Executives from Borders Group, Inc. (NYSE: BGP) said in a conference call with analysts on Thursday that it will no longer use Amazon.com, Inc. (NASDAQ: AMZN) to sell its books, opting rather, to build its own website.
The move may lead to headwind for the online retailer as early as next year, according to some estimates.
While not as high profile as the Toysâ€™Râ€™Us defection, we view this as another sign that large branded retailers are unlikely to partner with a competitor, a negative for Amazonâ€™s long-term 3rd party unit growth, analyst Justin Post of Merrill Lynch wrote to clients in a note on Friday.
The analyst estimates Borders may have generated $125 to 150 million in sales for Amazon in 2006.
Assuming 21 percent gross margins, 4 percent referral fees and 9 percent fulfillment costs, we estimate the loss of the Borders relationship could create a $0.03-0.04 risk to our 2008 EPS estimate of $1.29, Post said.
The book retailer announced its plans following a dismal fourth quarter earnings report, ending with a loss of $73.6 million. $119.1 million in the period the year before.
Clearly, our 2006 results were disappointing, as our company and the industry as a whole continued to face a challenging environment, George L. Jones, the chief executive of Borders, said in a statement.
This performance is not indicative of this company's many strengths, and it's not where Borders Group is headed in the long run.
Shares of Amazon fell 1.09 percent, or 43 cents to $39.06 in afternoon trading on the Nasdaq Stock Exchange. Borders rose 2.46 percent, gaining 51 cents to reach $21.21 on the New York Stock Exchange.