Lots of headlines in Barnes & Noble’s release of its third quarter results for the period ended January 29, its first extended remarks since Borders filed for Chapter 11 last week. Executives said 75% of its stores were in direct competition with Borders’ outlets that are closing and CFO Joe Lombardi said B&N expects to see some benefit once the clearance sales are completed. Mitchell Klipper said with Borders’ bankruptcy the company will resume its store relocation program and is considering moving into a “handful” of Borders stores that are closing. And while the company said it has no plans to close more stores than already announced (10-15), executives made clear its future growth is tied to expansion in the digital marketplace.
Sales of e-books through BN.com are more than double that of sales of all print books and B&N estimated it has a 25% share of the e-book market. Same store sales of BN.com jumped 64% in the quarter, to $319.4 million driven by sales ok Nooks and e-books. Asked when the unit, which lost $50.5 million in the quarter, will make money CEO William Lynch said BN.com will be profitable faster than originally thought. He wouldn’t say if BN.com will be profitable in fiscal 2012, but said losses will be significantly minimized.
Sales through B&N’s retail stores rose 4.6%, to $1.46 billion with comp sales up 7.3%. Lombardi said while sales of print books declined, sales of digital readers increased significantly as did sale of educational toys and games which had a comp sales gain of 47%. The bricks-and-mortar stores remain critical to B&N’s digital strategy Lombardi said, as they continue to be the largest sales channel for Nooks. Sales of books were stronger than expected in the two weeks before Christmas, Lombardi said, with hardcovers doing surprisingly well in that period. While bookstores will continue to be an important place to buy books, B&N will continue its drive to move beyond selling only books to be the best place to discover and buy content, Lombardi said.
To take advantage of digital intitiatives plus other opportunities, B&N has suspended its dividend. The move, which helped to drive the company’s stock price down when the market opened, is aimed at providing the company with the financial flexibility it may need to expand in different areas. “We are a growth company,” Lynch said.
In the quarter, total sales rose 7% to $2.3 billion and net income fell to $60.5 million from $80.4 million. For the first nine months of fiscal 2011, revenue rose 25%, to $5.63 billion, helped by the acquisition of Barnes & Noble College Booksellers. The retailer had a loss of $14.5 million in the nine months, compared to earnings of $68.7 million in fiscal 2010. B&N has said its digital investment program will hurt its bottomline in fiscal 2011.