Borders: The High Cost of Poor Performance

3/20 - "In fact, there were few surprises in the quarter itself, which the company reported at the same time...Superstore comps were up 2.1%, operating profit increased, and inventories were well-controlled. Net debt fell 33% sequentially, in line with the typical seasonal pattern, but was up 24% year-over-year...Trading at less than 4X EBITDA, we believe valuation at current levels fairly captures the risks facing BGP and thus we maintain our neutral opinion."

"The Borders news highlights Barnes & Noble’s (BKS, B-2-7, US$28.00) superior financial strength, since BKS is in a net cash position and just increased its dividend. However, Borders used promotions to drive better comps this quarter, so when teamed with its additional liquidity, could put further downward pressure on industry margins. We do not expect BKS to buy BGP because of the regulatory hurdles and t...