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Borders CEO resigns

Philip Pfeffer leaves the book retailer after just five months on the job. Borders has struggled with the encroachment of online book sales.

Feb. 6, 2002 6:24 a.m. PT

3 min read

Borders Group said chief executive Philip Pfeffer resigned after five months at the No. 2 U.S. book retailer, whose shares have lagged those of its more Internet-focused rival, Barnes & Noble.

Pfeffer, who also resigned as a director, will be replaced by chairman Robert DiRomualdo, the company's former chief executive, on an interim basis. Borders didn't say why Pfeffer was leaving. The company said it will take a charge of 4 cents a share in the fiscal first quarter related to his departure.

Pfeffer's hiring was questioned from the start because he was experienced in book publishing and distribution, not retailing, investors said. Borders is under pressure to improve sales at its bookstores and investors said they're looking to DiRomualdo, considered the company's creative force, to communicate a firm strategy.

"The Street will be looking for a clear leader,'' said analyst Alan Creech of Banc One Investment Advisors, which held 386,689 Borders shares as of December. "Hopefully, Bob will step up to the plate.''

Borders also forecast earnings from its stores of 4 cents to 5 cents a share before the charge in the quarter that ends Sunday. Analysts said they expected 7 cents, unchanged from the previous year. Borders also forecast a loss from its Internet unit, Borders.com, of 5 cents to 6 cents, slightly narrower than expected, analysts said.

For its consolidated operations, Borders was expected to break even in the quarter, based on the average estimate of analysts surveyed by First Call.

Same-store sales, or sales in stores open at least a year, at the company's superstores have risen 3.9 percent this quarter, at the low end of expectations. Including 16 non-prototypical stores, they rose about 3.3 percent.

Ann Arbor, Michigan-based Borders had suggested sales would rise 3 percent to 5 percent, said analyst Mark Mandel of ABN Amro, who rates the shares "buy.''

Borders shares fell 2.3125 to 14.75 in late afternoon trading. They've dropped 47 percent in the past year, while larger rival Barnes & Noble fell just 6.3 percent and Amazon.com climbed about 11-fold.

Pfeffer served as president and chief operating officer of Random House, the world's largest English-language trade book publisher, from 1996 until its acquisition by Bertelsmann AG last year. Before that, he was chairman and chief executive of Ingram Distribution Group, whose Ingram Book Group is a leading book distributor.

The November announcement of his appointment at Borders came less than a week after Barnes & Noble said it planned to buy Ingram Book Group to deliver books faster and at a lower cost. That acquisition is awaiting antitrust regulatory approval.

Borders introduced its Web site later than both Barnes & Noble and Amazon, and hasn't invested nearly as much money online. It had $4.6 million in Internet sales last year, while Amazon and Barnes & Noble had $610 million and $70.2 million, respectively.

Borders has said it plans to focus on opening profitable retail stores, rather than compete head-to-head online with Barnes & Noble and Amazon. It expects to open 50 new stores this year.

Borders also plans to develop more cross-promotions between its stores and Borders.com, and to improve the speed of special- order deliveries, among other initiatives.

In its search for permanent chief executive, Borders may look outside the company for someone with solid retail store expertise and skill at communicating a vision to analysts and investors, Creech said.