Both Barnes & Noble and Books-A-Million reported second-quarter sales figures for the period ended August 4, 2001, showing stronger gains than in the year's first period. The better financial performance and a strong fall book list prompted BAM chairman Clyde Anderson to predict a strong finish for the year, while B&N chairman Len Riggio was more cautious. Riggio noted that because last year's November and December sales were weak, there's room for improvement this holiday season. But he warned that "a strong second quarter does not a retail year make," and observed that despite current favorable bookstore sales trends, things could change if the economy continues to weaken.

Sales at B&N's bookstore group rose 5.7% in the quarter, to $842.7 million, while operating income slipped from $28.4 million to $28.3 million. B&N chief financial officer Maureen O'Connell said margins fell slightly due to higher discounts associated with its Reader's Advantage program. She said margins may improve because the company is buying books at more favorable prices. Riggio explained that part of the reason for the better prices was more direct buying, and added that for competitive reasons, "discussion of the price we pay for books is detrimental to us. We try to arrange for our own terms in the context of what is legal."

As usual, sales were led by B&N's superstores, which reported a 8.3% revenue increase, to $772.5 million, with comparable-store sales up 3.0%. Comparable-store sales fell 4.9% at Dalton as the mall bookstore operator endured a difficult July same-store sales were off 10.8%, due mainly to extremely strong sales last July of Harry Potter and the Goblet of Fire.

The 5.7% sales increase at its bookstores paled in comparison to the 62.6% revenue gain posted by the company's video game business, which has changed its name from Babbage's to GameStop. Sales were $206.8 million in the quarter, with comparable store sales ahead 33.1%. The company's operating loss was cut to $2.2 million from $7.5 million in last year's second quarter. As a result of GameStop's strong performance, B&N said it expects to file a registration statement this week in preparation for spinning off a minority interest in the company sometime this fall. Proceeds from the public offering would be used to reduce inter-company debt as well as to fund GameStop expansion.

Books-A-Million Bullish

Despite a 1.5% decline in comparable-store sales for the second period, Anderson said he was "very pleased," noting that not only was BAM contending with strong sales of Pokémon in last year's second quarter, but also sales of Goblet. "It's fun to see the change. We've worked hard to improve our comparable-store results," he said. Excluding Pokémon, same-store sales rose 1.6%.

In the quarter, revenues rose 11.1%, to $104 million, although the net loss increased to $676,000 from $568,000 in last year's second quarter. WhileThe Prayer of Jabez and Secrets of the Vine did very well at BAM, Anderson credited the sales improvement to a wide range of titles in a number of categories, including history, humor and literature.

BAM had a net gain of one new store in the quarter, finishing the period with 202 outlets. It devoted a substantial amount of its resources to remodeling the 18 Crown stores it acquired earlier this year. Anderson said that while progress has been made in converting the Crown stores to the BAM format, it "was not as rapid as it could have been." Nevertheless, BAM plans grand-opening events in Washington, D.C., and Chicago in the third quarter. Two additional superstores are set to be opened in the quarter and one more in the fourth period.

Anderson was extremely bullish about the prospects for the holiday season, pointing to an "outstanding" lineup of new titles, plus the belief that books make inexpensive presents in a weak economy.

BAM is depending on a strong fourth quarter to boost earnings for the entire year. For the first six months, revenues were up 7.9%, to $201.5 million, but the company had a net loss of $1.1 million, compared to a loss of $97,000 in the same period last year. BAM chief financial officer Rick Wallington said the company still expects earnings to increase 30% over fiscal 2001, when net income was $3.1 million.