Digital the Difference at B&N

Sales trends at Barnes & Noble are taking on a familiar pattern: flat to declining print book sales at the trade stores offset in part by the sale of Nook devices, children's products, and other nonbook merchandise, and booming sales at Barnes&Noble.com led by sales of physical books and e-content. That was the case in the second quarter ended October 30, when retail sales fell 4.5% with comps down 3.3%, while overall sales at bn.com jumped 46.7% and comp sales rose 59%. Sales at Barnes & Noble College Booksellers, which B&N bought September 30, 2009, added $798 million in revenue as comp sales fell 1.5%. Looking at prospects for the all-important holiday season, B&N predicted that comp sales at B&N.com will increase 75%, led by core products and digital content, with sales of digital content hitting a full-year run of $400 million by the end of fiscal 2011 in April. Same-store sales at the retail outlets are expected to be up 5% to 7% in the third quarter, led again by sales of Nook and Nookcolor devices, children's products (including educational toys and games), and other nonbook merchandise.

In the conference call discussing the second-quarter performance, B&N executives made it clear that they will continue to look for additional products to replace shrinking physical book sales. CEO William Lynch said the ability of B&N to sell $300 digital readers has B&N considering the sale of other electronic products. The majority of device sales have come through B&N stores, and the Nook color is also selling well at Books-A-Million and Best Buy, Lynch said. The newly expanded toys and games department had a 42% sales increase in the quarter, and executives said it was possible that segment could grow to become as large a business as the cafe and gift sections.

Despite the digital push, B&N's Mitchell Klipper said there are no plans for B&N to close a larger number of stores, explaining that he expects eight to 10 outlets will be closed in the year as leases expire; leases are up at 110 stores.

For the first six months of fiscal 2011, revenue, boosted by the addition of sales from the college group, rose 42%, to $3.30 billion, and the net loss increased to $75.1 million, from $11.7 million in the first half of fiscal 2010. B&N expects to lose money in fiscal 2011 because of its heavy digital investments plus expenses related to the proxy fight.

Barnes & Noble Sales by Segment, Second Quarter
(in millions)

* B&N acquired Barnes & Noble College Booksellers on September 30, 2009. Source: publishers weekly