Concern about Barnes & Noble’s Nook business gave way to worries about its core retail operation when the country’s largest physical bookstore chain reported disappointing results for the first quarter of fiscal 2017, which ended July 30. Though Nook sales have been falling for a long time, and fell again in the most recent quarter, B&N did manage to cut the digital unit’s losses in the latest period. Sales at its retail stores, however, fell 6.1% compared to the same quarter last year, and the division had an operating loss of $7.4 million, compared to operating income of $20.5 million in the quarter ended Aug. 1, 2015. Comparable store sales dropped 6% and were down 5.2% excluding sales of Nook products. CFO Allen Lindstrom said the decline in book sales was largely responsible for the poor store performance.

Some of that decline was attributed to a lack of new big hits to compete with a string of blockbusters last year, and to a cooling off of the sale of adult coloring books. A poor retail environment that cut into store traffic was another factor hurting sales, but B&N founder Len Riggio, who has returned as CEO following the dismissal of Ron Boire in August, acknowledged that B&N “[shot] ourselves in the foot somewhat by making unprecedented inventory reductions,” as well as “cutting expenses in the worst areas, mainly retail floor personnel.” Riggio added, “These conditions are being remedied as we speak.” He said that while he supports controlling inventory, it can’t come at the expense of reducing B&N’s broad selection of titles housed in its stores.

Riggio also promised to “jazz up” B&N’s merchandising efforts, which have become “stale-ish,” and to boost in-store promotional programs. Lindstrom reminded analysts that B&N is in the process of redesigning 50 stores to give the outlets more of a local focus, as well as to improve the store layout to better serve the communities in which they are located. Ten stores are expected to be redesigned by the holiday season, and 50 stores are scheduled to be finished by April 30, the end of B&N’s fiscal year.

The company is moving ahead with its plans for four new concept stores, the first of which is scheduled to open in October. And Riggio said that despite the disappointing first-quarter results, there are no plans to close more than the 12 outlets that have already been targeted to shut. He noted that B&N will begin testing some new locations for stores and said most landlords are happy to work with the chain to find better sites.

There is even some hope for the company’s online channel, Sales at the unit fell only 1.6% from the first quarter of fiscal 2016, with, B&N explained, challenges following the launch of the new site in July 2015 mitigated by benefits from the Apple e-book settlement, site improvements, and increased promotional activity. Lindstrom said B&N is now working to refresh the site, and he expects the enhancements to be in place by the holidays.

With the weaker-than-expected sales performance in the quarter, B&N lowered its projections for comp store sales for the full fiscal year, and the chain now estimates that comp sales will decline in the low single digits. EBITDA, however, is still expected to be in the $200 million–$250 million range.

Riggio said he believes the retail malaise will lift after the election and expects a good holiday season. He added that though he would like to find a new CEO “sooner rather than later, I’ll not rush headlong this time because I am more than willing to put the time and effort into all the tasks at hand.” Riggio said that he is confident the new concept stores will bring in more customers, but he promised that if the stores don’t work it will be “back to the drawing board” to test other concepts. “We are not just going to close stores and go home,” he said. “We are committed to this business.”

Barnes & Noble Inc. Segment Results, first quarter Fiscal 2016–2017

($ in millions)

Segment Quarter ended Aug. 1, 2015 Quarter ended July 30, 2016 Change
Retail $939.0 $881.7 -6.1%
Nook $54.3 $41.0 -24.5%
Eliminations ($14.8) ($8.9)
Total $978.6 $913.9 -6.6%
Operating Income
Retail $20.5 ($7.4)
Nook ($14.8) ($8.9)
Total ($5.7) ($21.4)

Source: barnes & Noble, Publishers Weekly