Despite another quarter in which sales fell and losses increased, Barnes & Noble executives suggested in a conference call with analysts following the release of its first-quarter results that improvement could be coming. While comparable store sales in the quarter ended July 28, 2018, fell 6.1% from the period ended July 29, 2017, chief financial officer Allen Lindstrom said the company expects to report positive same-store sales in the upcoming holiday season.

Lindstrom and chairman Len Riggio both pointed to the improved sales trend during the most recent quarter—which has extended into the second quarter—as one reason for their optimism about prospects for the holidays. B&N has “finally stopped the bleeding with respect to our comparable sales decreases,” Riggio said, and he is confident that the momentum will carry forward. The company reported that sales in the quarter improved every month: same-store sales in May were down 7.8% compared to May 2017, fell 6.1% in June, and 4.5% in July. In August, comp store sales were down by only 0.8%.

For the first quarter, book comp sales were down 7% and nonbook comp sales fell 3%. Riggio said one reason for the poor book performance was a technical glitch in rolling out its order-online/pick-up-in-store program at the beginning of the quarter. When the problem was corrected, sales began to improve, he added.

Riggio acknowledged that has never performed as well as the company expected, and that B&N has never effectively integrated its retail and online businesses. But, he said, the company has the right team in place to create a site that will drive customers to its stores. He called the online initiative a “big must for the company.”

Riggio also acknowledged another past mistake: the launch of five bookstores that feature restaurants. He said that, though the top line is good at the restaurants, the bottom line is “awful,” noting that B&N does not have the expertise to operate restaurants.

The new prototype stores that are under development will all have cafés but will have small overall footprints, which currently range from 8,000 sq. ft. to 14,000 sq. ft. The company will open four stores this quarter—three of which are stores that are relocating—and, Lindstrom said, B&N still expects to finish the fiscal year that ends Apr. 30, 2019, with an increase in overall store count. But Riggio squelched an idea by an analyst that B&N cut its dividend and put the money into opening more stores. He said that before B&N would start a large build out, it needs to get the business model at the stores right.

Among the changes that Tim Mantel, chief merchandising officer, is making are several designed specifically to improve B&N’s book business. Those changes include removing Nook fixtures at the front of the stores to make it easier for customers to shop and for booksellers to provide service. By the holidays, B&N will have completed revising its in-store and on-shelf signage to make it easier for customers to navigate the stores, as well as to let B&N better communicate its in-store promotions.

Mantel said B&N is also committed to holding more events—like its new chainwide book club. A more robust publishing schedule should also help drive customer traffic, Mantel said, and B&N will have more exclusive and signed editions for customers to buy.

Outside of books, Mantel said, B&N is streamlining and refocusing its gifts and stationery offerings and will expand its educational toys and games sections to take advantage of the closure of Toys R Us.

Riggio took a few minutes during the conference call to challenge the allegations made by fired CEO Demos Parneros in his lawsuit seeking severance, filed in late August. Riggio called the suit “a smokescreen” to extort money from the company and reiterated that Parneros was fired because of sexual harassment issues and bullying behavior. Riggio said that both he and the board of directors have great faith in the management team, including Lindstrom, who came under withering criticism in the lawsuit.

Riggio is overseeing the three-person management team that is currently running the retailer. He said B&N will take up the search for a new CEO in earnest at its October 3 board meeting, adding that, even before a formal search has begun, “there has been no shortage of candidates applying for the job.”

Looking at prospects for all of fiscal 2019, B&N stuck to its original guidance that EBITDA (earnings before interest, taxes, depreciation, and amortization) will be in a range of $175 million–$200 million. In the first quarter, EBITDA was $7.7 million, down from $11.2 million a year ago.

An investment group led Richard Schottenfeld has increased its stake in B&N from 5.7% to 6.9%, the firm said in an Securities and Exchange Commission filing made late Thursday. In the filing, Schottenfeld, who acquired his initial stake in late July, once again said he believes B&N’s stock is undervalued. According to the filing, Schottenfeld has talked to Riggio and other executives about a number of things, including “changes in Company leadership at the executive and board level, implementation of operational improvements, and the desirability of selling the Company.”

Barnes & Noble Segment Results, First Quarter of Fiscal 2018–2019

($ in millions)

Segment Q1 2018 Q1 2019 Change
Retail $830.0 $775.50 -6.5%
Nook $29.5 $25.3 -14.2%
Eliminations ($6.2) ($6.2)
Total $853.3 $794.8 -6.9%
Operating Loss
Segment Q1 2018 Q1 2019 Change
Retail $12.5 $15.9 8.0%
Nook $2.7 $0.3 -88.0%
Total $15.2 $16.2 6.6%