More Mixed Signals From Barnes & Noble

Barnes & Noble’s second-quarter financial performance had both good news and bad news. Total revenue dipped 0.4%, to $1.88 billion, lower than analysts had expected, while sales in its fastest-growing segment, Nook, rose only 5.6%, and the loss in the group increased to $51.4 million. And while book comps at its retail stores rose 1.2% in the quarter, company executives still expect comps for the full fiscal year to be down in the low to mid single digits since last year’s sales benefited from the closing of Borders.

Unit sales of Nook devices were up in the period due to higher sales at retail partners such as Wal-Mart and Target, but fell at its own stores, and revenue was hurt by an 18% decline in the overall selling price for devices. CEO William Lynch noted, however, that it did not ship its new Nook HD and Nook HD+ tablets until after the quarter closed, and that Nook unit sales doubled over the Black Friday weekend.

Earnings in the retail trade segment doubled in the year, due in part to higher margins. The agreement with the Department of Justice reached by three publishers to abandon the agency pricing model had little effect on e-book margins, Lynch said, explaining to analysts on a conference call that most of its e-book business was not affected by the DoJ actions, and adding that among the fastest-growing e-book categories are self-published titles and digital magazines and newspapers. He noted that only HarperCollins has actually changed its pricing so far and that pricing shift had little impact on total sales. Total digital content sales rose 38% in the quarter, a rate slightly slower than in the first quarter.

A continuing soft spot remains BN.com, where sales declined again, and Lynch told analysts the company is managing the site “for profit, not growth,” noting that BN.com has dropped some affiliates.

Given the mixed second-quarter performance, B&N has a lot riding on the holiday season. The B&N stores are ready for the holidays, Lynch said, well-stocked with not only books and Nooks but educational toys and games (comp sales were up 32% in the category in the quarter), and an expanded gifts department. Historically, Lynch said, January has been the strongest month for e-book sales, and he expects that to be the case again, as consumers buy e-books and other digital content to use on newly purchased devices. To date, Lynch observed, the “large, large” majority of people buying Nooks are new, and not readers upgrading from older e-readers.

Barnes & Noble Second-Quarter Segment Results (in millions)

Source: Barnes & Noble