Barnes & Noble Education's January swoon comes on the heels of a lackluster second-quarter earnings report that saw its revenue and earnings fall well short of Wall Street's expectations. Sales rose only 2% to $770.7 million, below analysts' estimates of $779 million. And adjusted earnings per share fell 11% to $0.63, significantly below the $0.78 Wall Street expected.
Even more troubling was the deteriorating trend in comparable sales. Comps fell 2.9%, driven by a 3.3% decline in textbook sales. Notably, general-merchandise sales -- which had helped to offset falling textbook sales in the first quarter -- also came in lower, falling 1.3%.
B&N Education CEO Max Roberts said that the decline was related to lower enrollment at colleges and a "softer retail environment."
Roberts' comments echo those of British textbook publisher Pearson PLC (NYSE:PSO); that company's stock lost 29% in value on Jan. 18 when it slashed its revenue and profit forecast for 2017, due to lower-than-expected college enrollment and rising textbook rentals, both of which reduce demand for textbook purchases.
Barnes & Noble Education plans to continue to grow its store count by partnering with more colleges and universities that wish to outsource their campus bookstore operations. But the pace of that growth appears to be slowing, with the company opening only one store in the second quarter -- compared to 33 in the first quarter -- and management guiding for just two additional store openings in fiscal 2017.
Moreover, Barnes & Noble Education, like Pearson, finds itself on the wrong side of several powerful trends: slumping college enrollment, increasing textbook rentals, and rising digital book sales. As long as these trends persist, they're likely to continue to weigh on Barnes and Noble Education's still primarily brick-and-mortar business.