UPDATE: Barnes & Noble Loss Widens; Online Sales Surge
June 21 2011 - 12:31PM
Dow Jones News
Barnes & Noble Inc.'s (BKS) burgeoning digital-book business
continues to help its top line but investments that the book-store
chain is making in electronic books continues to drive losses.
The nation's largest book-store chain said its fiscal
fourth-quarter loss widened on higher expenses, though the
bookseller posted higher revenue, thanks to surging online sales.
It offered no guidance for the current fiscal year as its board of
directors continues to evaluate a takeover offer made last month by
billionaire John Malone's Liberty Media Holding Corp. (LCAPA,
LCAPB). Liberty's closely watched offer values the chain at $17 a
share, or about $1.02 billion, a valuation that some said is too
low, given the possibilities for Barnes & Noble's increasingly
popular Nook e-book device in the rapidly growing e-reader
market.
Investor focus on Barnes & Noble has increased recently
following the Liberty Media bid as well as the Chapter 11 filing by
rival Borders Group Inc. (BGPIQ) earlier this year. Liberty Media
executives have said the Nook and the vast network of retail stores
that can be used to promote it were catalysts for its offer.
Billionaire Ron Burkle's Yucaipa Cos. recently added to its
stake of nearly 20% in Barnes & Noble, at prices above
Liberty's offer, which could signal he will attempt to challenge
any deal he doesn't like. Burkle failed last year to win board
seats and to unseat Barnes & Noble Chairman Leonard Riggio,
whose continued participation and ownership in Barnes & Noble
are expected in Liberty Media's envisioned acquisition.
During a conference call, Barnes & Noble said the
liquidation of roughly 200 Borders stores hurt the many Barnes
& Noble's located near them less than it had originally thought
it would, and the company is already seeing the gains in store
traffic and sales in line with what it expected.
Barnes & Noble's main competition, especially in light of
Borders' grim prospects, comes from Amazon.com Inc. (AMZN), whose
large online selection and low prices take share from Barnes &
Noble's brick-and-mortar stores, and whose popular Kindle e-reader
still dominates well over half the e-book market. Barnes &
Noble said its e-book market share continues to grow, and it
believes it now has a 26% to 27% share. Amazon is believed by
analysts to control most of the rest, although Apple Inc.'s (AAPL)
coveted iPad line of tablet computers is luring many e-readers.
Barnes & Noble Chief Financial Officer Joseph Lombardi said
the company doesn't dispute the roughly two-thirds market share
that analysts posit for Amazon. He said Barnes & Noble believes
its market-share gains have come from it benefiting more than some
in the growth of the overall e-book market, which he attributed in
part to having a network of retail stores to display and sell the
Nook reader.
Recently, Barnes & Noble upgraded its touch-screen Nook
Color reader, which runs on Google Inc.'s (GOOG) Android operating
system, into a tablet computer that has a small but growing
applications store and is priced well below similar tablet
computers, although Nook Color doesn't yet have comparable
computing power. Last month, Barnes & Noble launched a new,
black-and-white, touch-screen Nook, designed to be the most
user-friendly e-reader and sporting an impressive battery life of
two months or more with normal use.
Lombardi said there are comparable-store gains at Barnes &
Noble stores near closed Borders locations, but he declined to
speculate as to when the bookseller would again see
comparable-store sales gains for the company as a whole.
Barnes & Noble looked at buying Borders "many, many times"
over the years, and always thought better of it, Lombardi said, and
it has no desire to buy what remains of Borders out of bankruptcy,
considering the challenges it still faces.
Borders separately said in court filings that it wants to take
opening bids on the company by July 1 and close the sale before the
end of the month; buyout firms Najafi Cos. and Gores Group are said
to be the likeliest to buy Borders.
Shares of Barnes & Noble initially fell on the results
release but pared most of those losses to trade down 11 cents at
$20.03 on Tuesday. The stock has more than doubled in the past
three months.
For the quarter ended April 30, Barnes & Noble posted a loss
of $59.4 million, or $1.04 a share, compared with a loss of $32
million, or 58 cents a share, a year earlier. Sales rose 4% to
$1.37 billion.
Analysts surveyed by Thomson Reuters estimated a loss of 91
cents a share on $1.4 billion in sales. In February, Barnes &
Noble said it wouldn't issue any forecast for the remainder of the
year, pointing at the time to the Borders bankruptcy and its effect
on the marketplace.
Comparable-store sales slipped 2.9% for the quarter, amid the
Borders liquidation during the period. Sales of college textbooks
rose 3%.
Gross margin was flat at 27.5%.
-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171;
maxwell.murphy@dowjones.com
--Mia Lamar contributed to this article.
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