Mild Surprise from B&N, BAM

Barnes & Noble and Books-A-Million both did slightly better than expected in the first quarter ended May 2, although B&N still lost money in the period, while BAM managed to increase both sales and earnings. Executives at both retailers said cost cutting and expense management, including a reduction in inventory, were key factors in improving the bottom line. Both companies also reduced capital expenditures from a year ago. And even though sales exceeded forecasts, B&N’s comparable store sales fell 5.7% and BAM’s dropped 1.1%. A decline in customer traffic was cited by both companies as the main reason for the fall in comp sales.

B&N CFO Joseph Lombardi said while B&N was glad the company did better than expected, the business environment remains difficult. Helped by Easter, April was the best month in the first quarter, but Lombardi warned analysts from reading too much into that, saying the improvement was modest. BAM CEO Clyde Anderson said consumers remained cost conscious in the quarter, which resulted in solid gains in bargain books and other value titles. The teen segment also performed well, led by Stephenie Meyer titles. However, Anderson added that most of BAM’s core book categories remained “challenged.”

B&N’s stores actually outperformed Barnes & Noble.com, which had a 7.2% drop in sales. B&N CEO Steve Riggio said that while traffic to the site was up, the conversion rate fell. He said B&N is working on a host of initiatives to improve the user experience of the B&N site, with upgrades expected to be in place in the second half of the year. Riggio also said the company is “well aware” of the increase in the number of players in the digital content arena and said that the company has been “inspired” to develop new approaches to deliver content to its customers. The recent purchase of Fictionwise was an important part of B&N’s digital program, Riggio said, and the company will have more announcements in the future.

Neither B&N nor BAM suggested that business has significantly turned around, but did express some hope for the fall. While Anderson said there are not many exciting books due out in the second quarter, he said BAM was “very excited” about the September release of Dan Brown’s The Lost Symbol. Riggio also cited Symbol as one of a string of possible strong fall titles that also includes new books by John Irving and Pat Conroy. B&N revised its forecast for the year; it now expects comp sales to fall between 3% and 5% compared to the original forecast of a 4% to 6% drop.