FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)

Borders Group Inc.
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100 Phoenix Drive
Ann Arbor, MI 48108
(734) 913-1100
http://www.bordersgroupinc.com

ANN ARBOR, Mich. (May 13, 1998) /FOOLWIRE/ -- Borders Group today announced results for the first quarter of fiscal 1998 ended April 26, 1998. Consistent with the pre-announcement on May 4, the company reported net income of $3.8 million or $0.05 diluted earnings per share compared to $0.4 million or $0.00 diluted earnings per share in the first quarter of 1997. Consolidated sales for the quarter were $545.3 million, a 17.6% increase over the prior year sales of $463.6 million.

Income Statement Details. Consolidated gross margin rose to 25.6% of sales as compared to 24.3% for the year-ago period. Management attributed the increase to a number of factors, including continued improvements in buying, distribution, and inventory shrinkage results. Selling, general, and administrative expenses as a percentage of sales were flat at 23.8% due to increased spending on strategic initiatives which offset operating leverage in the core business. "Other" sales -- from Books etc. stores in the U.K. and two Planet Music stores -- totaled $18.6 million versus $2.8 million a year ago.

Balance Sheet Details. Inventory net of accounts payable grew to $440.8 million in the first quarter of fiscal 1998 from $399.6 million in the first quarter of 1997, a 10.3% increase. The increase was primarily due to 43 more Borders stores and the addition of the fulfillment center and Books etc. which occurred in the latter part of fiscal 1997. Short term debt net of cash and cash equivalents was $174.1 million at quarter-end compared to $46.8 million last year. The increase in net borrowings primarily reflects the Books etc. acquisition and 1997 share repurchase activity. In the absence of the acquisition and share repurchase activity, borrowings would have remained flat.

Borders Books & Music. Borders sales increased to $335.0 million, a 27.1% increase over last year sales of $263.5 million. The gain reflects an increase in the number of stores during the preceding 12 months from 163 to 206. That includes three Borders opened during the quarter. On a comparable store basis, Borders sales increased 4.5% compared to last year's very strong comparable store increase of 9.5%. Sales for the first two months of the quarter were slightly above expectations with a softening in April which was attributable to unseasonably warm weather in the northeast and midwest regions of the country.

Waldenbooks. Waldenbooks reported sales of $191.7 million, a 2.8% decline from prior year sales of $197.3 million. The results reflect a comparable store sales decrease of 0.9% and a reduction in stores from 930 to 903 over the prior 12 months. Twenty-four Waldenbooks were closed during the quarter and four were opened.

Borders.com. Last week Borders launched its e-commerce site, Borders.com. Borders also announced the opening of its new fulfillment center, dedicated to serving Borders.com customers with an offering of over 10 million books, CDs and videos in stock and available for immediate shipping. The "grand opening" of Borders.com will occur later this summer, after planned improvements and improvements suggested by customers are implemented. Despite the somewhat delayed launch, management still believes that $25 million in sales is an achievable target this year. Borders.com pricing is competitive with prevailing Internet pricing. Borders can fulfill a relatively large percentage of orders directly from its own distribution center, which helps gross margins.

International Initiatives. One Books etc. store opened in the U.K. during the quarter. Management believes that the aggregate business opportunity available to Borders internationally is at least as large as the opportunity in the U.S. The focus, at least for now, is in English-speaking markets. Borders has learned a great deal from its initial store in Singapore. International competition is relatively weak, because international retailers are generally behind their U.S. counterparts in understanding the importance of good service and assortment. The planned Borders superstores in the U.K. will offer books, music, videos, periodicals, a cafe, and special events -- something quite unlike anything seen there before.

Outlook. Sales appear to have returned to plan in May and management remains confident of achieving previously articulated targets for the full year. The current plan is to open 44 Borders stores during the full year, including four international locations -- three in the U.K. and one in Melbourne, Australia. Following the three openings in Q1, the plan is for nine openings in Q2, 22 in Q3, and 10 in Q4. On the Waldenbooks side, the plan is for approximately 23 net closings, based on 37 closings and 14 openings. That includes six more openings than previously planned, three of which will be in airports. Full year comparable-store sales are projected to increase by 5% to 6% on the Borders side and to decline by 0.5% for Waldenbooks. Full-year earnings estimates are $0.03 for Q2, break-even for Q3, and $1.13 for Q4, for a full-year forecast of $1.22.

(Borders Group is a holding in the Motley Fool's real money Boring Portfolio. Fool on!)

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.