Thursday, August 12, 2010

Borders: Redux

I've been following the trials and tribulations of Borders Group for awhile now, and once again it seems there's a shake-up of sorts going on at their corporate headquarters.

Borders announced another round of job cuts at their Ann Arbor office yesterday, only seven months after their last corporate cut (which eliminated 88 positions). It's unknown whether their new ceo (their fourth in two years), Bennet LeBow, ordered the cuts, but it doesn't bode well for the company regardless.

Now, caveat: I am not a financial authority or analyst of any stripe, so what I'm offering below should be construed as neither (a) super fancy or detailed information, nor (b) financial advice of any kind. That said:

Borders (NYSE: BGP) is currently trading at a dismal $1.25 per share, which doesn't tell you a whole lot until you realize that means their market capitalization (share price x number of shares outstanding, which is a guide to the size of the company) is only $80 million. Compare this to Barnes & Noble's (NYSE: BKS) $850 million market cap and last trade of $14.48, and you get an idea of how much Borders has shrunk over the past few years (especially given that Barnes & Noble actually has fewer shares outstanding than Borders Group).

Here's where things get a little (but not super!) technical, so feel free to skip to the end if you like.

BGP's P/E (price-to-earnings) ratio is currently -0.83; given that the P/E ratio is defined as price per share divided by the annual earnings per share (there are a few different ways of calculating these earnings), this indicates that Borders is suffering losses. I find the negative number a little strange, though, since it's my understanding that the P/E unit is in years (that is, an investor buying a share of Borders' stock would expect to wait -0.83 years of earnings to pay back the purchase price of $1.25). If anyone can clarify this point, please do so in the comments.

For context, Barnes & Noble's P/E ratio is 23.98, which seems to indicate a high forecast earnings growth for the company; then again, it also means that anyone buying BKS now is paying $23.98 for every $1 of earnings, so if we imagine another company identical to Barnes & Noble but with a lower P/E, that would be a more attractive investment. (Have I lost you yet?)

Finally, BGP's beta coefficient (a measure of the correlation between the stock's earnings and the behavior of the market as a whole) is 3.77. A positive beta coefficient means the stock's behavior is generally correlated with the market, but 3.77 is very high, which indicates that Borders' stock is pretty volatile (which you might have already guessed, given the multiple ceo changes and staff reductions they've undergone over the past few years).

Again, for context, BKS' beta is currently 1.35, meaning Barnes & Noble's stock price correlates directly with the market and is pretty stable (the overall market, by definition, has a beta of 1).

In summary (this is the end, in case you've been skipping down): while I'm no financial expert, Borders looks like it's been in trouble, is still in trouble, and will continue to be in trouble until and unless (a) they stage some kind of incredible comeback, or (b) the market as a whole returns to its former glory, pulling BGP up with it. I won't go so far as to say that I think Borders will go out of business this year or next, but things aren't looking good.

Financial experts, armchair economists, and auteurs du monde: what do you think?


  1. The stock will start doing better when they stop angering their customers. This means stocking new releases by mid-list authors as well as guaranteed sales books by top selling authors. This includes not arbitrarily canceling pre-ordered books and not telling anyone they did it. They also need to start re-investing in themselves and their business.

    The only reason I keep going to a Borders-owned bookstore is the manager bends over backwards to keep her customers happy when corporate ticks them off.

  2. My husband used to love Borders. Now he only goes to Barnes and Noble. Why?

    Borders used to carry all the titles in a series and now they don't.

    B&N doesn't always carry all the titles in a series, but he's found they're more likely to do so.

    (I use a Kindle, so I can't speak to the Border vs B&N situation.)

  3. With all the news of B&N and bookstores struggling to keep afloat.

    It will be a sad day when there are no bookstores left. And I hope that day never comes.

    Jessie Mac

  4. The situation that Borders has gotten into certainly isn't due to their front line employees. The only bookstore we have in our town is a Borders, and each and every employee busts a** for the customers. I've done book signings in many of the local Borders in the Dallas/Fort Worth area this summer and all the Borders folks have been fantastic. They are very supportive of authors that come through, creating "beachfront property" display tables for a week before the signing, checking on us during the signing, mentioning the signing over the PA system and to each customer while we're there. You would never know that Borders is on its last legs (if that, in fact, is the case) by their employees enthusiasm and work ethic. They all must have gone to the same customer service academy as the Chick-fil-a folks.

  5. I might be able to help a little with the price earnings question, since it falls in my field of study.

    The P/E ratio is basically the amount of money that the market is willing to pay for every dollar of earnings per share (profit available to ordinary shareholders divided by the number of ordinary shares.)

    This means that the P/E ratio can be negative when the company is making a loss.

    For more info securities market definitions, a good place to look is

    Sorry to get all technical, but you did ask and I wanted to put my four years to good use. :-)