Borders Group reports higher 4th-qtr profit even as revenue falls; book seller repays key loan

Borders Group 4Q profit doubles despite sales drop

ANN ARBOR, Mich. — Book seller Borders Group Inc.’s fourth-quarter profit rose sharply as it cut costs and enjoyed a tax benefit, even though its sales plunged.

Shares of the nation’s second-largest traditional book seller soared in after-hours trading Wednesday after it posted the earnings and said it has repaid a $42.5 million loan from activist investor William Ackman’s investment firm Pershing Square, the company’s largest investor.

The deadline to repay the loan would have been Thursday. The due date had been extended three times already, and it was not possible to extend it again. Last week, an analyst expressed concern over the company’s future.

With the looming deadline met and the company’s first quarterly profit in four quarters, Borders’ shares rose 53 cents, or 30.8 percent, to $2.25 after hours. The stock had closed down 4 cents at $1.72.

For the three months ended Jan. 30, the company earned $59.9 million, or 91 cents per share, more than double the $29.6 million, or 49 cents per share, it earned a year earlier.

Its quarterly revenue fell 13 percent to $946.5 million from $1.09 billion as book sales declined.

Sales at stores that had been open at least a year — considered a key measure of a retailer’s financial health because it isn’t skewed by results from stores that open or close during the year — declined 14 percent at Borders stores and fell 8.5 at Waldenbooks.

The latest quarter’s results included an income tax benefit of $30.1 million. The year-ago quarter included goodwill impairment expenses of $40.3 million.

For the full year, Borders posted a loss of $109.4 million, or $1.82 per share, compared with a loss of $186.7 million, or $3.10 per share, a year earlier.

Revenue fell 14 percent to $2.82 billion from $3.28 billion.

Separately, Borders said it has entered into a new, $700 million credit agreement. This senior secured credit facility matures in March 2014 and replaces the company’s existing revolving credit agreement, which would have matured in July 2011.

The company also said it closed on a $90 million credit facility.

Borders, which has more than 22,000 employees, said in January that it would lay off 164 staffers to cut costs. CEO Ron Marshall left the company in January to head the Great Atlantic and Pacific Co. Chief Merchandising Officer Mike Edwards has been serving as interim president and CEO.

In addition to Borders-branded stores, the company operates Waldenbooks stores and a Web site. It closed five Borders stores during the quarter, ending with 508 stores. It also shut 186 Waldenbooks stores, ending with 175 as of Jan. 30.