B&N Waits for the Digital Payoff

Although Barnes & Noble lost $74 million in the fiscal year ended April 30 and BN.com had negative EBITDA (earnings before interest, taxes, depreciation, and amortization) of $204.6 million, executives said they remain confident that the company's online/digital arm is on track to become a solidly profitable business. In discussing year-end results, both CEO William Lynch and CFO Joseph Lombardi said that with BN.com's share of the e-book market roughly 26% to 27%, it was only a matter of time before the unit turned profitable. With the share of the market B&N already has, BN.com will hit its profit targets as e-book sales continue to grow, Lombardi said.

During the conference call, several analysts questioned the size of BN.com's loss and its mounting costs, which rose to $280 million from $151 million. But both executives pointed out that gross margins at BN.com improved again in the fourth quarter and that e-books have better overall margins than print book sales. And sales of digital products through BN.com outsold all print titles by a three-to-one ratio. Overall, comp sales at BN.com rose 65% for the year and 78% in the final period.

While B&N waits for BN.com to turn a profit, its bricks-and-mortar stores remained profitable last year, although EBITDA at the retail trade stores fell 26.2%, to $248.5 million, in the year. EBITDA at the college bookstores, which B&N bought in September 2009, rose to $119.4 million.

Barnes & Noble Results by Segment 2010–2011 (in millions)

EBITDA