Wednesday, June 26, 2013

Barnes & Noble Drops Nook

Barnes & Noble Drops Nook Scott Olson/Getty- 
The Daily Beast

Barnes & Noble is closing the book on the Nook. Falling victim to competition from tech giants such as Apple, Google, and Samsung, the company’s Nook business saw revenues fall 34 percent to $108 million in the fiscal fourth quarter. While black-and-white Nooks will still be offered, a third-party manufacturer will now produce color tablets. Since the announcement Tuesday morning, which accompanied a disappointing earnings report, Barnes & Noble’s stock price has fallen 16 percent.

June 25, 2013 

And from HuffPost Books:

Barnes & Noble Earnings: Loss More Than Doubles

And from Publishers Lunch:

Barnes & Noble reported another poor quarter to end fiscal 2013: Sales of $1.28 billion were down 7.4 percent from $1.38 billion a year ago, and the net loss doubled to $118.6 million, or $2.11 per share. Both results were far worse than analysts had forecast (as we covered yesterday). Results "were adversely impacted by Nook inventory charges"--they took $133 million in inventory charges in the fourth quarter on device markdowns and a goodwill impairment charge of $18.3 million in Nook selling and administrative expenses "as recurring losses have led to revisions in its strategic plans." Even with the discounting, the company still has tablet inventory to sell off, and ceo William Lynch said in this morning's investor conference call that they will continue to offer "amazing prices through the holiday on Nook HD and HD+."

On the call Lynch reiterated that the company "doesn't intend to comment further" on chairman Len Riggio's interest in buying the retail stores -- the one part of the company that is reliably generating cash -- "unless and until" there is an agreement in place. (Note below that retail store EBITDA rose for the year. As we've pointed out before, it raises complex issues. The company needs to place a solid value on the stores in the event of a sale, even though public investors have shown little interest. At the same time, Barnes & Noble's ongoing -- and intensified, by some accounts -- efforts to recast and significantly increase promotional allowances paid by the biggest publishers, could be hampered by rising margin at the stores.)

The company announced that they will be "creating a partnership model for manufacturing in the competitive color tablet market." Their tablets "will be co-branded with a yet to be announced third party manufacturers of consumer electronics products" rather than built on their own. That partner has not been announced because the BN is still in talks with a variety of companies. But Nook still "intends to continue to design eReading devices and reading platforms."
In the call, Lynch said they "are 100 percent not exiting the device business." Like Kobo, he indicated that the "majority of sales" come from their eInk device users. "those people who buy single purpose ereaders are the ones who are the biggest readers."

The retail store segment was also weak, falling 10 percent in the quarter to $948 million. Same-store sales were down 8.8 percent for the quarter (and 3.4 percent for the year), attributed to the Nook declines, store closures and lower online sales -- as well as weaker comps without Hunger Games and Fifty Shades sales. "Core" bookstore comps -- which exclude Nook-related results -- were still down 5.8 percent for the quarter, and "essentially flat" for the year. Weaker book sales affected Nook as well, with digital content sales down 8.9 percent in the quarter (worse than the core bookstore decline). For the full year, digital content sales rose just 16.2 percent, and that's supposed to be the core of the Nook business.

Even with the newly announced strategy to limit Nook color device costs, the forecast for fiscal 2014 is also negative: BN "expects retail comparable bookstore sales to decline in the high-single digits" and College store sale comps "are expected to decline in the low-single digits." (They did not issue a Nook forecast.)
For the full fiscal year, sales of $6.839 billion were down 4 percent from $7.129 in fiscal 2012, while the operating loss nearly quadrupled to $217 million. Retail sales fell almost $300 million, to $4.568 billion; College sales were up slightly, at $1.763 billion, and Nook sales fell almost $160 million to $776 million (this is all before intra-segment eliminations).

Before write-offs, the entire company had EBITDA for the year of $10 million, compared to $177 million in fiscal 2012. Although the retail store earnings declined in the fourth quarter, they were strong earlier in the year -- and rose 16 percent for the full year, at $374 million (up from $322.5 million in 2012).

In 2013, BN opened 2 trade bookstores and closed 18; in the coming year, they expect to open 5 new stores and close 15 to 20 years, "consistent with previous years." The College division has had "a solid pipeline" of new store operating contracts; they opened or took over 49 stores in 2013 and closed 10.

As you would expect, the stock fell sharply at the opening of the market and has continued to fall, starting at an 11 percent decline and now down over 16 percent.

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