B&N Cuts Its Way to Profitability

If there were any doubts that the future of Barnes & Noble lay mainly in the sale of physical products, they were erased with the release of the company’s results for the fiscal year ended May 2, 2015. Sales in the Nook segment, which B&N has been downsizing over the last two years, fell 47.8% relative to the prior fiscal year, to $263.8 million, and accounted for only 4.3% of total B&N sales, down from 7.9%. What’s more, the sale of the digital content portion of Nook fell 27.8% in the year, to $177 million, only 2.9% of total company sales. Downsizing Nook was the primary reason B&N swung to profitability in fiscal 2015, as the segment’s EBITDA loss was cut by 60%, to $86.3 million, leading to net income of $36.6 million. Lower Nook losses were enough to offset a decline in total B&N revenue, which fell 4.9%, to $6.07 billion.

While sales also declined in B&N’s retail trade segment, sales of physical products did better than sales of hardware and digital content. Core comparable store sales rose 0.5% in the trade stores, a figure that excludes Nook products; including Nook devices and accessories, comp store sales were down 1.9%. Sales at BN.com, which is part of the retail segment, also fell in the year, and though the company did not release sales figures for print and digital books, executives said the online performance mirrored other parts of the business where print books did better than digital.

In a conference call with analysts discussing year-end results, B&N CEO Mike Huseby noted that improved merchandising efforts that made the discovery of books easier led to more customer traffic in stores and buoyed sales. While the stores benefited from the stabilization of the print book market, B&N’s expansion into other areas was important in offsetting weak Nook product sales, especially the performance of the toys and educational games department, where sales rose 16% over fiscal 2014. During the year, B&N, which at one point thought it might close as many as 25 outlets in fiscal 2015, closed 13 stores and ended the fiscal year with 648 stores. It plans to close about 13 stores again in the current year.

During the call, Huseby announced that the long-delayed relaunch of BN.com would come this week. In an interview with PW, Huseby said improved functionality around such things as search and online checkout should “make for a better customer experience.” B&N had hoped to relaunch the site last summer, but postponed it until 2015 after it became clear the redesign would not be finished before the 2014 holiday season.

Huseby said he was proud of what the B&N team has accomplished in the two years since it became evident that the company would need to drastically scale back its efforts in the development of hardware devices, although he acknowledged more work needs to be done. Next up is the spinoff of the college division, now known as Barnes & Noble Education, which is proceeding at full pace to become its own company by the end of this August, Huseby said.

After the college division becomes independent, Huseby is hopeful that fully integrating the Nook business with the retail stores will not only lead to more operating efficiencies, but will also unearth new ideas on ways the physical and online units can work together to stabilize sales of digital content, something he said would take time. Huseby added that he remained confident there are “lots of unexploited opportunities” in the Nook business that can grow, pointing to Nook Press as one area that has not realized its full potential. Huseby explained that the since much of management’s time has been spent getting Nook’s losses under control, executives had not had much time to find ways to grow different digital units. Huseby said he expects that to change, as the retail and digital arms are better integrated, and that despite the shrinking digital presence at B&N he has no plans to abandon the format. “Our customers have shown they like buying digital content,” Huseby said, “and we will meet their demand.”

Barnes & Noble, Segment Results, Fiscal 2014–2015

($ in millions)