A Barnes and Noble store in a file photo.
Barnes & Noble sales weak, pins hopes on e-books
NEW YORK (Reuters) - Top U.S. bookseller Barnes & Noble Inc said sales at its stores dropped sharply during the holiday quarter and forecast continued weak sales, sending its shares down 6 percent.
The company, a target of billionaire investor Ron Burkle who says it lacks proper governance, said it was betting on a consumer shift to buying digital books for future growth, a market now dominated by Amazon.com.
It was the bookseller's first full reporting quarter to reflect the launch in October of its Nook e-reader and its acquisition last year of Barnes & Noble College Booksellers.
Comparable sales at its namesake stores fell 5.5 percent during the quarter and 1.3 percent at its College Bookstore stores. But online sales surged 32 percent to $210 million, spurred by the Nook, the company said.
"We expect that 2010 will be a watershed year in Barnes and Noble's transformation from being a brick and mortar retailer to becoming a major e-commerce retailer," Chief Executive Stephen Riggio said in a conference call, adding that the Nook was the bookseller's single best-selling item.
The company declined to say how much of that online rise came from the Nook compared with physical books bought on its website, but Riggio said the company could win as much market share in e-books "literally overnight."
But the push into e-books could harm long-term in-store sales, which still make up the lion's share of business.
"The Nook results are encouraging -- the company had to do this -- but e-books will cannibalize sales from existing stores," said Michael Souers, analyst at S&P Equity Research.
Barnes & Noble shares fell $1.29 to $20.22 in afternoon trading on the New York Stock Exchange.
After several production delays during the fall and into the holiday season, the Nook only became available for in-store orders earlier this month.
"We're not making money on hardware," Chief Financial Officer Joseph Lombardi told Reuters in an interview. "But we want to offer the devices to get accounts and be able to sell them the digital products for years to come."
BETTER THAN BORDERS
Barnes & Noble reported a third quarter profit of $80.4 million, or $1.38 per share compared with a profit of $85 million, or $1.42 per share, a year earlier.
Revenue totaled $2.17 billion in the quarter ended January 30, 2010, with College Bookstore contributing about one-quarter of that figure. The lower-margin college stores shaved 2.7 percentage points off the company's margins.
Analysts had forecast profit of $1.34 per share on revenue of $2.16 billion, according to Thomson Reuters I/B/E/S.
The New York-based company said it expects same-store sales at its Barnes & Noble bookstores to fall between 2 percent and 4 percent in the fourth quarter.
The company forecast a fourth-quarter loss of 85 cents to $1.15 a share. Analysts were expecting a loss of 61 cents.
Riggio said Barnes & Noble was winning market share from competitors that are closing stores. Borders Group Inc saw comparable sales fall 14.6 percent over the holidays and is closing 183 of its Waldenbooks stores.
Barnes & Noble's College Bookstore, which it bought last summer for $514 million from co-founder, Chairman and largest shareholder Leonard Riggio, is expected to see same-store sales range from a 1 percent drop to a 1 percent rise in the current quarter.
"The textbook business is a competitive business --students have options," Lombardi said, adding that growth would have to come from winning more accounts.
Burkle's Yucaipa Cos LLC has sought to nearly double its 18.7 percent stake in Barnes & Noble, a move that would make it the company's largest shareholder. But Burkle has been blocked by Leonard Riggio and the board, who put in place a poison pill anti-takeover provision in November.
Barnes & Noble, which operates 719 namesake stores, opened three stores and closed nine during the quarter.
COMMENTARY: I don't go to Barnes & Noble as much as I used too because they don't have and chairs in the book store. You have to go to the in-store Starbucks and fight for a place to sit. They really need to get that shored up.
Courtesy of an article dated February 23, 2010 appearing in Reuters
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