During 2003, we piloted and refined a number of initiatives to increase comparable store sales across our businesses in the years to come. (See "What do our customers really want?") These initiatives, in part, contributed to improved late-year and holiday sales — including a 2.5% gain in comparable store sales growth at Borders superstores during the fourth quarter. Still, we know we can do better, as we strive to continuously improve the performance of our existing stores.

On an operating basis, Borders Group is already an industry leader by many measures, and we improved on that performance in 2003. For example, through new systems and better communications with our suppliers, we continued to streamline our supply chain, getting more of the right products to the right places with less product handling in between. During 2004, we'll be even more focused on these activities as we seek to drive top-line sales growth, while expanding our efficiency programs into new areas.

Expanding Our Borders Superstore Business in the United States During 2003, we opened 41 new Borders superstore locations in the U.S., ending the year with 445 total domestic locations. Borders superstores generated $2.5 billion in sales, up 6.5% compared to the previous year. Comparable store sales increased slightly, reversing a 1.2% decline in 2002.

Our core category of books performed well during 2003, while music sales continued to decline, consistent with national trends. Sales of DVDs and gifts and stationery increased by double-digit percentages during the year, and we expect both to maintain their strong performance in 2004. We continue to allocate more floor space and resources to these categories, and away from music, maximizing our sales potential. Our in-store cafe operations also grew in popularity last year, and we will seek additional opportunities to accelerate their growth in the year ahead.

Following extensive research and market testing, we launched a new Borders superstore model during 2003 with the opening of a store in Louisville, Kentucky, in September. The evolutionary customer-focused design will become the basic format for all new Borders superstores in the U.S., as well as for future remodels.

Consistent with our previous guidance, we plan to open 18 to 20 new Borders stores and remodel about 40 to 50 existing stores in the U.S. during 2004, keeping our capital investment in stores relatively even with 2003 levels. We believe this balanced investment strategy going forward will enable us to maintain our standout selection and welcoming store environment while expanding our footprint nationally, helping to drive higher comparable store performance.

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