Borders: The Fat Lady Begins to Sing

Trachtenberg, WSJ:

In an ominous turn of events for the book business, Borders Group Inc. said Thursday it is delaying payments to some publishers, a sign that its financial troubles are worsening.

The nation's second-largest bookstore chain by revenue, behind Barnes & Noble Inc., said the delays were part of its efforts to refinance its debt and that it had notified the publishers with which it is seeking to restructure payments.

The retailer also said "there can be no assurance" that its larger refinancing efforts will be successful. The company reiterated an earlier disclosure that without refinancing, it could violate its existing credit agreements in the first quarter of 2011 and "experience a liquidity shortfall."

The book retailing business is going through a significant transformation as the ease of Internet shopping has lured many customers away from traditional chain book stores, creating pressure on revenue and profits. At the same time, digital books continue to gain market share, now estimated at 8% to 10% of revenue for some major publishing houses. ...

In early December, Borders announced dismal results for the quarter ended Oct. 30. It reported a loss of $74.4 million, or $1.03 a share, compared with a year-earlier loss of $37.7 million, or 63 cents a share.

Revenue dropped 18% to $475.6 million as same-store sales fell 13%, and gross margin fell to 15.4% from 18.5%. Borders Chief Executive Mike Edwards said he was "disappointed" with the performance. ...