The sale of print and digital content led to a 2.5% increase in revenue at Barnes & Noble in the first quarter ended July 28, with total sales rising to $1.45 billion. Net loss in the quarter fell to $41 million from $56.6 million in the first quarter of fiscal 2012. While sales of print books and e-books rose, sales of devices fell in the period due to lower average selling prices and production scaling issues surrounding the newly launched Glowlight e-reader that resulted in unmet demand, B&N said.
B&N’s retail segment posted the strongest growth in the quarter, with sales up 2%, to $1.12 billion as comparable store sales rose 4.6% led by sales of the Fifty Shades of Grey trilogy. Book sales were especially strong, with physical book sales up 8.3% and B&N noting that excluding sales of Nook products, comp sales rose 7.6%. In addition to Grey sales, B&N said it continues to benefit from the liquidation of Borders and decline in shelf space for books at other retailers that as led to an increase in consumer traffic. Sales of juvenile books also did well in the quarter as did sales of educational toys and games. BN.com continued to be a weak spot with sales falling in the quarter. The company closed two bricks-and-mortar stores in the quarter, but CEO William Lynch said B&N still plans to rollout "a handful" of new stores this year.
While sales in the Nook segment were flat (up $1 million to $192 million), B&N said that sales of digital content increased 46%, offsetting the drop in device revenue. In the college segment, sales were also flat, up $1 million to $221 million, with comp sales down 2.0%. B&N opened 25 new college bookstores and closed five in the period and Lynch said B&N believes it has more opportunities to grow in the college segment as schools look to outsource their bookstores.
The Nook and college segments are due to become part of a new subsidiary being formed in partnership with Microsoft and B&N said the creation of Newco continues as planned with the closing still expected to occur this fall.
Improved comps, higher digital content sales and improved cost management resulted in EBITDA of $4 million in the quarter, compared to negative EBITDA of $24 million in last year’s first quarter. The improvement was due entirely to the retail segment where EBITDA rose 88%, to $75 million; negative EBITDA in the Nook division increased to $57 million from $51 million which B&N attributed to price reductions and continued investment. Some of that invesment was aimed at "internationalizing" the Nook platform Lynch said, ahead of its rollout in the U.K. and for the Microsoft e-bookstores. (An announcement of its U.K. retail partners will come in the next few days, Lynch said). Results in the quarter would have been better if production issues had not delayed the shipment of Glowlight, Lynch said. Those manufacturting issues have been resolved he added, and Glowlight is now available at B&N stores as well as other outlets, Lynch said.
The second quarter of fiscal 2012 will be an important one for the company as it focuses on closing the Microsoft deal, rolls out its international Nook business, and ramps up its textbook rental program in the back-to-school period. And while company executives still expect to benefit from the closing of Borders through the calendar year, the gains will lessen over time with comp store sales at retail bookstores expected to fall in the low to mid single digits.
