Borders, Barnes & Noble Book Profits

Surely, you've spent some quality time with yourself, sipping coffee in the café attached to the nearest Borders(NYSE: BGP) or Barnes & Noble(NYSE: BKS), marveling how a trip to the bookstore has become a national pastime. (As evidence of how important the bean-brewing business has become to the bookstores, Borders appointed a vice president of café operations on Aug. 14.) You've probably then thought to yourself, "How can I make money off this? And that girl by the magazines is cute."

Last week, both book retailers reported second-quarter results. Borders, which operates its namesake stores as well as Waldenbooks, reported earnings of $0.04 per share, up from essentially breakeven a year ago. Barnes & Noble reported earnings of $0.02 a share from its various bookstores -- Barnes & Noble, B. Dalton, and Scribner's, among others -- and its stakes in barnesandnoble.com(Nasdaq: BNBN) and GameStop(NYSE: GME). That's up from a year-ago loss of $0.03 a share.

Let's take a look at the quarterly numbers of the companies, side by side:

BordersBarnes & Noble

Market cap       $1.50 bil    $1.60 bil
Sales          $763.60 mil    $1.16 bil
Earnings         $3.40 mil    $1.40 mil
Comps                -1.0%         0.3%
P/E                   13.8         24.9
1-yr. return          -20%         -45%
 

What do these numbers tell us? First of all, they show that, although Barnes & Noble has 35% more sales than Borders, the company hasn't been able to convert that to more profits. This is due to the losses Barnes & Noble has taken from its investments in such enterprises as iUniverse.com, Book magazine, enews inc., and Indigo Books and Music.

Borders sticks to books and music and has kept costs low. It even relies on help from Amazon.com for online sales. On the other hand, barenesandnoble.com is losing money.

Despite the better performance of Borders, the market still gives Barnes & Noble a higher earnings multiple. Does the potential of GameStop (which experienced 32% year-over-year sales growth), barnesandnoble.com, and its stable of bookstores warrant the premium? Interested investors should turn a few more pages to find out.




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