When the founder and largest shareholder of a struggling company sells $27.6 million worth of stock for "tax planning purposes," do you really think that's the reason behind the sale? Or do you suppose it could have something to do with wanting to abandon ship while there's still time? That's the question shareholders of Barnes & Noble (NYSE:BKS) must now answer.
According to a filing with the Securities and Exchange Commission, the founder of the ailing bookstore chain cut his stake in the company by 2 million shares yesterday. He claims to have done so for tax purposes, but you'd be excused for concluding that he's finally seen the writing on the wall.
The list of ominous signs that Barnes & Noble is in trouble has grown considerably over the last year. In June, the company admitted that its ill-fated attempt to compete with the likes of Amazon.com and Apple in the hardware space was just that: ill-fated. "The company plans to significantly reduce losses in the NOOK segment by limiting risks associated with manufacturing," Barnes & Noble said in a press release.
Less than a month later, the company announced that its chief executive officer, William Lynch, had resigned. This, of course, was little surprise given that Lynch had no retail experience, and was hired in the first place to boost the chain's presence in the now largely abandoned digital arena.
The impact of this on Barnes & Noble's business became clear at the end of November when it reported second-quarter earnings. While net income increased compared to the year-ago quarter, the company's revenue was off by 8%. Meanwhile, same-store sales were down by 4.9%.
The results led Slate's Matthew Yglesias to opine (emphasis added):
There's no point in managing Barnes & Noble for long-term growth at this point. But it's not as if nobody is going to shop at a brick-and-mortar bookstore next quarter. It's just that there's no future here. The company needs to [go] to the corporate equivalent of a hospice and be owned and managed by people who'll maximize the value of the existing assets rather than struggling too hard against the inevitable.
If this weren't enough, the company recently acknowledged that the SEC is investigating its accounting practices. The regulatory agency is looking into Barnes & Noble's decision last summer to restate earnings for fiscal years 2011 and 2012. It's also examining claims by a former employee that the company improperly allocated expenses between its digital and brick-and-mortar divisions.
It's against this backdrop, in turn, that Riggio cut his stake in the company. So, I'll ask again: Do you really think he did so for "tax planning purposes"?
Fool contributor John Maxfield owns shares of Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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