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Barnes & Noble Earnings: Dropping Out of College

By Rick Munarriz - Sep 9, 2015 at 10:29AM

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The leading bookstore chain reports its fiscal first-quarter results.

Barnes & Noble (BKS) reported its first quarterly results since spinning off its 736 campus bookstores as Barnes & Noble Education (BNED 0.00%) last month, and it's not an easy read. 

The book superstore chain offered up consolidated revenue of $1.22 billion, down just 1.5% from a year earlier. However, that figure includes Barnes & Noble Education. That's important because it's the only one of the company's three subsidiaries to post top-line growth. Back out the college bookstores -- and you may as well since shareholders won't see that factor into any future quarters -- and that leaves just Barnes & Noble's retail and NOOK divisions ringing up $994.3 million, 3% below what the two businesses combined to produce a year earlier. Analysts were holding out for $999.3 million on that basis, so it is a miss on the top line.

As I had pointed out in yesterday's earnings preview, you have to go all the way back to 2001 to find the last time that Barnes & Noble has failed to top $1 billion in quarterly revenue, according to S&P Capital IQ data.  

It's the NOOK that is weighing on Barnes & Noble. The chain's once-promising Kindle killer has been firing blanks lately. NOOK revenue plunged 22% since the prior year's fiscal first quarter to hit $54 million this time around. Device and accessories sales only slipped 6%, but that's not much of a consolation when digital content -- where the margins were supposed to have a ball -- plummets 28%. The silver lining here is that NOOK now accounts for less than 6% of the revenue mix, but widening EBITDA losses will continue to eat into the overall performance.

The scene is brighter at Barnes & Noble's namesake superstores. Comps rose 1.1% since a year earlier, fueled by the fourth installment in the 50 Shades of Grey series and the controversial release of Harper Lee's prequel to How to Kill a Mockingbird. Adding more non-book products is also helping. The comps uptick wasn't enough to offset a 1.7% slide in retail revenue as store closures, lower warranty reimbursements, and lower online sales -- yes, BN.com is apparently not doing as well as the actual stores -- weighed on results.

Barnes & Noble's outlook is somewhat encouraging. It sees non-NOOK comps rising 1% for the entire fiscal year, in line with its first quarter's performance. It also expects NOOK's EBITDA losses to decline in fiscal 2016. Barnes & Noble will miss having its college bookstores around to add stability and growth to its financials. However, if the retail bookstores that now account for more than 94% of the revenue mix hold up to the guidance for positive comps, there will still be time for a few more chapters in this story.  

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