Gains at Barnes & Noble.com offset declines at B&N’s retail and trade stores in the first quarter ended July 30, resulting in a 2% increase in total revenue, to $1.42 billion. The net loss in the period declined to $56.6 million from $62.5 million in the comparable period in fiscal 2011.
Comparable store sales for the retail trade outlets fell 1.6% in the quarter and were down a total of 3%, falling to $1.0 billion. B&N said that while traditional physical book sales declined during the quarter, the stores posted large increases in sales of the Nook product line and the toys & games segment. Company executives said that the decline in sales of print books slowed in the quarter as the company began to benefit from the closing of Borders stores with B&N gaining about $18 million. For the first time, B&N provided a breakout of Nook and digital sales, reporting that consolidated Nook business across all its segments rose 140%, to $277 million (19.5% of total sales). Those gains were strongest at BN.com where sales increased 37% in the quarter, to $198 million, with comparable sales increasing 65%. In addition to strong Nook device and accessories sales, sales of digital content quadruped in first quarter, B&N reported.
In a non-back-to-school period, Barnes & Noble College Bookstore sales declined 2% to $220 million, with comparable store sales decreasing 1.8%.
In prepared remarks, B&N CEO William Lynch sounded a bit like Amazon executives did in the past, emphasizing market share gains, cash flow and the need for investment. “Our strategy of growing market share in the exploding digital content business while maximizing cash flow and EBITDA from our retail operations is paying off,” said Lynch. “We plan to continue investing in the significant growth areas of our business, and in fiscal 2012, we expect to see leverage as our digital sales growth is projected to exceed the growth of investment spend. Additionally, the return on investment is expected to increase in future years, as readers purchase increasing amounts of digital content on the platform we have built.”
“The company is encouraged by the progress achieved against our strategy and believes in our plan to continue to appropriately invest in the massive digital opportunity, while delivering strong EBITDA growth this year,” Lynch added.
For the full fiscal year, 2012 total sales are forecasted to be $7.4 billion. Comparable sales at BN.com are expected to increase 60% to 70%. Comparable store sales through B&N retail outlets are expected to increase 2% to 3% and college comparable store sales are expected to be flat. The company expects to receive a $150 million to $200 million sales lift in this fiscal year once the liquidation of Borders stores is completed. CFO Joe Lombardi estimated that B&N could gain between $300 million to $400 million in new sales from former Borders customer on an annual basis. Total Nook business across all of the company’s segments, including sales of digital content, device hardware and related accessories, is expected to double this year to $1.8 billion (abut 24% of total revenue) from $880 million last year and $123 million in fiscal 2010, on a comparable sales basis.
Helping to lift sales will be what B&N expects to be its busiest holiday in five years. Lynch said based on results of Father's Day, the company is convinced customer traffic will be at levels last seen about five years ago. The company was a bit vague on plans for the number of stores it will open or close. It is looking at different Borders locations, but B&N's Mitch Klipper said that even with taking over some Borders locations the total number of stores won't grow.
The company expects full year earnings before interest, taxes, depreciation and amortization (EBITDA) to be in a range of $210 million to $250 million, representing a 30% to 50% increase compared to the prior year. This year’s EBITDA forecast includes transaction, advisory and legal costs of approximately $15 million related to the strategic alternatives process and the recently completed $204 million investment made by Liberty Media in the company. The company expects full year losses per share to be in a range of $0.10 to $0.50.
