B&N Asks: Where Are You, Harry Potter?

As J.K. Rowling toils away somewhere in Scotland on the final edition of Harry Potter, Barnes & Noble (NYSE: BKS  ) has little to do but shuffle its feet and wait for something to stimulate growth. After all, B&N may be the best-run bookseller out there, but how much is that worth when the whole sector isn't growing much these days?

All things considered, it was still a decent quarter. Total revenues were down and comp-store sales were down 2.6% in the flagship superstores, but gross margins improved and operating income jumped nicely on a 5% drop in depreciation and amortization expense. OK, I realize that it's not ideal to build your operating growth on the foundation of lower D&A expense, but when your best sellers include books by Al Gore and Anderson Cooper, growth is growth.

In the absence of any new best-sellers, it'll probably be tough going for Barnes & Noble and Borders (NYSE: BGP  ) for a while yet. Luckily for Amazon.com (Nasdaq: AMZN  ) , Overstock.com (Nasdaq: OSTK  ) , and the like, books are just a part of their picture. They can sell more TVs and toasters, while B&N stores are more or less stuck with lackluster book and music sales.

Doom and gloom aside, Barnes & Noble is a good operator and does seem to be more or less in the vicinity of earning back its cost of capital. That's not an especially bullish argument, though, and I don't think anyone considering B&N shares should expect major outperformance in the short run. If you really want to make money in retail, there's more promising candidates out there today than Barnes & Noble.

For more Foolishness by the book:

Amazon.com is aMotley Fool Stock Advisorselection. Overstock.com is a formerMotley Fool Rule Breakersrecommendation. Stock up on great ideas with any of ourinvesting newsletters.

Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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