Borders announced an unexpected fourth quarter loss despite increased sales. Sales rose 2.9% but posted a loss of $73.6 Million versus a profit of $119.1 M posted in the 2005 4th quarter.

There was no explanation for the loss but indicated that there would be a re-evaluation of its overseas outlets and an unveiling of its own Borders.com website to handle internet business. It will also close near to half of its Waldenbooks stores by 2008. This coincided with previous reports that Borders was cutting ties with Amazon who previously fulfilled Borders internet book sales. Via Bloomberg.

Edited to add: According to Shelf Awareness, Borders plans to increase its digital offerings. Borders was the first non Sony Store retailer to offer the Sony Reader. In conjunction with that, Shelf Awareness reports:

Borders will add digital centers in stores that will offer products such as audiobooks, e-books and MP3 players as well as services such as downloading and personal publishing. Digital downloading will be available both online and in stores. Borders is talking with potential partners about digital offerings.

With all the book publishers having glowing profitability in 2006, I think its safe to say that the non traditional book venues like the warehouse clubs and web e-tailers are taking a big bite out of bookstore business.