The release of its third-quarter results for fiscal 2014 and the subsequent conference call with analysts on February 26 made it clearer than ever that Barnes & Noble executives are operating two companies with very different issues. Of B&N’s two most important groups, the retail trade stores remained profitable in the quarter ended Jan. 25, 2014, although both sales, down 6.3%, and EBITDA, down 7.5%, fell. Sales also fell in the Nook division, dropping 50.4%, but the group did manage to cut its net loss by 67.5%.
While B&N executives in the past have stressed that having a network of stores to sell Nook devices would give them an advantage over their competitors, that strategy has not provided enough help to let B&N compete with Amazon and Apple in the tablet marketplace and has contributed to the decline in store sales. In reporting third-quarter results from the retail stores, B&N noted that comp-store sales were down 4.9% in the quarter due mainly to lower sales of Nook products; comps excluding Nook products were only down 0.5%. While B&N continued to stress that it will stay in the digital reader market, hardware will not be a core business and the company will continue to downsize its Nook e-reader operations.
Just as former B&N CEO William Lynch once did, new CEO Mike Huseby told analysts that B&N’s future lies in the sale of digital content and that improving content revenue is currently B&N’s “toughest challenge.” In the third quarter, digital content sales dropped 26.5%. Part of the strategy to turn around the slide in content sales, Huseby said, is to find companies that are willing to put B&N’s “content catalogue” of about three million e-books plus magazines and newspapers on their platforms. B&N is also talking to technology companies about teaming with B&N to develop new devices, and Huseby said he expects the company to release one Nook Color tablet from such a partnership this fall. Huseby said B&N is aware that to have a successful digital content business, the company needs to maintain an e-reader presence.
The performance of the retail stores in the quarter was generally in line with expectations. Although retail trade EBITDA fell, the stores still generated nearly $200 million in the quarter. Retail trade head CEO Mitch Klipper noted that sales might have been better if not for the horrible winter weather. Klipper said while B&N “never hides behind weather,” this year has been an exception as the chain closed a record number of stores because of snow and ice storms.
As part of the conference call, Huseby quickly dismissed the proposal made by G Asset Management, noting that the firm acknowledged that it did not have the financing in place to make an offer. Huseby wouldn’t rule out that B&N might still consider breaking up the company into different components, but said there is nothing to announce at the moment.
Barnes & Noble Inc. Fiscal Third Quarter 2013 vs. 2014
($ in millions)
|Jan. 26, 2013||Jan. 25, 2014||% Change|
Nook By the Numbers
$156.9 million: Nook revenue, Q3 2014
$316 million: Nook revenue, Q3 2013
-$61.8 million: Nook EBITDA, Q3 2014
-$190.4 million: Nook EBITDA, Q3 2013
-58.2%: Change in sales of Nook devices in Q3 2014
-26.5%: Change in sales of Nook content in Q3 2014
190: Nook positions eliminated in fiscal 2014
500: Remaining Nook jobs
$40 million: Estimated future Nook restructuring charges
20%: Nook’s estimated share of e-book market
B&N Retail By the Numbers
$1.41 billion: Retail trade sales, Q3 2014
$1.51 billion: Retail trade sales, Q3 2013
$199.6 million: Retail trade EBITDA, Q3 2014
$215.9 million: Retail trade EBITDA, Q3 2013
-4.9%: Change in same-store sales in Q3 2014
-0.5%: Change in same-store sales, excluding Nook devices, in Q3 2014
12%: Change in same-store sales of toys and games in Q3 2014
10: Retail trade stores closed in Q3 2014
15: Retail trade stores closed in first nine months of fiscal 2014
3: Retail trade stores opened in first nine months of fiscal 2014