In a conference call with analysts, Lynch said the retail stores are an “excellent business,” and Mitch Klipper, CEO of B&N’s retail group, said the company has been successful in getting lower rents when leases come up for renewal. In the next two to three years, two-thirds of B&N’s leases expire, Lynch noted, giving B&N the opportunity to further reduce rents. During the quarter, B&N closed 12 stores, but does not plan to close many more this year. Sales through BN.com rose 31.7%, driven by sales of Nook devices and e-content. Sales of physical products sold through the site fell, however, though Lynch told analysts that Nook users continue to buy both print books and e-books. Overall, digital content sales rose 85% on a comp basis. While sales of e-books continue to grow rapidly, apps are B&N’s fastest growing digital category, Lynch said (with Angry Birds and the Netflix app its two bestselling apps). Lynch worked to assure analysts that B&N’s digital costs are under control. He noted that much of the additional spending in the third quarter was discretionary, including spending on advertising plus costs associated with the almost completed build-out of Nook boutiques in B&N stores.
B&N, which earlier in the year acquired the Borders customer lists, also invested in “customer acquisition,” Lynch said. He said B&N added “millions” of new Nook customers in the quarter and said he expected that the combination of more customers and higher penetration rates of Nooks will result in more sales of “high margin” content throughout the year. With one quarter to go in its fiscal year, B&N said Nook sales are still on track to generate $1.5 billion in revenue, with total sales projected to be between $7.0 billion and $7.2 billion (sales in fiscal 2011 were just under $7.0 billion). The company expects to report a loss per share between $1.40 to $1.10; last year it had a loss of $1.31 per share, with a total net loss of $73.9 million.
Barnes & Noble’s retail stores turned in a solid holiday quarter ended January 28, but continued digital investments lowered profits in the period. Helped by the demise of Borders, customer traffic and store sales were the highest in five years for the holiday period, according to B&N CEO William Lynch. While B&N’s children’s business and toys and games department posted double-digit revenue growth in the quarter, the store’s book business also did well, with comparable-store sales up by more than 4%. The growth rate of digital devices and accessories sold through the stores slowed, due mainly to a decline in the average selling price of the Nook readers. The sale of e-ink devices also “underperformed,” but Lynch said B&N will continue to innovate in the digital space and noted that the company has just introduced the Nook Tablet-8GB that will sell for $199.