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This Stock Faces Destination Destruction

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I've had an open bearish CAPScall on bookseller Barnes & Noble (NYSE: BKS  ) since March 2010. Its latest quarterly results give plenty of reason to continue to believe this stock is destined for destruction (of shareholder value, at least).

Last week, Barnes & Noble reported a "surprise" quarterly loss; apparently, analysts expected this struggling company to turn a small profit. Its second-quarter net loss ended up being $6.6 million, or $0.17 per share, compared to a net loss of $12.6 million, or $0.22 per share this time last year.

Total quarterly sales decreased 0.6%, as did same-store sales. This disappointing showing included what theoretically could have been an extremely beneficial element: bankrupt Borders' liquidation, which helped offset the decline in physical book sales, but clearly not enough. Although Barnes & Noble could boast that its comps surged 10.9% during the Black Friday hypershopping holiday weekend, again, Borders isn't around to compete anymore. Also, this performance is largely in line with how other bricks-and-mortar stores performed over the weekend.

One thing Barnes & Noble possesses that Borders didn't is a viable e-reader product. Barnes & Noble's Nook tablet has received plenty of accolades, and one piece of good news Barnes & Noble could share was the 85% increase in Nook-related sales, to $220 million. Still,'s (Nasdaq: AMZN  ) Kindle and the scorching-hot Kindle Fire product pose a serious competitive challenge to Barnes & Noble's future and continue to lap the Nook with regards to total units sold.

Investors may not want to buy at its current nosebleed multiples, but they should certainly fear it if they own shares of some of the companies it disrupts, like, you guessed it, Barnes & Noble. Amazon's revelation of red-hot Kindle sales on Black Friday gives even more reason to worry about Barnes & Noble's future.

Barnes & Noble, like Best Buy (NYSE: BBY  ) , should consider Amazon its worst competitive challenge right now. Although both also compete with discount retailers such as Wal-Mart (NYSE: WMT  ) , Target (NYSE: TGT  ) , and Costco (Nasdaq: COST  ) , all of which peddle similar wares at low prices, has a way of offering more for less and far more conveniently.

I closed my "underperform" CAPScall on Borders in October, after three years, +97 points added to my CAPS score, and the stock's plunge from $6.50 to a (post-bankruptcy) price of $0.02 per share over those years. Although I'm not predicting outright bankruptcy for Barnes & Noble, I don't foresee anything close to a bright future for its shareholders. That's why I'm keeping my "underperform" call on the surviving bookstore stock in place.

Barnes & Noble is facing the fast-moving evolution of e-books and Amazon's formidable mastery of the art of disruption. The bookseller may be able to survive, but investors should have far higher expectations for their stocks' future growth.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Best Buy, Wal-Mart Stores, and Costco Wholesale. Motley Fool newsletter services have recommended buying shares of Costco Wholesale, Wal-Mart Stores, and Motley Fool newsletter services have also recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On December 05, 2011, at 10:15 AM, rdare wrote:

    Oh, look, morning has just started and already has 3 negative articles on BKS, on Friday it was only 4 towards the end of the day...

    Fire is on Fire?

    NO password protection for kids or thieves to make 1-click purchases?

    How long before parents realize, wait a second, this just may turn out the most expensive purchase ever?

    DOES NOT work outside of the U.S.

    read angry comments

    1 out of 5 kindles are being returned. How long is this going to go on, before people catch on?

    On top of the lower quality, lower memory, cloud-that-cannot-be-accessed-to-read-the-books-you-bought, the absence of design, volume buttons, wi-fi issues with D-Link and Belkin routers, carousel issue etc...

    BKS earnings HAVE improved in spite of the fact that BORDERS was selling books at 80% off for most of the quarter.

    BKS earnings HAVE improved in spite of the fact that they have not started offering over 10,000,000 online products until this quarter.

    BKS NOOK sales have gone up 85% in 3 months BEFORE new nook came out, BEFORE holiday season.

    Annualized sales of NOOK alone at 1.8bn is DOUBLE of what the company is what BKS company is trading right now.

    I used to pay attention to Fools many many years ago, now it seems like there isn't a hint of original opinion. Blah-blah-blah-Amazon-Blah-Blah-Blah-Barnes-And-Noble-Bad. Useless articles at a rate of 15 a day.

  • Report this Comment On December 05, 2011, at 10:55 AM, leonhart03 wrote:

    Well said, rdare... well said!

  • Report this Comment On December 05, 2011, at 7:23 PM, FoolsAreTools wrote:

    In between repeated speculations about Barnes & Noble demise at the hands of Amazon, perhaps one of the writers at could find a moment and do some journalistic reporting on the reason behind Bruce Greenwald's short position on Amazon stock, which he announced very recently at the Bloomberg hedge fund summit. Perhaps Greenwald is not worthy of the attention of the bloggers on, as he spends time in Academia (Columbia Professor of Finance) and as Director of Research at First Eagle. He has also written a book or two you and the other Fools might be better advised to read than spending time speculating about Amazon's eventual ownership of the world of retail commerce.

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