A third-quarter financial performance which saw sales soften into the fourth quarter of fiscal 2017, which ends in April, prompted Barnes & Noble CEO Len Riggio to discuss prospects for the future. For the third quarter ended January 28, total sales fell 8.0% from the third quarter of fiscal 2016, to $1.30 billion, and EBITDA (earnings before interest, taxes, depreciation and amortization) fell to $157.8 million from $169 million in last year’s third period. The weaker than expected results led the company to scale back projections for EBITDA for the full year to the $180 million–$190 million range and increase the projected decline in comparable store sales from 6% to 7%.
Responding to a question from an analyst in the conference call following the release of results, Riggio said that there is no question that B&N needs to keep EBITDA no lower than $180 million–$190 million to be a viable company. He said he thinks the company may be able to maintain that level for another two years through cost-cutting, but at some point that approach will “run out of gas. Our future is going to be determined by reversing the negative sales” trend, Riggio said. So far in fiscal 2017, B&N, including the Nook division, has lowered expenses by about $84 million, and Riggio said there are still ways to get more costs out of the company. But one thing B&N won’t do, he stressed, is save money by cutting store service; he emphasized B&N will “not take its important sales people off the floor.”
Riggio said that, while B&N has had good success with some new categories such as educational toys and games, it still hasn’t found a “magic bullet” that can end the overall sales slide. The company will continue to experiment with various types of boutiques and new lines of merchandise to grow sales, he said.
Riggio said the new test stores the company has opened over the last several months, which offer a fresh look at merchandising, design, and presentation, have done “very, very well.” B&N is in the process of undertaking a “dizzying amount of tests,” Riggio said, to see what facets of the new stores can be rolled out to other locations. He said B&N is “on the eve” of developing a new prototype store “that we think will carry us well into the future.” Once a prototype is identified, Riggio said, B&N may need to move some stores, something that the company “knows how to do.” He added that, with the rate of vacancies in malls, he sees plenty of opportunity to relocate stores within the same markets if necessary.
Riggio said he doesn’t see retail going away, even has he acknowledged that the growth of e-commerce had shifted retail shopping and demographic patterns. For B&N, sales of juvenile and young adult books and sales to senior citizens remain strong. And he said that, while the decline in retail has been a gradual trend, one factor behind the recent slide has been the continued obsession by the country, and the media, with the new Trump administration—business picked up at the beginning of the new year but fell again after the inauguration. B&N’s comp sales in the evening, when people are presumably staying home watching TV, are about 4% to 5% lower than during the day, Riggio said. In addition to keeping potential shoppers at home, the political coverage has “all but dried up” the exposure authors receive on television and in the newspapers, he said.
Looking back at the third quarter, B&N reported that comparable store sales fell 8.3%, driving a 7.5% decline in revenue through its retail segment. A bright spot was BN.com, where sales rose 2.2% in the quarter. Nook sales fell 25.7%.
For the first nine months of fiscal 2017, revenue at the chain was down 6.5%. Net income was $35.4 million, up from $6.2 million, but last year’s earnings included a $39.4 million loss from discontinued operations.
In a final note during the conference call, Riggio gave the impression that he was in no hurry to find a new CEO (he has been in that role since Ron Boire was fired last fall). “I’m happy doing what I’m doing,” he said. “I am all in with Barnes & Noble.” He added that newly appointed COO Demos Parneros has done a great job and needs to be considered a top candidate for the CEO job. Even when a new CEO is named, Riggio said, he will stay tied to the company and will remain chairman, at least for a while.