BAMM

Books-A-Million, Inc. (BAMM)

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Books-A-Million, Inc. (BAMM)

F1Q09 Earnings Call

May 22, 2008 5:00 pm ET

Executives

Douglas G. Markham – Chief Financial Officer

Sandra B. Cochran – Chief Executive Officer

Terrance G. Finley – President, Merchandizing Group

Presentation

Operator

Welcome to the Books-A-Million quarterly conference call. (Operator Instructions) At this time I would like to turn the conference over to Mr. Douglas Markham, Chief Financial Officer of Books-A-Million.

Douglas G. Markham

With me today is Sandy Cochran, President and Chief Executive Officer of Books-A-Million, and Terry Finley, President of our Merchandizing Group. We’re pleased to host this conference call regarding the company’s first quarter fiscal 2009 results which were issued this afternoon.

Before we begin, I would like to remind everyone that management’s comments in this conference call which are not based on historical facts are forward-looking statements. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those described in periodic reports filed with the SEC.

I would like to begin this afternoon with a discussion of our financial performance for the first quarter and then I’ll turn the call over to Terry for a discussion of current business trends.

Net sales for the 13-week period decreased 0.7% to $115.5 million from sales of $116.3 million in the year earlier period. Comparable store sales for the quarter decreased 3.4% when compared to the 13-week period for the prior year. At quarter end we were operating 207 total stores.

During the quarter we opened one new superstore and closed two Booklands. Gross margin as a percent of sales was 29.3% compared to 29.0% last year. The increase as a percent of sales was partially due to lower discounts and markdowns versus last year.

Operating expenses as a percent of sales increased to 24.6% for the quarter from 23.2% in fiscal 2008. The increase as a percent of tax is primarily due to a one-time charge of $406,000 ($241,000 net of taxes) for severance related to staff reduction at the company’s headquarters. Depreciation expense increased $114,000 to $3.5 million from $3.3 million.

Interest expense increased $609,000 to an expense of $492,000 for the quarter versus an income of $117,000 in the prior year quarter due to higher average debt balances as a result of our special dividend and share repurchase program in fiscal 2008. Our effective tax rate for the quarter was 40.6% versus 40.9% in the prior year. Net income for the quarter was $0.9 million or $0.6 per diluted share compared to net income of $2.1 million or $0.13 per diluted share in the first quarter of fiscal 2008.

Now, looking at the balance sheet for the quarter, our inventory was $216 million compared to $214.9 in the prior year. Our net property, plant, and equipment were $54.9 million compared to $51.3 million in the same quarter last year. Our total debt was $52 million compared to $7.1 million last year. Our stockholders’ equity was $98.2 million compared to $156.2 million in the same quarter last year. Capital expenditures for the quarter increase $4.8 million from $3.9 million in the prior year quarter primarily due to new store openings and other capital improvements. I will now turn the call over to Terry for a general business update.

Terrance G. Finley

Our comparable store sales for the quarter were disappointing. Sluggish traffic, a shortened Easter selling season, and a difficult economic environment have made for a very challenging and highly competitive marketplace. In spite of the challenging sales environment we did see solid growth in several areas of our business.

Our bargain book department sales were particularly strong with customers responding nicely to the value proposition inherent in this merchandize and our gift department delivered gains as well. While overall comparisons in our core book business were disappointing, several categories did provide solid comp sales growth.

Growth in the fiction category continued to be driven by the success of new releases from bestselling authors including James Patterson, Mary Higgins Clark, and Jodi Picoult, as well as continued interest in several fourth quarter releases from last year including John Grisham’s The Appeal and Ken Follett’s World Without End.

We also saw strong growth in the sales of trade paper format titles particularly Book Club selections and Movie Tie-In editions. Our teen category delivered another very strong performance this quarter while all three titles in Stephenie Meyer’s Vampire series continued to dominate sales in the category, new releases in several teen series including Clique and James Patterson’s Maximum Ride also performed well.

While the adventure games category saw some softening in the pace of sales in [inaudible] subcategory, the category overall continued to generate sober growth for the period thanks to the ongoing strength of graphic novels. And the positive impact of media attention drove sales increases in our personal growth category where Oprah’s attention to the poignant Last Lecture created an instant national bestseller.

Looking ahead to the second quarter, we see new fiction from Patricia Cornwell, John Sandford, Dean Koontz, Jimmy Buffett, and Stephenie Meyers first effort for the adult market, as well as new non-fiction from Simon Winchester and autobiographies from Barbara Walters and William Shatner. We remain focused on the fundamentals of our business including improving gross margin and inventory management and continued discipline in cost control.

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