As a teenager, you probably knew that one guy who had the horrible, but oddly functional, car. My main memory of this trope comes from college. I had a good friend who drove a Ford pickup from the sixties. Nothing inside worked, the windows didn't go all the way up, and you could see the highway through the floor on the passenger side. Somehow, I rode hundreds of miles in this beast, watching it decay -- sometimes actually feeling it decay as we pulled off nonessential parts by accident.
The unaccountable reason that I continued to climb in that truck is the same reason I haven't given up on Barnes & Noble (NYSE:BKS).
Watching the wheels fall off
As you may have heard, holiday sales are a big deal for retailers. Barnes & Noble dropped the ball, with holiday retail sales falling 6.6% during the previous year. That is very bad. Digital sales were the worst part of the whole mix, with the Nook segment's revenue falling more than 60%. This is where you climb into the car, as the driver gets out and opens the hood to fix that "wire I forgot to hook up."
Looking further back, before the holidays, Barnes & Noble announced that the SEC was investigating the business for questionable accounting practices. Don't worry about that... it was just the muffler falling off into traffic. That was the point where I felt like I could make a clean break -- just get out and be done with it -- but I kept coming back.
Why would anyone invest in Barnes & Noble?
There are almost no rebound stories that I believe in the investing world. Turning your brand around once it's taken a beating is a difficult proposition. Best Buy has also made a go of the rebound, tying windshield wipers on with twine, and using the one functioning headlight's high beams to make up for its loneliness. Things were going great until the holidays -- now things are going OK.
Holiday comparable-store sales fell 0.9% during the holidays, with total revenue dropping 2.5%. Just when it seemed like the business was growing -- in the first nine months of the fiscal year, operating income grew 89.8% -- everything crumbled.
The reason Barnes & Noble keeps me coming back is that it seems to have a solid business at its core. Selling books to people in stores is something that humanity has been doing for hundreds of years. Barnes & Noble is now the only game in town. The potential at Barnes & Noble is why I can't get away, and it's why I still like the company and the stock.
Revenue from brick-and-mortar bookstores reached more than $7 billion in 2012. Barnes & Noble's "last man standing" position means that a huge portion of that business is open to it. With a market that large, the rise of e-books -- even if Barnes & Noble were out of the game -- doesn't stop Barnes & Noble from being a powerhouse. Unfortunately, the company is still having a hard time converting those sales, as the comparable-store sales have shown.
One last concern
The one caveat to my devotion is if it turns out that Barnes & Noble did cook the, er, books any in way. As a current investment, that outcome makes this a very risky option. Imagine that car you kept climbing into suddenly had deteriorating brake lines -- that should give you pause. But who knows, maybe the car still gets there and you have the time of your life.
But, really, you could crash.