Music, which accounts for 10% of total sales in Borders' superstores, was down 18% on a year over year basis during the quarter, which ended Oct. 28. The company is looking at alternatives to strengthen sales in the category such as making the departments more "visually stimulating" and exploring in-store downloading, says George Jones, the company's CEO. "CDs are going to be a continuing down trend," he says. "It's not going to go away."

Meanwhile, same-store sales dropped 5% at Borders' 652 Waldenbooks units, which posted a net loss of $8.4 million. Borders has closed 40 to 50 Walden stores a year, and plans to shut at least 80 next year. A number of Walden leases will be up in January, so that could give executives the opportunity to close even more of those locations.

Borders remodeled 41 stores during the third quarter, bringing its total to 200 units in its store base, or half of the number of units executives intend to renovate. Additionally, management is working on a new prototype store that could be revealed early next year. Borders opened 11 new US superstores.

For the fourth quarter, management predicts same-store sales to come in flat to a low-single-digit increase. Earnings are expected to be between $1.80 and $2 per share compared to $1.78 during the same year-ago period.