Borders to cut expenses by $120 million as Q4 profit plunges

Ann Arbor, Mich. Borders Group plans to cut its expenses by $120 million in 2009, as it expects weak sales to persist through the year, the company said on Wednesday in a regulatory filing. The chain also said it had additional funding of $194 million under its credit agreement as of Jan. 31, but warned the amount was not necessarily indicative of its future funding capacity.

Borders’ comments in the U.S. Securities and Exchange Commission filing came a day after it posted a 57% drop in quarterly earnings due to a one-time charge and dismal sales during the holiday season.

The company reported after the market closed Tuesday that its net income dropped to $29.6 million for the quarter ended Jan. 31, compared with $64.7 million in the same period a year earlier. Total sales for the quarter fell nearly 13% to $1.1 billion. Revenue for the full year slipped to $3.3 billion, from $3.6 billion the prior year.

For the full year, the company reported its net loss widened to $186.7 million, compared with a loss of $157.4 million the prior year. The annual results included $168.5 million in special charges.

In its filing, Borders said it has suspended investments in its international business, and that any further growth overseas would profit most by using a franchise model. The bookseller plans to continue allotting less space to music- and movie-related items during 2009, while devoting more shelves to gifts, stationery and books.

Borders also said that three former employees filed a lawsuit against it on behalf of those who worked as general managers in its California Borders stores from Feb. 19, 2005, to Feb. 19, 2009. The complaint alleges, among other things, that Borders did not pay those employees required overtime or give them meal and rest times.

Borders also said another lawsuit had been filed against it in California in March on behalf of customers who were given its gift cards from March 2005 to March 2009. That complaint alleges that Borders sells gift cards that are not redeemable for cash, violating a specific California Business and Professionals Code, Borders said.