As bad as Barnes & Noble's third quarter performance was, more discouraging was the forecast by the nation's largest bookstore chain of a 6%—9% decline in comparable-store sales for the fourth quarter. In explaining the prediction, CFO Joseph Lombardi noted while sales were soft throughout the third quarter, sales were weakest in the second half, a trend that has continued into early November. While sales per customer slipped—particularly later in the period—the lack of customer traffic was largely responsible for results that were below expectations. “Traffic was the story for the quarter,” Lombardi told analysts in B&N's conference call.
The company has no plans to increase discounts to lure customers, however, since that would do little more than hurt gross margins. B&N's goal during the economic crisis, said CEO Steve Riggio, is to maintain a strong balance sheet. He emphasized to analysts that B&N has no debt and significantly lower inventory than a year ago. Even with the reduced inventory, Lombardi and Riggio both stressed, the stores remained well stocked. “Our in-store levels are as high as they have ever been,” Lombardi said.
The executives gave no indication that they expect business to improve any time soon. B&N is reducing new store openings to 15 next year, due to what it said was the cancellation or delay of many new mall developments; in a typical year B&N opens approximately 35 outlets. The reduction in openings will help B&N lower its capital expenses next year, and the company also hopes it can reduce costs in the next several years by renegotiating more favorable terms on the several hundred leases that are coming up for renewal.
While some economists worry that deflation may be coming, Riggio said he doesn't expect book prices to decline. “There is no indication from publishers that they will do anything,” Riggio said.
