A Deeper Read Into Barnes & Noble's First Quarter

Let's read between the lines of Barnes & Noble's (NYSE: BKS  ) fiscal-first-quarter earnings release.

Investors are glowing on the relative strength of the Nook and the company's digital content sales, while physical book sales slip. BN.com sales, which include Nook offerings, rose 37% compared to last year, to $198 million, showing a comparable-sales increase of 65%. Not surprisingly, bricks-and-mortar sales decreased 3%, to $1 billion, with comparable-store sales falling 1.6%. The company's college segment similarly showed declining sales and comps.

Full-year guidance was fairly rosy, with the company projecting BN.com's comparable sales jumping 60% to 70%. B&N expects retail comps to increase 2% to 3%, as it's hoping to catch sales fallout in the ballpark of $150 million to $200 million from the liquidation of Borders stores. I'm skeptical of comps rising that much since the biggest comps increase in the past five years was only 1.8%, and that was back in 2007. The company expects its consolidated Nook business across all segments to double this year to $1.8 billion.

The company's balance sheet is starting to run a little light on cash, down to $22.4 million. That $204 million from Liberty Media (Nasdaq: LCAPA  ) could come in handy right about now. Digital sales are the only saving grace for the company, and the company is plunging all the profit from its retail bookstores into growing BN.com. The retail segment generated $45.5 million in EBITDA, covering some of the losses from the college and BN.com areas, which lost $69.1 million combined.

The only story here that might have a happy ending for shareholders is a turnaround story. I'm glad the company is recognizing the need to grow its fledgling digital offerings in the face of declining physical sales, since ignoring that trend was the fatal mistake that led to Borders' demise.

Things are starting to shape up with Barnes & Noble's digital strategy, and the benefits from Liberty Media's investment will start to sink in soon. The real test will be how the Nook stands up against Amazon.com's (Nasdaq: AMZN  ) Android tablet when it's released, since it will be more of a direct competitor than the highly specialized Kindle. Investing is a holistic process, and as a whole I don't see B&N as a worthwhile investment. It has some legitimate bright spots, but it also has some glaring weaknesses.

Fool contributor Evan Niu owns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Amazon.com. 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 (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 September 01, 2011, at 5:18 PM, Popnfresh100 wrote:

    "Digital sales are the only saving grace for the company, and the company is plunging all the profit from its retail bookstores into growing BN.com."

    "ignoring that trend was the fatal mistake that led to Borders' demise."

    Wait- what?

    I like the nook, but the fact is, bookstores are profitable, digital and dot-com sales are not. Thus, the bookstores are the saving grace- not the other way around.

    Barnes and Noble management can run it's old-fashioned brick-and-mortar bookstores profitably, even with falling sales. Borders management could not- that is the only reason one died and the other survived. To suggest it had something to do with the nook is an oddly common misconception.

    This is true with BAMM as well- they still know how to make money.

  • Report this Comment On September 02, 2011, at 9:50 AM, TMFNewCow wrote:

    Popnfresh100,

    I can understand how contradictory that may sound, and it's absolutely true that the retail segment is the only profitable one. But from my point of view, I like to start my analysis at top line revenue and work my way down to net profit/(loss). So my assertion is that top line revenue in the retail segment is on a long-term declining trend, while digital sales are the exact opposite. Growing revenue is the first step towards long-term sustainable profitability. B&N is investing all the retail profit into the digital segment hoping for future growth/profitability there. I was taking a little more of a long-term look at the segments. Although the retail segment is currently the only profitable one, if its revenue continues to decline it will eventually become a financial drag.

    Thanks for reading,

    Evan

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: 1547587, ~/Articles/ArticleHandler.aspx, 10/2/2014 11:01:36 AM

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