B&N Feels the Post-holiday Blues

Although sales in Barnes & Noble’s retail trade operation rose 0.3% in the third quarter, which ended Jan. 26, 2019, over the third quarter of last year, and comparable store sales rose 1.1%, company executives said the investments in marketing and promotions that drove those sales resulted in a third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $133 million, down from $139.5 million last year. Moreover, the increased investments and lower-than-expected sales since mid-January caused the company to lower its EBITDA forecast for the full fiscal year ending at the end of April, from $175 million–$200 million to $140 million–$155 million. In the conference call with analysts discussing third-quarter results, chief marketing officer Tim Mantel said that from mid-January to early March, sales were down by low single digits, partly due to bad weather.

Reviewing the quarter, CFO Allen Lindstrom said nonbook sales rose by 4.9%, but book sales fell 1.2% due to lower-than-expected sales of trade paperbacks, young adult, and children’s books. Frontlist hardcover sales were strong, led by Michelle Obama’s Becoming. Mantel said the company had success with a “mini-remodel” of 91 stores aimed at putting more emphasis on educational toys and games while reducing space for struggling music and movie products. Mantel said the company will analyze how the expanded toys and games sections perform outside of the holiday period before possibly expanding them to other outlets.

B&N’s online sales were down about 2% compared to last year’s third quarter, due to pressure on textbooks as well as the success of B&N’s Buy Online, Pick Up in Store program, sales from which are credited to the stores where the books are picked up.

Though EBITDA fell in the third period, operating profit in the quarter was $79.2 million, compared to an operating loss of $34.9 million last year. Both quarters included one-time charges: this year’s third-quarter results include asset impairment charges of $22.1 million and nonrecurring professional fees of $5.1 million, while the prior year’s third quarter included asset impairment charges of $135.4 million and severance charges of $10.7 million.

The company has opened four new stores so far in the year, and “the early reading is good,” Mantel said. B&N will open two more outlets in the fiscal year’s fourth quarter.

B&N had little to say about how the strategic review of the company—initiated to consider selling the retailer after a deal last June collapsed—is going. “The process is ongoing and the company is supporting the special committee of advisors,” Lindstrom said.

New Appointments

Also during the conference call, Mantel pointed to two new hires: Sam Bennett joined B&N as v-p, marketing, leading B&N’s companywide marketing efforts to reinforce its brand positioning while developing and executing long-term plans and campaigns to drive traffic and support all of B&N’s retail and digital business. Mira Livotti joined B&N early in the quarter as v-p, general merchandise manager of Specialty Entertainment, which includes the toy, gift, and media categories.

Last week, B&N also announced the hiring of Sasha Quinton as v-p and general merchandise manager, bookstore, effective March 25. With experience that includes serving as v-p, marketing and procurement at Readerlink, Quinton will lead B&N’s publisher relations, adult trade books, and newsstand retailing. She will report Mantel.

Barnes & Noble Segment Results, Third Quarter of Fiscal 2018–2019

($ in millions)