Things have not been going well for Barnes & Noble (NYSE:BKS). The chain has not done a very good job adapting to the existence of the internet and competition from Amazon.
It has struggled to retain customers, and its Nook digital reader has become an also-ran in a market that Amazon dominates. In 2018, sales fell to $3.7 billion for the year, a drop of 6%. In addition, same-store sales dropped by 5.4% for the year, and the chain went from earning $22 million in profits in 2017 to losing $125.5 million this year.
Despite that, CEO Demos Parneros, who was hired in April 2017, remains optimistic. He expressed faith in his company's turnaround plan and its leadership team in his remarks in the company's fourth-quarter earnings release:
Our plan, which includes sales improvements and cost reductions, is expected to yield immediate improvement in fiscal 2019, resulting in EBITDA of $175 million to $200 million, and further benefits in the following years. We also strengthened our leadership team in key areas of the business. They will be instrumental in overseeing the turnaround.
What is Barnes & Noble doing?
Like seemingly every other struggling retailer, Barnes & Noble has used cost-cutting as a major part of its turnaround plan. That makes sense when the cost-saving efforts are behind-the-scenes and not customer-facing. In this case, the book-selling chain laid off some of its more experienced in-store personnel in February.
Despite that, Paneros believes he has his company on a path to stop its sales decline. Those efforts go beyond just cutting staff and other costs.
"These initiatives include increasing customer engagement to improve conversion, clearing our over-assortment of less productive merchandise, and increasing our omnichannel capabilities," he said in the company's Q4 earnings call, which was transcribed by Seeking Alpha (registration required). "To oversee and lead these initiatives, we also strengthened our senior leadership team with several key hires."
There have been some very small signs that these moves are working. Paneros reported that store conversion rates have improved and the chain has added a half-million members to its loyalty program. In addition, Barnes & Noble's cafe business had positive comps in the second half of the year.
"We developed a pipeline of real estate opportunities to get us to a net positive store count in fiscal '19," Paneros said. "We enhanced our omnichannel capabilities through the launch of our ship-from-store program, and last, we implemented a $40-million cost reduction program."
What's next for Barnes & Noble?
Paneros is optimistic, though there's really nothing that has changed for the bookstore chain. It remains a company rooted in brick-and-mortar that mostly sells a product that's available to buy physically or digitally from Amazon. Nothing the CEO said in the earnings call changes any of the chain's underlying challenges:
We expect our comp sales trends to improve over the prior year. To improve our sales trends, we're focused on enhancing the customer experience, better curation, increasing the value for our members, and also investing in marketing to drive traffic. We're also innovating for the future through newly designed stores, focusing on existing high-potential businesses, and developing a pipeline of new businesses.
That sounds nice, but it's pretty similar to what Paneros and past CEOs have been saying for years. The issue for Barnes & Noble isn't whether it can eke out some more savings or find a way to inch up sales. It's whether there's a bottom for brick-and-mortar booksellers.
It's possible that the chain can survive by catering to its core customer base -- people who still like to browse in bookstores -- while finding small ways to expand that audience and increase its spending. That's not a turnaround; it's more like clinging to existence.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.