Borders Reports Strong Sales of Kobo, Aluratek, Velocity Micro E-Readers

Kobo e-reader sales were “well ahead of” Borders Group’s “expectations on our pre-orders,” while sales of the Aluratek and Velocity Micro e-readers it recently started carrying “have also exceeded our expectations,” Borders CEO Mike Edwards said on an earnings call. But, like rival Amazon with the Kindle, he wouldn’t provide specific e-reader sales data.

Borders is now carrying six e-readers, including two Sony devices, Edwards said. On Tuesday, it cut the price of the Kobo to $129.99 from $149.99 and lowered the price of the Aluratek Libre eBook Pro to $99.99 from $119.99. They are “among the most aggressively priced e-readers on the market,” Edwards said. Amazon and Barnes & Noble cut pricing on their e-readers in June (CED June 22 p7).

The Kobo and Aluratek e-readers were available in Borders stores Wednesday, but the retailer “had to go back and place additional re-orders” for them ahead of their recent launches at retail, Edwards said. Borders has “gotten great customer response to” its recently launched e-book store, and “we expect the number of e-book downloads to continue to increase as we grow awareness of our digital offerings,” he said.

Borders is growing its online market share, but e-reader sales were only “a very small percentage of our online growth” in Q2 ended July 31, Edwards said. Online sales were driven by more traditional categories as “the majority of our e-reader sales are at retail,” he said. Borders is “executing programs to increase conversion rates and drive increased traffic to” Borders.com, and is also “expanding our merchandise mix online to include high growth and higher-margin products,” he said.

Borders.com sales “continued to exhibit strong growth,” increasing 56.2 percent, or $5.6 million, to $15.5 million in Q2, said Interim Chief Financial Officer Glen Tomaszewski. But that was among the few bright spots in the company’s results. Its loss widened to $46.7 million from $45.6 million in Q2 last year, while the loss from continuing operations widened to $51.6 million from $45.1 million. Q2 revenue fell 11.5 percent to $526.1 million.

Most of the $7.7 million in Q2 capital expenditure spending was for the development of the Borders e-book store, which opened in Q2, and its new Area-e in-store departments -- “two important sales-driving initiatives,” said Tomaszewski. The retailer intends to have Area-e sections dedicated to the growing e-reading category in all its stores, Edwards said early this year (CED April 2 p5).

"Addressing the profitability of our existing stores remains a key priority” for Borders in 2010, said Tomaszewski. “We continue to pursue lease buyouts” on stores that it deems are hurting its earnings, he said. So far this fiscal year, it’s “terminated seven store leases before the end of their terms and we will continue to opportunistically exit additional store leases,” he said. “This will benefit not only our bottom line in the future, but will also improve working capital,” he said.

Borders also continues “to focus on increasing the efficiency of our supply chain,” Tomaszewski said. The company is “actively re-engineering all aspects of our supply chain, a process that will continue into fiscal 2011,” he said. “Smarter ordering, lead-time reductions and lower inventory levels” are among the goals, he said.

The retailer “continued to have challenges on the top line” in Q2, Tomaszewski said. Specifically, comparable store book sales fell 6.8 percent, “largely due to the performance of our trade book category,” he said.