Barnes & Noble Tries Again

Investors, as well as members of the book publishing industry who see the survival of Barnes & Noble as crucial to maintaining a healthy bookselling environment, were cheered last week when the retailer received board approval for separating its Retail and Nook Media businesses. As shown again in its figures for the 2014 fiscal year (which ended May 3), B&N’s retail trade stores are a profitable, if shrinking, operation, while Nook Media, and the Nook division in particular, has struggled.

While B&N was able to cut the Nook unit’s losses in the year by dramatically downsizing its presence in the hardware market, the division still had negative EBITDA of $217.6 million. The college division, the other part of Nook Media, posted a 0.9% decrease in revenue for the year, but a 2.8% gain in EBITDA. During the conference call to discuss year-end results, an analyst questioned why the two retail businesses were not being kept together and the Nook division spun off. Although CEO Mike Huseby and other executives said they would not discuss further details of the spinoff until a plan is in place, Huseby said the final package may not be a simple Retail–Nook Media split. The structure of the initial proposal is motivated by the fact that Nook Media is its own entity, with Microsoft and Pearson as investors, Huseby explained. B&N plans to talk to Microsoft and Pearson before any final plan is announced about separating the divisions.

The year-end results for the B&N retail stores were somewhat encouraging, though sales fell 6.0% and EBITDA declined 5.9%. The company closed 17 stores and opened three in the last fiscal year, and for the current fiscal year said it will close about 20 outlets with no plans to open new ones. B&N finished the year with 661 trade stores. Comp-store sales fell 5.8% for the full year, but excluding Nook products, core comp sales were down 3.1%. A better selection of books helped improve spending trends in the end of the fiscal year, Mitch Klipper, CEO of Retail, said (fourth quarter Retail sales rose 0.8%). Store sales also benefitted from an 11.7% increase in sales in the toys and games department. Sales at BN.com fell in the year, but Huseby said a revamped website will launch by the end of summer. Although he declined to discuss what changes have been made to the site, he said the makeover “will give us the opportunity to do better.”

Total Nook revenue fell 35.2% in the year as hardware sales dropped 44.8%, to $260 million, and digital content sales fell 20.6%, to $246 million. The company is counting on the August release of the customized Samsung Galaxy Tab 4 Nook to jump-start content sales. The company has repeatedly said that it is aware that if it wants to increase digital content sales it needs to have a device that gives consumers a direct link to its digital store. B&N has committed to buying one million customized Galaxy Tab 4 Nooks in the 12 months following its introduction (more then 10 million Nook devices have been sold since they were launched in late 2009).

B&N said it plans to complete the separation of the companies in the first quarter of 2015. In terms of operating performance, executives said they expect to be able to continue to lower Nook division losses. They also anticipate low-single-digit declines for same-store sales in both the retail trade and college divisions.

Barnes & Noble Segment Results Fiscal 2013–2014

(in millions)

Source: Narnes & Noble