A Season of Decision For Barnes & Noble

Even when Barnes & Noble entered the reading device market with the launch of the Nook back in the fall of 2009, executives said the company’s long-term future continued to rest in selling content in both print and digital formats. So of all the results for the second quarter of fiscal 2014, which ended October 26, the one that likely worried management most was the 21.2% decline in digital content sales compared to the same period last year. In the conference call with analysts to discuss the quarterly results, Mike Huseby, president of Barnes & Noble Inc. and CEO of Nook Media, said that reversing the downward trend of content sales was the “top priority” for the multichannel retailer.

The need to improve digital content sales is one of the key reasons that, as Huseby said, B&N “is in the device business to stay.” As he told analysts, “We do understand the need to have devices in our stores and on our online shop, because selling devices is the best way to get content attachment.” Huseby explained, “We are focused on increasing [content] sales to Nook’s active user base and selling e-reading devices that are closely aligned with selling content.” The extent to which B&N will remain involved with the hardware business, however, will depend on how devices sell during the holiday period. Sales of Nook HD and HD Color devices, and other e-readers, are going as expected, executives said, but they declined to predict device sales for the holiday period. Once the holiday sales are concluded, Huseby said, B&N will decide how best to “rationalize” the Nook operation, and how the company will proceed in the hardware business.

In addition to staying in the device market, B&N is looking to improve digital sales in a number of ways, including making the Nook app for Windows 8.1 available in 32 countries, where it will sell e-books in English and in other languages. B&N also struck a deal with Samsung last week to make the Nook app for kids available on the Samsung Galaxy Tab 3 children’s device.

Nook’s poor sales overshadowed much of the other news in the quarterly report—even the fact that, through cost cutting, B&N managed to reduce the Nook segment EBITDA loss from $51.4 million in last year’s fiscal second quarter to $45.2 million in the same period this year. The trade stores performed pretty much according to plan, with comparable store sales falling 4.9% in the latest quarter, due in large part to declines in sales of Nook devices and accessories and difficult comparisons with last year’s Fifty Shades of Grey sales; excluding the Nook product, “core” comps were down 3.7%. Mitch Klipper, CEO of retail, said book comps were close to the 3.7% decline in core comps, although, he said, gift, cafe, bargain, and toys and games categories outperformed books. B&N entered the holiday season with 673 trade retail stores.

Barnes & Noble, Segment Results, Second Quarter Fiscal 2013-2014