Total sales at Barnes & Noble.com fell by less than 1% for the first quarter ended March 31, to $106 million, and the company cut its net loss to $13.1 million from $20.5 million. The e-tailer's sales continued to be hampered by a weak performance in its corporate sales division, which had a 43.8% sales decline, to $6.4 million. Sales in its consumer division rose 4.6%, to $99.5 million.
Company chief financial offer Kevin Frain said the drop in corporate sales is largely due to B&N.com's decision to shut down Fatbrain.com in last year's first quarter. As part of closing Fatbrain, B&N.com eliminated its unprofitable accounts to focus on its core accounts, mainly Fortune 500 companies. Frain said he expects to see better results in corporate sales in the future. The company is also hoping to see higher sales for its used books and out-of-print titles. B&N.com has created a new legal entity, Barnes & Noble BookQuest, which will handle its used books and o.o.p. operation. The main effect of the change is that customers who buy used books from B&N.com will now receive the items directly from the seller; in the past, the books went to B&N.com, which then shipped them to buyers. Frain said the change in tactics will lower book prices and speed delivery. He declined to discuss the size of the company's used books business, but acknowledged the new service was created to grow the business. B&N.com, which offers 30 million used and out-of-print books, has to date downplayed its used books operation while rival Amazon.com has trumpeted its service even in the face of author complaints.
Looking ahead to the rest of the year, B&N.com said it expects sales in the second quarter to be between $80 million and $85 million, compared to sales of $85.8 million in last year's second quarter. For all of 2003, B&N.com is forecasting sales of between $415 million and $450 million, a slight reduction from earlier forecasts, which put sales in the year between $430 million and $470 million. Sales in 2002 were $422 million. Despite the lower estimate, B&N still expects to cut its losses in the year.
The company's future earnings, however, could be affected by events unfolding in California. That state's Board of Equalization is auditing B&N.com to determine if the e-tailer avoided paying state tax in 1999, when it handed out coupons in B&N's physical stores. The board said that because of the coupon program, B&N.com had a presence in the state—a nexus—which means it should have collected sales tax. Frain said the ruling is an attempt by California to expand the definition of nexus and that the e-tailer is likely to fight the ruling in court.
