With plans to open fewer superstores in 2003 than in 2002 and a prediction of sluggish same-store growth, the sales increase from Barnes & Noble's bookstore group is expected to be modest this year.
In a conference call with analysts discussing year-end results, B&N executives said the company will open 30 to 40 new superstores in 2003, down from the 47 it opened last year. Same-store sales growth at the superstores is predicted to range from flat to up 1%. In its Dalton unit, comp-store sales are forecasted to fall between 6% and 7%, and plans call for closing as many as 50 outlets in the year. Despite the outlook for modest top-line growth, the company said it expects earnings per share for the bookstore group to increase to between $1.61 and $1.65 this year, compared to $1.52 last year. The year has gotten off to a slow start, with comp sales from B&N's superstores expected to fall 3.5% to 5% in the first quarter, due in part to bad weather in February.
In a review of last year's financial performance, revenue at B&N's bookstore group rose 4.5%, to $3.85 billion, in the fiscal year ended February 1, though operating profit fell to $200 million from $214 million. As reported earlier this year (News, Feb. 24), superstore sales rose 6.4%, to $3.6 billion, while Dalton sales fell 16.2%, to $260 million. In addition to its stores, bookstore results include publishing revenue, which generated about 3.5% of the group's sales last year; that figure includes about two weeks of sales from Sterling Publishing. Total sales for the company, including B&N's GameStop division, rose 8.2%, to $5.27 billion, and net income increased 56%, to $99.9 million.
B&N CEO Steve Riggio said bookstore sales last year were especially soft in two areas: hardcover bestsellers, where sales had a "steep decline"; and in the computer book category, where sales fell for the third year in a row. Riggio said the slump in bestseller sales has carried over into 2003. Riggio said he couldn't pinpoint the reason why bestseller sales have fallen off, although he suggested that "perhaps we need a fresh crop of new brand-name writers." He noted that the top seller for the chain last week was The Da Vinci Code and observed that author Dan Brown "may have a franchise on his hands." Book segments that grew in the year were led by lifestyles, romance and domestic travel, as well as spoken-word audio. Music sales also rose in the year, as did B&N's café and gift businesses.
Publishing Update
Although publishing accounted for only 3.5% of B&N's bookstore sales of $3.85 billion in 2002, the subject was much discussed by analysts and Riggio in the conference call. Riggio said publishing remains a "key element" in the company's growth plans, noting that B&N will roll out six new programs in the second half of this year. He said with the Sterling purchase, B&N should easily achieve its goal of having publishing account for 10% of revenue within five years. Riggio told analysts that while Sterling has great content, "we didn't buy it for its existing inventory. We want to dramatically expand the scope" of its publishing program. Riggio said Sterling "excels" in several categories that are growing rapidly at the chain, including cooking, crafts and gardening. He lauded Sterling's price points as "sharper" than its competitors, and said B&N will aggressively merchandise Sterling titles, as well as those from other publishers, "that give value."
The decision by Borders Group and Costco not to carry Sterling's titles will have a "minimal affect" on Sterling's business, Riggio said, claiming that B&N had expected some disruptions to occur following the purchase. He said Sterling can overcome the loss of bookseller accounts because of its strengths in special markets. Chief financial officer Larry Zilavy said that accounts that choose not to carry Sterling titles are giving B&N "an exclusive" on certain titles.
