Barnes & Noble presented the most detailed look yet at how the growth in digital-related sales has impacted its business in releasing results for the year and fourth quarter ended April 28. The company reported that sales in the newly broken-out Nook business unit rose 34.3% in the year, to $933 million, while the division posted an EBITDA loss of $266 million compared to $209 million in fiscal 2011. In the retail segment, which now includes trade stores plus BN.com, sales slipped 1.5%, to $4.85 billion, but EBITDA rose 22.4%, to $317 million. Overall, sales in the year rose to $7.13 billion and the net loss was trimmed to $68.9 million from $73.9 million.
In the Nook segment, which consists of the company’s digital business (including digital eaders, digital content and accessories), comparable sales increased 1% for the fourth quarter while increasing 45% for the full year. Device sales declined during the fourth quarter due to higher third-party channel partner returns, lower selling volume and lower average selling prices, B&N said, noting that it took back Nook Simple Touch inventory following the holiday sales shortfall. Digital content sales increased 65% for the fourth quarter and 119% for the full year on a comparable basis, growing comparable digital content sales to $483 million for the full year. Digital content sales are defined as digital books, digital newsstand, and the apps business.
Retail sales were $1.1 billion for the quarter and $4.9 billion for the full year, increasing 0.5% for the quarter while decreasing 1.5% for the fiscal year. Comparable bookstore sales increased 4.5% for the quarter and 1.4% for the full year, as compared to the prior year periods. Comparable bookstore sales benefited from the liquidation of Borders’ bookstores during fiscal 2012, increased sales of Nook products, and a strong title lineup including The Hunger Games and Fifty Shades of Grey trilogies, B&N said. Core comparable bookstore sales, which exclude sales of Nook products, increased 6.9% for the quarter and 0.7% for the full year. BN.com sales continued to decline for the quarter as well as the fiscal year.
The College segment, which includes results from the Barnes & Noble College bookstores, had revenues of $228 million for the quarter and $1.7 billion for the full year, increasing 5.7% for the quarter and decreasing 1.9% for the year, as compared to the prior year. Fourth quarter sales were positively impacted by the recognition of textbook rental sales deferred from the third quarter. However, full year sales were lower as compared to a year ago, due to a shift from selling new and used textbooks to lower priced textbook rentals, B&N said. Comparable College store sales decreased 2.2% for the quarter and 0.3% for the full year, as compared to the prior year periods. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.
In an update on the creation of Newco, its joint venture with Microsoft that will include the Nook and college segments, B&N said that it “continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the separation and close the Microsoft transaction.” In a conference call, CEO William Lynch said he expects the deal to close late in the fiscal year second quarter or early third quarter.
During the call Lynch said he expects B&N to soon announce expansion into a few international markets. Lynch said priority for the new year will be to scale the sale of its digital content business, while maintaining gross margins of 30% or better. Lynch said B&N expects much of its growth to come from sale of content rather than from hardware sales, which will be under pressure due to falling prices. He said B&N will soon make announcements about adding more content to its digital store.
