ANN ARBOR, MI-Calling it a “flattish book market,” Borders Group Inc. CEO Greg Josefowicz discussed the retailer’s listless fourth-quarter and year-end results during a conference call with investors Friday.

Driven by the retailer’s domestic superstore comparable store sales of 2.5% in the fourth quarter ended Jan. 28, year-over-year earnings per share were up nearly 10% posting at $1.78. For the full year, consolidated earnings per share were $1.42 compared to $1.69 earned in 2004.

Borders Group posted fourth-quarter consolidated sales of $1.45 billion, an increase of 6.3% compared to 2004. For the full-year 2005, consolidated sales were $4.03 billion, a 3.9% increase from the prior year.

Fourth-quarter net income was $119.1 million, down 3% from $122.8 million a year ago. During the quarter, gross margin as a percent of sales declined by 0.3% from 33.9% to 33.6%. Josefowicz attributed the loss to increased promotional discounts, as well as de-leveraging of fixed occupancy costs within the Waldenbooks Specialty Retail segment. On a full-year basis, net income decreased by 23.4% from $131.9 million to $101 million.

Fourth-quarter sales at domestic superstores were $938.7 million, an increase of 9.8% from the same period in 2004. Execs said the increase was due to strong books sales and a comparable store sales increase of 6% in the category. Conversely, the company’s music category declined during the quarter, with an 11% decrease in comparable store sales compared to the same period last year. For the year, sales at domestic superstores increased 4.7%, ending the year at $2.71 billion.

Overall, comparable store sales increased by 2.5% at domestic Borders superstores in the fourth quarter and by 1.1% for the full year. As a result of the sales increase, net income in the fourth quarter was up over the prior year by 10.2% to $85 million and was up for the full year by 2.9% to $115.3 million.

In the company’s international segment, total sales were up 10% to $203.7 million. Comparable superstore sales in the international segment were up by 0.9% for the fourth quarter and were up by 0.4% for the year in local currency. For the full year, total international sales were $576.4 million, up by 12.9% versus 2004.

In the Waldenbooks Specialty Retail segment, comparable store sales decreased by 2.7% in the fourth quarter and by 2.4% for the full year. Total sales for Waldenbooks were down 4.9% for the fourth quarter to $312.3 million and down by 4.5% for the year to $744.8 million. Net income for the segment dropped by 19.9% in the fourth quarter to $30.6 million and declined by 32% for the year to $28.2 million, primarily attributable to declining sales. The company closed 27 Waldenbooks stores in the fourth quarter and 50 stores for the year, ending fiscal 2005 with a total of 678 locations.

In the fourth quarter, the company opened nine new Borders superstores in the US, ending the fiscal year with a total of 473 total domestic locations. The retailer opened a total of five new international superstores in the fourth quarter of 2005, ending the year with a total of 55 locations outside of the US.

Josefowicz said the company’s 2006 objectives remain on par with 2005, with continued investment on book, café, gifts and stationery categories. “Looking ahead to 2007,” Josefowicz continued, “we expect consolidated earnings per share growth to be more in-line with our long-term goal for annual EPS increases in the mid teens.”

Execs project a loss of 20 cents to 30 cents per share for the first quarter compared to a loss of 7 cents in the first quarter of 2005. Josefowicz attributed the loss to costs associated with the nationwide launch of a customer loyalty program and the planned second-quarter opening of a new distribution center. For the full year, company management is projecting that consolidated earnings per share will range from $1.42 to $1.60.

Josefowicz said the company plans to open 45 to 50 domestic superstores during the year and 12 to 14 internationally. Of the existing stores, 50% will be remodeled to mimic the company’s superstore prototype, and all new layouts will experience a reduction in square footage for the music section.

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