Borders announced its Q3 2008 earnings on Wednesday. The company posted a net loss of $175.4 million (versus $161.1 million in 2007) on sales of $693.4 million (down 9.4%).

Inventory was reduced by 19.5% (by cost) and at the end of the quarter Borders' music inventory was 30% lower than a year ago. Music now occupies 7% of floor space. These changes portend a difficult Q4 for record labels.

To no surprise, music sales were down. Of the 12.8% drop in Q3 same store sales, music alone accounted for 2.2 points.

The CD is playing a smaller part in Borders' product mix, but like its competitors the retailer is interested in music if it gets an advantage. Borders has an exclusive on Aretha Franklin's This Christmas.

Sales of Borders.com were almost nonexistent: $11.9 million for Q3. Borders.com has a section for music MP3s. Borders.com is available at kiosks inside physical stores. The earnings release nor the earnings call mentioned the progress of in-store kiosks. Let's just assume kiosk sales are not setting the world afire, shall we?

As of January, NPD Group had Borders as the fifth largest US music retailer (tied with FYE/Coconuts) with 3% of the market.

Borders also announced it is no longer considering a sale of the company.

Here's the Seeking Alpha transcript of the earnings call.