Borders (BGP) is selling online yet shares stuck at $4

Borders Group, Inc. (NYSE:BGP) shares got hit before the close today finshing down 8% at $4.69.  Despite a new online borders.com re-launched to sell their books and goods without help from Amazon.com, Wall Street continues to punish BGP shares.  Why do we care? How about the 25 million Borders Rewards customers that can shop online now, and not at Amazon.

Over the last 6 months Borders shares have fallen 51% and 34% since June 20th, what gives?

Via Reuters.com - Last month CEO of Borders Group Inc said on the slumping U.S. retail environment is the most pervasive he has seen in 35 years as a retailer.

"From my standpoint, I know I echo many, many other CEOs I've talked to. I don't really recall it being as pervasively -- pervasively being a key thing -- challenging as it has been for the past several months," CEO George Jones told the Reuters Consumer and Retail Summit.

Nevertheless, Jones said Borders, which is in the midst of a turnaround amid slumping sales and up for sale, has "held up," considering the climate.

In its most recent quarter, the company posted a narrower loss from a year earlier, while same-stores sales, a key gauge of retail performance, fell 4.1 percent at Borders' U.S. superstores.

Borders has been reducing costs, including cutting corporate jobs and controlling inventory. It recently negotiated a new financing commitment with its largest shareholder, Pershing Square Capital Management, that offers lower interest on a $42.5 million loan.

Debt reduction has been a priority, Jones said.

"We're moving rapidly to a situation where instead of being saddled with very heavy debt, we will be in a very healthy situation in terms of debt in spite of the fact that it is a very difficult economic environment," Jones said.

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"We're not banking on the fact that we're going to have some major reversal in terms of the economic climate out there any time soon. If we do, 'Hallelujah,'" he added.

The chain recently announced a cost-cutting plan to save $120 million in annual operating expenses, including half this fiscal year. Jones described it as "a pretty major game-changing number for us."

Borders should provide "knowledge, information and entertainment" to customers, Jones said, and is looking to offer original, exclusive content.

At its new concept stores, 14 of which will open by year's end, Borders is beefing up digital offerings and integrating them into stores. Customers will be able to download music or search the Web and be encouraged to linger.

A REVAMPED BORDERS.COM

As part of its turnaround strategy, Borders took its website, which was run by online rival Amazon.com Inc (AMZN) in-house. Those investments cut into earnings last year.

The new arrangement will now give Borders access to marketing data, and "will be maybe slightly better than break-even" this year, Jones said. "Next year, we fully expect it to be accretive."

A major marketing effort for the website will launch in the next few weeks, he said.

Jones saw no indication consumers were using their tax rebate checks in company stores, at least in any large numbers.

"It might be a little bit. But our business is very discretionary and very low ticket. The good thing about our business is we're probably less susceptible than some would be to the economy ... basically because books represent a lot of value," Jones said.

Asked about inflationary pressures, Jones said the book industry has not seen price increases in recent years, adding that "it doesn't seem like the time or the environment out there where you'd want to go out (and) raise prices."

Jones would not comment further on pricing, saying, "It's not our role to set the prices."

Masters, Borders is not the next Amazon, but they are not dead in the water.  Let shares continue to fall, because the lower they get, the more attractive they are to buy.

Discliamer: No shares in BGP or AMZN.