Is This Barnes & Noble’s Last Christmas?

The troubles continue to mount for Barnes & Noble (NYSE: BKS  ) . It's under investigation for alleged accounting improprieties. Its founder and chairman just sold a huge chunk of stock. It's losing money hand over foot. And, most concerning of all, its free cash flow is nearing the breaking point. Could this holiday season mark the final chapter in the bookseller's storied history? In the video below, Motley Fool contributor John Maxfield explains why he thinks that it might.

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  • Report this Comment On December 15, 2013, at 3:34 PM, totradeornotto wrote:

    To John Maxfield,

    Here you go again!!

    But this time you are not speculating as in your

    prior articles, you are MISLEADING people!!

    This can be out of ignorance and without doing your homework, or out of a personal aim/agenda

    against B&N.

    Trailing 12 months, operating cash flow is POSITIVE +79 Mil.

    More importantly, this +79 Million number includes

    a big writedown in the last quarter of FY13 (April

    quarter).

    At the time, B&N wrote off the whole inventory of the color Nook tablet and stated they will stop manufacturing color Nooks themselves if not

    completely.

    If you back out the writedown, operating cash flow

    will be higher by over $100 million, if I remember correctly.

    Finally, a better yardstick for B&N is EBITDA.

    As you said, Depreciation & Ammortization are

    non-cash expenses.

    EBITDA is again Positive +36 Million for the last trailing 12 months.

    This also would have been higher if it was not for the writedown.

    At 4 times Ebitda, a private equity firm or a private buyer can get his money back in 4 years, with the business ONLY having to hold stable and without growing!

    Risk/reward is not as BAD as you make it sound!!

    Why don't you give us another potential investment that can make us some money, instead of harping on something you dwelled upon in your prior articles this week??

    Are you obsessed with wanting B&N going out of business or are you short the stock and yelling FIRE??!!

  • Report this Comment On December 15, 2013, at 4:11 PM, JohnMaxfield37 wrote:

    <<Trailing 12 months, operating cash flow is POSITIVE +79 Mil.>>

    You are right about operating cash flow.

    But here's the thing. If you subtract capital expenditures, which aren't discretionary for a bricks-and-mortar retailer (not investing in CapEx is equivalent to throwing in the towel), then free cash flow for the last 12 months is a negative $94.5 million.

    Also, just to be clear, I don't have a position in B&N. Neither short nor long. And I don't intend to (and won't) establish one either, as I simply don't short.

    That being said, I don't believe B&N's business model is viable. It's in a commodity business and can't compete on price. It'd be like selling the exact same milk for double the price as the place down the street.

    Do I want B&N to go under? No.

    I buy dozens of books every year and enjoy going into B&N to browse (as well as to occasionally buy). In times past, I was a core customer. But of the 80 or so books I've bought this year, 60 of them have been from Amazon. Meanwhile, I purchased only 7 at B&N (I keep receipts for tax purposes).

    I objectively see that as a problem for B&N.

    Could it be bought by a PE firm? Yes. But that's really the only viable exit strategy in my opinion. And in light of Riggio's own abandoned attempt earlier this year, I have a hard time seeing a PE firm buying it for a comparable price. So even if one comes in, I still believe it would wait for the price to fall further. I may be totally wrong about this, but that's my opinion.

    Anyway, I'm sorry you're annoyed with the quantity I've written about B&N recently. I do, however, appreciate that you took the time to read/watch them!

    John

  • Report this Comment On December 17, 2013, at 1:15 AM, shadowgal wrote:

    I think you are probably right about BN. I think BN made a big mistake a few years ago when they put so much emphasis on selling Nooks and Toys and Games and reduced their stock in books. You'll notice that the independent bookstores are actually doing better the last few years. I believe that is because book lovers love, drum roll please, books! They like a large selection to browse through. BN reduced their stock and then tried to pacify its customers by saying they could order the book for you. Buy listen, if I want to do that, I'll just order from Amazon and save money.

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