Best-sellers may have boosted Barnes & Noble (NYSE: BKS ) , but that didn't help the company post a profit in the first quarter.
Barnes & Noble posted a first-quarter loss of $1.7 million, or $0.03 per share, but hey, that bested the company's own guidance for a loss of $0.08-$0.12 per share (by a long shot, even). Part of the drag on earnings resulted from $0.13 per share in charges related to closing its Internet distribution center and expenses associated with reviewing its stock-option practices.
Sales increased 3% to $1.1 billion, and same-store sales increased by 1.7%. Most of the hardcover bestsellers that helped juice Barnes & Noble's quarterly results didn't ring a bell with me, but I had to chuckle about the one that did ring a bell, The Secret, which has gotten a boost in attention from some pop-culture icons, most notably Oprah Winfrey. (Maybe positive thoughts -- say, of customers coming into Barnes & Noble to purchase The Secret -- helped a bit?) In the conference call, management mentioned that The Secret has been quite a phenomenon, since it has the "unique distinction" of being the company's best-selling title in hardcover, audiobook, and DVD. (The Secret sounds like a unique fad to me, but of course the booksellers will enjoy this multimedia moment as long as it lasts.)
Gross margin dipped, too, slipping to 29.2% versus 30.4% this time last year. Barnes & Noble has a loyalty program to entice customers to spend more, as well as lure new customers. This highly competitive discounting trend is nothing new. Borders Group (NYSE: BGP ) has a similar program. Discounting is helping the booksellers compete against one another, as well as against online rivals like Amazon.com (Nasdaq: AMZN ) , but it's been tough on margins.
As I've said in the past, I like Barnes & Noble a bit better than Borders, since it has a nice balance sheet with $120.7 million in cash and no debt, and it generates free cash flow (although it didn't include a cash flow statement with its first-quarter press release -- tsk, tsk). However, I'm not particularly anxious to consider investing in any of the booksellers right now, given the competitive landscape.
Of course, some people feel differently. There have been lots of rumors and buzz about the potential that Barnes & Noble and Borders might merge, and there's been plenty of talk about private equity interest. Plus, Motley Fool Inside Value's Philip Durell doesn't think things at Borders are all that bad, having recommended that stock for his value-minded subscribers.
Next quarter ought to hold some magic for anybody who peddles books, given the release of the final installment in the Harry Potter series (of course, excitement should be muted, since the booksellers will provide deep discounts on the smash hit to increase customer traffic in the hope that Potter fans will buy other items, too). That's just temporary glitter, though. Given a business model that needs to rely on discounting and bestsellers to drum up growth in the bricks-and-mortar realm, and competition from more-than-competent Amazon.com in the online space, I just can't get too excited about the booksellers' stocks at the moment.
For more on the booksellers, check out:
Borders is a
Motley Fool Inside Value
pick. Amazon.com has been recommended by
Motley Fool Stock Advisor.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy loves Barnes & Noble's big comfy chairs.
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