February was cold, dark, and wet in the U.S. this year. The huddled masses ended up huddled inside, which drove down sales at many retailers, including Barnes & Noble (BKS). The company reported its full-year results yesterday, and it was a difficult end to the year. February weather hit sales hard, and they weren't in a super-strong place to start with.
As you may have heard, the big news was that the Nook is finally going to be scraped off the bottom of Barnes & Noble's boot. As if to drive the point home, the division reported another set of fragile sales, which brought total sales down along with it. The fiscal year came to a shuddering conclusion at Barnes & Noble, but the next one might be a little bit brighter.
Barnes & Noble's fourth-quarter unsurprise
If you were expecting a sudden turnaround from Barnes & Noble, you might not have been paying close enough attention over the year. The company ended the year by hammering home why people buy things from Amazon -- we don't like going outside. The bad weather in February took 1.4 percentage points off of the quarter's "core" -- i.e., excluding the Nook -- comparable-store sales. Amazon didn't have that same problem, and its North American revenue increased 26% in the first quarter.
Of course, the real problem for Barnes & Noble has been its inability to make money off the few sales it does generate. In that regard, the fourth quarter was actually a bright spot. Operating margin grew to negative 3.2%, up from negative 14.1% a year ago. The big change came at the gross margin level, where Barnes & Noble was able to keep discounting under control.
Fiscal 2015 at Barnes & Noble
The Nook spinoff is going to be the icing on the cake that is fiscal 2015. Barnes & Noble's management team believes the business should be ready to go by the first quarter of calendar 2015. That's something to look forward to, and to build the rest of the business around. Barnes & Noble's core business had a 3.1% decline for the year, which is not good, but is recoverable.
The company has a few other strengths that tie to its major "only game in town" position. It's also the biggest college bookstore chain, a position that's given it a solid business. Over the last quarter, the college division grew sales by 18% on the back of a comparable sales increase of 2.6%. That business has a real opportunity in digital textbooks, as that market continues to grow.
In Barnes & Noble locations, look for less space devoted to the Nook as the year goes on, giving the stores more resources to devote to their core business. The shift from focusing on the Nook will be a big part of fiscal 2015, but it should result in Barnes & Noble finishing off the year with a tighter business with higher margins and, hopefully, an increase in comparable sales. The next year is going to be defining for Barnes & Noble, and I expect to see lots of good things as we finally say goodbye to the Nook.
