It's no surprise that the newest Harry Potter tome helped Barnes & Noble's (NYSE:BKS) latest quarter. The Deathly Hallows, the series' much-awaited final volume, was one of the hottest trends of the summer. But with the Potter finale behind it, can Barnes & Noble continue its success? From the numbers, it looks like Harry provided some temporary relief, but the company's future seems far less magical.
Barnes & Noble's second-quarter net income increased by 9% to $18.1 million, or $0.26 per share; sales increased by 8% to $1.2 billion. However, operating income actually decreased by 49%. to $13.7 million. Barnes & Noble's earnings were helped by a $0.12-per-share gain from tax benefits and a $0.03-per-share boost from lower-than-expected closing costs for a distribution center.
Same-store sales increased 4.4% at Barnes & Noble, and comparable online sales increased 17.2%. Here's where the Potter spell comes into play. Make the Harry Potter and the Deathly Hallows magic disappear, and comps increased just 1% in stores, and 7.3% online. Since this is the last book in the Potter series, a publishing phenomenon since its debut a decade ago, Deathly Hallows' wondrous status is almost certainly finite.
We already know that Harry proved quite a boon to Amazon.com (NASDAQ:AMZN), and even small book retailer Books-A-Million (NASDAQ:BAMM) had a hot quarter. We'll see how much Deathly Hallows helped Borders (NYSE:BGP) soon, too. Of course, all of these companies reduced prices on Deathly Hallows to lure in customers, hoping that the extra traffic would push more transactions for other items. Indeed, Barnes & Noble's gross profit slipped to 29.1% in the second quarter, from 30.2% this time last year, including Harry Potter discounting and the company's well-known loyalty program.
Barnes & Noble raised its guidance for the year, but the increase doesn't appear to stem from any real boost in the company's operations. The company said it relates to the two one-time items mentioned above, as well as a $0.05-per-share benefit from a reduction in its share count.
As I've said before, booksellers don't seem like terribly exciting investments to me right now, given Amazon.com's huge and formidable presence in an already fierce competitive landscape. I've tended to like Barnes & Noble a little more than Borders because of its stronger cash position and recent free cash flow generation, but neither company strikes me as tantalizing opportunity.
We'll find out more about Borders' performance when it releases its own quarterly earnings next week. For now, I see little reason to get excited about Barnes & Noble, since its increased guidance doesn't relate to improvements in its core operations. There's some magic in its quarter, all right, but it's still not the kind that keeps anyone enraptured for long.
Borders is a Motley Fool Inside Value selection. Amazon.com is a longtime Motley Fool Stock Advisor pick.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy is trying out for the Quidditch team.
