Is It Time for Barnes & Noble to Throw In the Towel?

Barnes & Noble storefront, Fifth Ave., New York. Source: BN.com.

Shares of Barnes & Noble  (NYSE: BKS  ) plummeted more than 17% Tuesday after the company turned in dismal fiscal fourth-quarter results. But does this mean all hope is lost for the struggling company to survive over the long term?

First, some perspective
Back in February, I wondered just how many strikes Barnes & Noble would get until it finally threw in the towel.

To be sure, the company had just performed an about-face from its previously optimistic comments regarding the Nook segment, warning investors to expect an fiscal 2013 EBITDA loss from Nook Media that would exceed the segment's $262 million loss in 2012.

Even so, I also noted that Barnes & Noble's core comparable-store sales -- which excludes sales of Nook products -- actually exceeded the company's expectations by falling only 3.1%. What's more, Barnes & Noble did have around $471 million in cash with a relatively manageable debt-to-equity ratio of 0.28 at the end of its previous quarter, so it looked unlikely that the beleaguered bookseller would be going bankrupt anytime in the immediate future.

Survey says?
Fast-forward to Tuesday's results, and Barnes & Noble's consolidated fourth-quarter revenue decreased 7.4% to $1.3 billion. In addition, its consolidated fourth-quarter net loss was $118.6 million, or more than double last year's $56.9 million loss. Fourth-quarter net losses per share, on the other hand, came in at $2.11, compared to a net loss of $1.06 per share during the company's fiscal 2012.

Sure enough, it turns out the Nook segment ended up costing Barnes & Noble a whopping $475 million during fiscal 2013, or nearly 82% more than last year's aforementioned EBITDA loss. 

In the meantime, while the core Retail segment's earnings did mange to grow 16% for the full-year 2013 to $374 million, its fourth-quarter results were less than compelling, with EBITDA falling 23.9% to $51 million. Fourth-quarter Retail revenue, for its part, dropped 10% to $948 million, hurt by store closures, lower online sales, and a painful comparable-store sales drop of 8.8%.

According to the folks at Barnes & Noble, those comparable-store sales decreases were caused primarily by "lower Nook unit volume and a stronger title lineup in the prior year period including The Hunger Games and Fifty Shades of Grey trilogies." And though digital sales did increase 16.2% for the full year, they actually decreased 8.9% for the fourth quarter, Barnes & Noble says, thanks again to a tough act to follow after those pesky popular trilogies last year.

Call me a skeptic, but...
To me, it seems a tad silly to place the blame on last quarter's mediocre book selection.

Of course, I suppose Barnes & Noble wouldn't necessarily want to point out the fact that they were tardy, to say the least, in finally introducing in-app purchasing on the Nook at the end of March. Or maybe, just maybe, it could be that the Nook is ridiculously outmatched by two superior tablet alternatives offered to consumers in the form of Amazon.com's Kindle devices and Apple's iPad lineup.

Unfortunately, this quarter's core comparable retail sales -- one of the few bright notes last quarter -- offered little reason for optimism this time around, falling 5.8% to remain essentially flat for the year.

It should come as no surprise, then, that Barnes & Noble's press release says the company has decided to (at least partially) throw in the towel, with plans to "significantly reduce losses in the Nook segment by limiting risks associated with manufacturing." Namely, that means B&N will partner in a co-branding effort with yet-to-be-announced "third party manufacturers of consumer electronics products."

In addition, Barnes & Noble will continue building its digital catalog by adding books and launching new Nook apps.

Foolish takeaway
In the end, that'll certainly go a long way toward stopping the bleeding, but that doesn't change the fact that the company's core comparable retail sales are also falling at an increasing rate.

Of course, the company does have some time to right its wrongs, especially considering it ended its fiscal year with just over $160 million in the bank, and having borrowed just $77 million under its $1 billion revolving credit facility.

From an investing standpoint, however, it's not exactly an appealing idea to buy shares in a company with a deteriorating core business simply because it can rack up additional debt to hold it over. In order for Barnes & Noble to prove its worth to shareholders, then, it'll need to show significant tangible progress toward sustained profitability.

In the meantime, there are much better places to put your hard-earned investing dollars to work.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped by just a handful of companies. Find out Who Will Win the War Between the 5 Biggest Tech Stocks? in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2013, at 11:06 PM, luckyagain wrote:

    Book stores used to be local businesses with low overhead due to they being owned by people who were book lovers who loved books more than money. B&N have almost totally eliminated them. Now B&N finds itself being targeted by Amazon with its reliance upon the Internet and no brick and mortar cost. Can B&N survive? Only by cutting its brick and mortar cost, or maybe by just being an Internet seller.

  • Report this Comment On June 30, 2013, at 4:43 PM, ThadMcIlroy wrote:

    A solid analysis & summary despite the rhetorical title for this post.

    Your conclusion says it all "...there are much better places to put your hard-earned investing dollars to work."

    As a company B&N is just about out of options. As a stock, it's trading now where it traded 12 months ago: its natural range appears to be between $12 and $22. It trades thinly: much of the stock is held by the chairman, Len Riggio, cable guy John Malone and institutional investors. And with an uncertain digital future the stock tends to pop every time companies like Microsoft or Pearson take an interest (and an investment position) in one of the two companies that comprise B&N.

    So there's every likelihood of another pop, but that will be because a company with deep pockets decides to invest at a better-than-market evaluation. So for the investor the odds are comparable to craps in Vegas.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2509758, ~/Articles/ArticleHandler.aspx, 8/21/2014 12:54:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement