With Narrowing Losses, Barnes & Noble Eyes Long-Term Growth

Barnes & Noble (BKS) released disappointing fiscal first-quarter 2018 results on the morning of Sept. 7, underscored by continued revenue declines despite improved book trends, and narrower losses thanks to cost cutting.

Let's take a closer look at how Barnes & Noble kicked off its new fiscal year, as well as what investors can expect from the book retailer in the coming quarters.

Image Source: Barnes & Noble.

Barnes & Noble results: The raw numbers

Data source: Barnes & Noble. For the quarter ended July 29, 2017.

What happened with Barnes & Noble this quarter?

• For perspective -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates were more optimistic in predicting a narrower net loss of $0.12 per share on higher revenue of $871.8 million. Barnes & Noble, for its part, didn't provide specific sales or earnings guidance last quarter.
• Comparable sales fell 4.9%, as improved book trends were more than offset by declines from non-book products.
• Retail sales, which includes Barnes & Noble stores and BN.com, fell 5.9% to $830 million.
• E-commerce sales declined year over year as the company lapped last year's e-book settlement and reduced promotional activity in an effort to improve margin.
• Nook segment sales, including digital content, devices, and accessories, declined 28.1% to $29.5 million.
• Consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) were $11.2 million, up $9.6 million in the same year-ago period.
  • Retail EBITDA declined 39.9% year over year to $10.6 million, while Nook segment EBITDA improved to $617,000 from an EBITDA loss of $7.95 million in last year's fiscal Q1.
• Barnes & Noble ended the quarter with cash and equivalents of roughly $12 million, and long-term debt of $84.1 million under its $750 million credit facility.

What management had to say

"Our first-quarter earnings results improved over the prior year, as we were able to mitigate the sales decline through expense reductions," stated Barnes & Noble CEO Demos Parneros. "We expect to improve our performance in the back half of the year, which, coupled with our focus on expense reduction, will enable us to achieve EBITDA of $180 million."

Looking forward

To be clear, that full-year EBTIDA outlook is in line with the guidance Barnes & Noble provided along with its fiscal Q4 2017 report three months ago. Barnes & Noble also reiterated its expectation for fiscal 2018 comparable-bookstore sales to decline in the low-single-digit percentage range.

During the subsequent conference call, Parneros stated that the company is working on several initiatives to improve its value proposition and drive sales higher. Among them are a number of price tests for its membership program to improve enrollment and visits, improving visual merchandising and signage, and streamlining inventory management. Barnes & Noble is also reviewing its entire store portfolio in an effort to identify potential markets for new stores and relocations as leases expire.

In addition, in June, Barnes & Noble launched a phased implementation of its redesigned website, which focuses on improving its shopping experience and advancing its omnichannel capabilities.

Finally, Parneros noted the company's "goal for this year is to maintain our current level of profitability while planting the seeds for future growth."

With the crucial holiday season fast approaching, we can be sure Barnes & Noble is looking forward to proving its has what it takes to survive and thrive over the long term. Nonetheless, investors hate being effectively told to "hurry up and wait." It's clear that the market wanted more.