On a day in which Ann Arbor-based Borders reported just how grave their current financial situation is, there were some glimmers of hope for the once-dominant bookseller.
But the bad news, of which there was much, was staggering. In the fourth quarter of the last fiscal year, earnings for Borders Group, Inc. were down 54 percent from the previous year, the company reported in a press release yesterday afternoon.
The final quarter numbers topped off a dismal year for the bookstore chain whose landmark location is on Liberty Street. The company also owns the mall-based Waldenbooks.
Sales fell sharply as well. They were down 8.8 percent in total, dropping from nearly $3.5 billion in 2007 to $3.2 billion in 2008.
The press release did highlight some good news though.
The company was able to decrease its debt load by $218 million and its inventory by $327 million, making the company more flexible as it moves forward.
In the press release yesterday, Borders’ CEO Ron Marshall wrote that he was confident about the company’s future.
“Our top priority is getting our financial house in order by continuing to reduce expenses, pay down debt and improve cash flow,” Borders Group Chief Executive Officer Ron Marshall wrote in the release.
Additional good news for the company came in the form of a one-year loan extension worth $42.5 million by Pershing Square Capital Management — Borders largest shareholder — late Monday night.
“Borders is a strong brand with millions of loyal customers,” Marshall wrote in the statement. “I am confident that by shoring up our financial foundation and reclaiming our position as the bookseller for serious readers, we will ultimately secure a viable future.”
The loan gives Borders “breathing room” and allows it to defer payment on the loan until Apr. 1, 2010, according to a press release published by the company on Monday. Without the loan extension, Borders would have had to make payments on the loan by Apr. 15 of this year — even though that arrangement had already been renegotiated twice.
Marshall wrote in the press release that the extension and financial support is very helpful to the company.
“We are pleased to have the continued support of our largest shareholder as we focus on getting our company’s financial house in order,” he wrote. “The extension of the loan gives us some necessary breathing room which is important in the current economic environment.”
Pershing, a New-York-based hedge fund sponsor, originally lent the $42.5 million sum a year ago – after Borders put itself up for sale and reported substantial financial loses and difficulties.
The extended loan will continue with the current terms and a 9.8 percent interest rate, which is “substantially below market for comparable financing,” according to the press release.
Borders management planned on addressing shareholders, investors and analysts this morning to outline the company’s new business strategy.
Though its decline wasn’t nearly as significant, one of Borders top competitors, Barnes and Noble also reported a decrease in revenue. Barnes and Noble’s sales were down 2.7 percent from the 2007 fiscal year, dropping from approximately $4.65 billion in sales to $4.525 billion.