Barnes & Noble’s Losses Widen on Store Closures and Lower Online Sales

Bookseller to open four new concept stores in FY17

B1Barnes & Noble Inc. (NYSE: BKS), the largest retail bookseller in the U.S., announced its Q4 FY16 and full year FY16 financial results on June 22nd, 2016. Set up in 1986, the brick-and-mortar bookseller retails content, digital media, and educational products under two segments: Barnes & Noble Retail (B&N Retail) and NOOK. The B&N Retail segment includes bookstores under the Barnes & Noble Booksellers trade name, the Company’s e-commerce website, barnesandnoble.com, and its publishing operation, Sterling Publishing. The NOOK segment includes the Company’s digital business, including the Company’s eBookstore, digital newsstand and sales of NOOK devices and accessories through B&N Retail. The NOOK digital bookstore offers over four million titles to two million active Nook customers. As of April 30th, 2016, the Company operated 640 Barnes & Noble bookstores in 50 states, as well as BN.com and nook.com websites. Read more about the Barnes & Noble’s financial results below.

Q4 FY16 operational highlights

Retail sales, which include Barnes & Noble stores and BN.com, declined 2.2% during Q4 FY16 to $850 million as compared to the year-ago period. Comparable store sales decreased 0.8% for the reported quarter. Core comparable sales, which excludes newly opened or closed stores and Nook sales, also declined 0.8%, and these were impacted by store closures and lower online sales.

NOOK sales, which include digital content, devices and accessories, fell 20% to $42 million for the quarter, due to lower device and content sales. As a result, consolidated sales declined 3.7% to $877 million for Q4 FY16, as compared to the prior year period.

The B&N Retail segment incurred an operating loss of $34.9 million, while the NOOK segment generated an operating loss of $23.1 million for the quarter under review. Consequently, consolidated Q4 FY16 net loss from continuing operations widened to $30.6 million, or $0.42 per share, compared to a loss of $3.0 million, or $0.12 per share, in the prior year period.

For Q4 FY16, the B&N Retail segment reported an EBITDA loss of $11.1 million, which includes a $20.9 million pension settlement charge. Excluding this charge, B&N Retail EBITDA would have been $9.8 million during the quarter, a decline of $23.3 million versus the prior year, due to lower sales, increased promotional activity, and higher store wages and benefit costs.

The NOOK segment’s EBITDA losses were $14.9 million for Q4 FY16, which included approximately $4 million of expenses to rationalize the segment’s cost structure. Excluding this expense, the NOOK segment’s EBITDA losses would have been consistent with that in Q3 FY16.

On a consolidated basis, Q4 FY16 EBITDA loss was at $26 million, which includes the $20.9 million pension settlement charge. Excluding the charge, consolidated Q4 FY16 EBITDA loss would have been $5.1 million. Excluding the charges noted above, the consolidated Q4 FY16 net loss from continuing operations would have been $17.8 million, or $0.24 per share.

Barnes & Noble said that books generated about 60% of bookstore revenue, while gifts, music, DVDs, toys and games contributed 20% of bookstore revenue combined. The cafe business added about 10% of bookstores’ revenue. Barnes & Noble’s estimated share of the U.S. e-book market nosedived to 9%, from a 27% market share in 2011.

FY16 operational highlights

Retail sales, which include Barnes & Noble stores and BN.com, decreased 1.9 % during FY16 to $4.0 billion as compared to the previous year. Comparable store sales were flat for the full year, in-line with the Company’s guidance. Core comparable sales, which excludes newly opened or closed stores and Nook sales, inched up 0.4% for FY16, impacted by store closures and lower online sales.

NOOK sales, which include digital content, devices and accessories, plummeted 27.4% to $191.5 million for the full year, primarily due to lower device and content sales. As a result, consolidated sales declined 3.1% to $4.16 billion for the year, as compared to the prior year.

On the brighter side, the B&N Retail segment reported an operating profit of $113.3 million for FY16, while the NOOK segment generated an operating loss of $98.6 million.

FY16 consolidated net earnings from continuing operations fell to $14.7 million, or $0.05 per share, compared to net earnings of $32.9 million, or $0.15 per share, in the prior year.

For FY16, the B&N Retail segment generated EBITDA of $215.2 million, inclusive of $35.2 million of charges, including the $20.9 million pension charge, a $10.5 million executive severance charge related to the Barnes & Noble College spin-off, and a $3.8 million publishing contract impairment. Excluding these charges, the B&N Retail segment’s EBITDA would have been $250.4 million for FY16, declining $67.3 million due to lower sales, increased advertising, and higher store wages.

The NOOK segment’s EBITDA losses narrowed to $64.7 million in FY16 compared to $83.9 million a year ago, as the Company continues to focus on cost rationalization efforts.

For the full year FY16, consolidated EBITDA was $150.5 million, which includes the $35.2 million of charges noted above. Excluding the charges, consolidated EBITDA would have been $185.7 million for the full year. Excluding the charges noted above, FY16 consolidated net earnings from continuing operations would have been $36.2 million, or $0.35 per share.

New concept stores

Barnes & Noble announced on June 22nd, 2016, that it planned to open four new concept stores in FY17 that will have an expanded food menu which include beer and wine. The first store will open in Eastchester, New York, in October 2016. Three more are set to open at the Edina Galleria in Edina, Minnesota, the Palladio in Folsom, California, and at One Loudon in Loudon, Virginia. In addition to its traditional cafe fare, Barnes & Noble will offer a full breakfast, lunch and dinner menu, together with waiter service, in a bid to increase footfall.

As part of these plans, the Company promoted Chief Operating Officer, Jaime Carey, to President of Development & Restaurant Group to oversee the new store openings. The company also appointed Michael Ladd to be its new Vice President of Stores. Barnes & Noble recently brought in new CEO, Ronald Boire, who joined on September 8th, 2015.

Spinoff

In August 2015, Barnes & Noble spun off its college bookstore Barnes & Noble Education unit into a separate publicly traded company called Barnes & Noble Education Inc. (NYSE: BNED).

Share repurchase

During Q4 FY16, Barnes & Noble spent $10.2 million for share repurchases, acquiring approximately 964,000 shares at an average price of $10.61 under its share repurchase program.

Guidance

For FY17, Barnes & Noble expects comparable bookstore sales to increase by approximately 1%. The Company also expects full year consolidated EBITDA to be in a range of $200 million to $250 million, with Retail EBITDA of $240 million to $280 million and NOOK EBITDA losses declining to a range of $30 million to $40 million. The Company plans to focus on growing its bookstore and online sales, reduce B&N Retail and NOOK expenses and grow its membership base.

Stock Performance

Source: Company's Website
Source: Company’s Website

Barnes & Noble’s stock stood at $11.28, up 0.18%, at the close on Friday, June 24th, 2016, having vacillating between an intraday high of $11.85 and a low of $10.88 during the session. The stock’s trading volume was at 3,711,500 for the day. The Company’s market cap was at $833.25 million as of Friday’s close.

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