Little Cheer from Chains

Despite a boost in sales from The Lost Symbol and facing weak comparisons with last year’s third quarter, total revenue from the nation’s three largest bookstore chains dropped 2.3% in the period ended October 31, with revenue falling to $1.87 billion. Compared to the third quarter of 2007, revenue from the major chains was down 8.9%. Comparable store sales were off at all three retailers as well, despite steep drops in last year’s third quarter when the full effects of the recession began to be felt. Executives at Barnes & Noble and Borders offered little encouragement that a turnaround is coming soon. B&N said it expects comparable store sales in the current quarter to decline between 1% and 3%; Borders offered no forecast, but CEO Ron Marshall called the holidays “unpredictable.”

Borders had by far the worst quarter of the major chains, with total revenue down 13.1%. CFO Mark Bierley acknowledged that the company remains “challenged” on the top line, but said Borders has made progress in cutting its losses (loss from continuing operations was reduced to $38.5 million from $172.2 million). Marshall called the results “difficult and disappointing,” attributing the poor performance to much higher than expected costs in improving Borders’s assortment and inventory of books, plus lower than expected sales from new promotional campaigns. The company only completed bringing its book inventory up to acceptable levels at the end of October and will carry 4% to 7% more inventory than it did over the 2008 holidays, Bierley said. With the exception of some pockets of the West coast, Marshall said he is finally pleased with the condition of the stores. In the last quarter, average ticket sales were down at both the superstores and Walden units.

The average ticket sale slipped at Barnes & Noble, but CFO Joe Lombardi attributed most of the decline in comp store sales to sluggish mall traffic, and the company does not see that changing much in the current quarter, saying it expects traffic to remain “challenging” over the holidays. Indeed, CEO Steve Riggio spent much of the conference call with analysts discussing the overall opportunity for B&N, rather than focusing on prospects for the holidays. Even though B&N’s sales through its general bookstores fell in the quarter, the bookseller is picking up market share in the bricks-and-mortar segment and should continue to gain share as the industry consolidates, Riggio noted.

Sales through BN.com rose 9% in the third quarter, to $120 million, aided by sales of e-books and the company’s free-shipping offer. Riggio reiterated remarks made earlier this fall that B&N has a huge opportunity to sell digital content drawn from a variety of sources other than books to devices beyond just the Nook. He told analysts that the larger opportunity for B&N comes from selling e-books, not devices. Nevertheless, the Nook has become a big hit “far, far exceeding” expectations, Riggio said. The company is ramping up its production schedule to get the devices to consumers as soon as possible (orders placed now will begin shipping January 4). In addition to increasing resources to manufacture the Nook, B&N is developing lots of in-store marketing for the device and expects to begin doing in-store demos within two to three weeks.

For his part, Marshall said Borders will be able to talk about its digital strategy in about eight weeks. He said while he is “reasonably” pleased with the sale of the Sony Reader through Borders’s superstores, the device “is not one of the top-selling SKUs for us.”

Comp-Store Sales, Third Quarter

Chain Sales, 2008—2009
(In millions)