Recent Borders Moves Show Little Traction, But Strategy is Sound

5/29 - "BGP’s 1Q2008 results and call suggest strategic moves in the right direction, including a broad focus on profitability over revenue growth, a substantial cost-cutting effort, and impressive inventory reductions. We see little evidence of these efforts in recent financial results, and are cutting our estimates, 2008 to a loss of ($0.14) from EPS of ($0.10), 2009 to $0.30 from $0.45, and 2010 to $0.52 from $0.82. We are trimming our price target to $6.25 from $6.50, as the impact of estimate cuts has blunted valuation adjustments associated with the firm’s increasingly returns-oriented approach, and by the strategic exploration process reported on by the financial press in recent weeks."

"We expect the stock to mark time near current levels, with significant volatility given enormous operating leverage...Signs of a more rational approach should benefit BKS (Barnes & Noble). We do not see a strategic deal between BKS & BGP as likely, despite potential synergies, given BGP’s significant lease liabilities."