement of the CEO back in January. And there have been workforce reductions.
According to the press release, cash from operations has improved at the chain. I love to see cash flow going up, but again, you have to put things in perspective. Sales dipped 13% in the quarter, and same-store sales fell off the proverbial cliff. And guidance going forward is not comforting. Management expects further difficulties.
Borders is going to need one heck of a turnaround plan. It'll have to come up with some new marketing schemes and better cost-cutting initiatives. I'm sure you've noticed the stock price: it's under a buck per share. That means you need to stay away. I'm sure there are many speculators out there betting on the appearance of news flow that might cause a pop here and there. Sure, that happens. But I think buying Borders is simply giving in to a gambling impulse. I really don't see the retailer coming back in the near future. Maybe I'll be wrong about that, but I'd rather go with stronger companies and higher-priced stocks in this trading/investing environment. I just don't want to be holding the stock the day they write a headline that goes something like "Closing the Book on Borders."
Disclosure: I don't own any company mentioned; positions can change without notice.
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