NEW YORK--(BUSINESS WIRE)--Barnes & Noble, Inc. (NYSE:BKS) today reported sales and earnings for its fiscal 2014 second quarter ended October 26, 2013.
Second quarter consolidated revenues decreased 8.0%, to $1.7 billion, compared to the prior year. Second quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased 13.7% to $76 million, as compared to a year ago.
“During the second quarter, Barnes & Noble grew earnings through improved margins and reduced expenses, while also completing another successful College rush season,” said Michael P. Huseby, President of Barnes & Noble, Inc. and Chief Executive Officer of NOOK Media. “The company is focused on executing its plans for the holiday season and our booksellers are prepared to welcome holiday shoppers and recommend thoughtful gift ideas for everyone on their list. We have a terrific book title line-up this holiday season, a leading assortment of educational Toys & Games and a full selection of NOOK devices, including our recently released new NOOK GlowLight.”
Second Quarter 2014 Results from Operations
Segment results for the fiscal 2014 and fiscal 2013 second quarters are as follows:
| Revenues (unaudited) | EBITDA (unaudited) | |||||||||||||||||||||||||||||||
| $ in millions | Increase/(Decrease) | Increase/(Decrease) | ||||||||||||||||||||||||||||||
| Q2 2014 | Q2 2013 | $ | % | Q2 2014 | Q2 2013 | $ | % | |||||||||||||||||||||||||
| Retail | $921 | .0 | $996 | .0 | ($75 | .0) | -7 | .5% | $36 | .6 | $30 | .2 | $6 | .4 | 21 | .2% | ||||||||||||||||
| College | $737 | .5 | $773 | .0 | ($35 | .5) | -4 | .6% | $84 | .3 | $87 | .8 | ($3 | .5) | -4 | .0% | ||||||||||||||||
| NOOK | $108 | .7 | $160 | .3 | ($51 | .6) | -32 | .2% | ($45 | .2) | ($51 | .4) | $6 | .2 | 12 | .1% | ||||||||||||||||
| Elimination (1) | ($33 | .1) | ($44 | .9) | $11 | .7 | -26 | .1% | n/a | n/a | n/a | n/a | ||||||||||||||||||||
| Total | $1,734 | .2 | $1,884 | .5 | ($150 | .4) | -8 | .0% | $75 | .7 | $66 | .5 | $9 | .1 | 13 | .7% | ||||||||||||||||
| (1) | Represents the elimination of intercompany sales from NOOK to Barnes & Noble Retail and Barnes & Noble College on a sell through basis. | |||||
Retail
The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $921 million for the quarter, a decrease of 7.5% from the prior year. The sales decrease, which was in-line with company expectations, was attributable to a comparable store sales decrease of 4.9% for the quarter, store closures and lower online sales. “Core” comparable bookstore sales, which exclude sales of NOOK products, decreased 3.7% for the quarter on lower store traffic and comparisons to the Fifty Shades of Grey trilogy a year ago.
Retail generated EBITDA of $37 million in the quarter, increasing 21.2% as compared to a year ago as the sales decline was offset by strong expense management, including higher store productivity.
College
The College segment had revenues of $738 million, decreasing 4.6% compared to a year ago. Comparable College sales decreased 3.6% for the quarter, impacted by a higher mix of lower priced used textbook rentals and lower textbook sales, partially offset by higher general merchandise sales. The second quarter includes the fall back to school rush season. Comparable College store sales reflect the retail selling price of new or used textbooks when rented.
College EBITDA declined $3 million as compared to a year ago to $84 million. The decline is primarily attributable to higher textbook rental volume, where revenues received are deferred and amortized over the rental period, which generally spans the term of the semester. The company also continued to invest in digital product development. These factors were partially mitigated by increased store count, as well as higher margins associated with textbook rentals and a greater sales mix of general merchandise.
NOOK
The NOOK segment, which consists of the company’s digital business (including digital content, devices and accessories), reported revenues of $109 million for the quarter, decreasing 32.2% from a year ago. Digital content sales were $57 million for the quarter, a decline of 21.2% compared to a year ago, due to lower average selling prices and lower device unit sales. Device and accessories sales were $51 million for the quarter, a decrease of 41.3% from a year ago, due to lower unit selling volume and lower average selling prices.
Despite the sales decline, NOOK EBITDA losses decreased $6 million as compared to a year ago to $45 million on lower device markdowns and reduced expenses.
Consolidated Results
Consolidated second quarter net earnings were $13.2 million, or $0.15 per share, compared to net earnings of $0.5 million, or a loss of $0.07 per share, in the prior year.
Guidance
The company reaffirms its previously issued full-year guidance, in which it expects Retail comparable store sales to decline in the high single digits, Core Retail comparable bookstore sales to decline in the low- to mid-single digits and College comparable store sales to decline in the low single digits.
Conference Call
A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Tuesday, November 26, 2013, and is accessible at www.barnesandnobleinc.com/webcasts.
About Barnes & Noble, Inc.
Barnes & Noble, Inc. (NYSE:BKS) is a Fortune 500 company and the leading retailer of content, digital media and educational products. The company operates 673 Barnes & Noble bookstores in 50 states, and one of the Web’s largest e-commerce sites, BN.com (www.bn.com). Its NOOK Media LLC subsidiary is a leader in the emerging digital reading and digital education markets. The NOOK digital business offers award-winning NOOK® products and an expansive collection of digital reading and entertainment content through the NOOK Store™ (www.nook.com), while Barnes & Noble College Booksellers, LLC operates 695 bookstores serving over 4.6 million students and faculty members at colleges and universities across the United States. Barnes & Noble is proud to be named a J.D. Power and Associates 2012 Customer Service Champion and is only one of 50 U.S. companies so named. Barnes & Noble.com is ranked the number one online retailer in customer satisfaction in the book, music and video category and a Top 10 online retailer overall in customer satisfaction according to ForeSee E-Retail Satisfaction Index (Spring Top 100 Edition).
General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com.
Forward-Looking Statements
This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "will,” “forecasts,” “projections,” and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.
Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble's products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risks associated with changes in the strategic direction of the device business, including possible reduction in sales of content, accessories and other merchandise and other adverse financial impacts, possible risk that component parts will be rendered obsolete or otherwise not be able to be effectively utilized in devices to be sold, possible risk that financial and operational forecasts and projections are not achieved, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the Company’s businesses resulting from the review of strategic alternatives and a potential separation of the Company’s businesses, the risk that the transactions with Microsoft and Pearson do not achieve the expected benefits for the parties or impose costs on the Company in excess of what the Company anticipates, including the risk that NOOK Media’s applications are not commercially successful or that the expected distribution of those applications is not achieved, other risks associated with the international expansion contemplated by the relationship with Microsoft, including that it is not successful or is delayed, the risk that NOOK Media is not able to perform its obligations under the Microsoft and Pearson commercial agreements and the consequences thereof, risks associated with the restatement contained in, the delayed filing of, and the material weakness in internal controls described in Barnes & Noble’s Annual Report on Form 10-K for the fiscal year ended April 27, 2013 and associated risks and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, "Risk Factors," in Barnes & Noble's Annual Report on Form 10-K for the fiscal year ended April 27, 2013, and in Barnes & Noble's other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK e-reader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.
| BARNES & NOBLE, INC. AND SUBSIDIARIES | ||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| 13 weeks ended | 13 weeks ended | 26 weeks ended | 26 weeks ended | |||||||||||||||
| October 26, 2013 | October 27, 2012 | October 26, 2013 | October 27, 2012 | |||||||||||||||
| Sales | $ | 1,734,159 | 1,884,532 | $ | 3,063,661 | 3,338,039 | ||||||||||||
| Cost of sales and occupancy | 1,272,217 | 1,402,243 | 2,233,518 | 2,439,945 | ||||||||||||||
| Gross profit | 461,942 | 482,289 | 830,143 | 898,094 | ||||||||||||||
| Selling and administrative expenses | 386,273 | 415,747 | 763,419 | 825,802 | ||||||||||||||
| Depreciation and amortization | 53,684 | 57,613 | 108,683 | 115,648 | ||||||||||||||
| Operating Income (loss) | 21,985 | 8,929 | (41,959 | ) | (43,356 | ) | ||||||||||||
| Interest expense, net | 7,555 | 8,122 | 15,107 | 17,064 | ||||||||||||||
| Income (loss) before taxes | 14,430 | 807 | (57,066 | ) | (60,420 | ) | ||||||||||||
| Income taxes | 1,201 | 306 | 16,727 | (21,093 | ) | |||||||||||||
| Net Income (loss) | $ | 13,229 | 501 | $ | (73,793 | ) | (39,327 | ) | ||||||||||
| Income (loss) per common share: | ||||||||||||||||||
| Basic | $ | 0.15 | (0.07 | ) | $ | (1.40 | ) | (0.83 | ) | |||||||||
| Diluted | $ | 0.15 | (0.07 | ) | $ | (1.40 | ) | (0.83 | ) | |||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||
| Basic | 58,956 | 58,168 | 58,862 | 58,094 | ||||||||||||||
| Diluted | 58,956 | 58,168 | 58,862 | 58,094 | ||||||||||||||
| Percentage of sales: | ||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
| Cost of sales and occupancy | 73.4 | % | 74.4 | % | 72.9 | % | 73.1 | % | ||||||||||
| Gross profit | 26.6 | % | 25.6 | % | 27.1 | % | 26.9 | % | ||||||||||
| Selling and administrative expenses | 22.3 | % | 22.1 | % | 24.9 | % | 24.7 | % | ||||||||||
| Depreciation and amortization | 3.1 | % | 3.1 | % | 3.5 | % | 3.5 | % | ||||||||||
| Operating Income (loss) | 1.3 | % | 0.5 | % | -1.4 | % | -1.3 | % | ||||||||||
| Interest expense, net | 0.4 | % | 0.4 | % | 0.5 | % | 0.5 | % | ||||||||||
| Income (loss) before taxes | 0.8 | % | 0.0 | % | -1.9 | % | -1.8 | % | ||||||||||
| Income taxes | 0.1 | % | 0.0 | % | 0.5 | % | -0.6 | % | ||||||||||
| Net Income (loss) | 0.8 | % | 0.0 | % | -2.4 | % | -1.2 | % | ||||||||||
| BARNES & NOBLE, INC. AND SUBSIDIARIES | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
| October 26, 2013 | October 27, 2012 | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 297,254 | $ | 470,994 | ||||||
| Receivables, net | 193,306 | 233,502 | ||||||||
| Merchandise inventories | 1,591,895 | 1,796,208 | ||||||||
| Prepaid expenses and other current assets | 164,590 | 143,797 | ||||||||
| Short-term deferred tax assets | 189,684 | 79,528 | ||||||||
| Total current assets | 2,436,729 | 2,724,029 | ||||||||
| Property and equipment: | ||||||||||
| Land and land improvements | 2,541 | 2,541 | ||||||||
| Buildings and leasehold improvements | 1,243,407 | 1,211,156 | ||||||||
| Fixtures and equipment | 1,919,242 | 1,833,667 | ||||||||
| 3,165,190 | 3,047,364 | |||||||||
| Less accumulated depreciation and amortization | 2,610,386 | 2,462,310 | ||||||||
| Net property and equipment | 554,804 | 585,054 | ||||||||
| Goodwill | 495,496 | 515,524 | ||||||||
| Intangible assets, net | 539,248 | 558,157 | ||||||||
| Other noncurrent assets | 52,141 | 57,218 | ||||||||
| Total assets | $ | 4,078,418 | $ | 4,439,982 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 1,226,440 | $ | 1,348,489 | ||||||
| Accrued liabilities | 544,000 | 535,961 | ||||||||
| Gift card liabilities | 313,581 | 297,191 | ||||||||
| Short-term note payable | 127,250 | - | ||||||||
| Total current liabilities | 2,211,271 | 2,181,641 | ||||||||
| Long-term debt | 105,000 | 338,400 | ||||||||
| Long-term deferred taxes | 231,027 | 266,853 | ||||||||
| Other long-term liabilities | 323,378 | 328,029 | ||||||||
| Redeemable Preferred Shares; $.001 par value; 5,000 | ||||||||||
| shares authorized; 204 and 204 shares issued, respectively | 194,166 | 192,904 | ||||||||
| Preferred Member Interests in NOOK Media, LLC | 382,512 | 289,054 | ||||||||
| Shareholders' equity: | ||||||||||
| Common stock; $.001 par value; 300,000 shares | ||||||||||
| authorized; 93,287 and 92,037 shares issued, respectively | 93 | 92 | ||||||||
| Additional paid-in capital | 1,387,941 | 1,377,992 | ||||||||
| Accumulated other comprehensive loss | (16,692 | ) | (16,635 | ) | ||||||
| Retained earnings | 327,155 | 541,016 | ||||||||
| Treasury stock, at cost, 34,281 and 33,801 shares, respectively | (1,067,433 | ) | (1,059,364 | ) | ||||||
| Total shareholders' equity | 631,064 | 843,101 | ||||||||
| Commitments and contingencies | - | - | ||||||||
| Total liabilities and shareholders' equity | $ | 4,078,418 | $ | 4,439,982 | ||||||
| BARNES & NOBLE, INC. AND SUBSIDIARIES | ||||||||||||||||||
| Segment Information | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| 13 weeks ended | 13 weeks ended | 26 weeks ended | 26 weeks ended | |||||||||||||||
| October 26, 2013 | October 27, 2012 | October 26, 2013 | October 27, 2012 | |||||||||||||||
| Sales | ||||||||||||||||||
|
Retail |
$ | 921,023 | 996,028 | $ | 1,929,225 | 2,115,415 | ||||||||||||
|
College |
737,533 | 773,007 | 963,555 | 993,725 | ||||||||||||||
|
NOOK |
108,733 | 160,347 | 261,870 | 352,322 | ||||||||||||||
|
Elimination |
(33,130 | ) | (44,850 | ) | (90,989 | ) | (123,423 | ) | ||||||||||
| Total | $ | 1,734,159 | 1,884,532 | $ | 3,063,661 | 3,338,039 | ||||||||||||
| Gross Profit | ||||||||||||||||||
|
Retail |
$ | 270,358 | 295,153 | $ | 571,084 | 633,807 | ||||||||||||
|
College |
168,035 | 168,221 | 218,284 | 219,263 | ||||||||||||||
|
NOOK |
23,549 | 18,915 | 40,775 | 45,024 | ||||||||||||||
| Total | $ | 461,942 | 482,289 | $ | 830,143 | 898,094 | ||||||||||||
| Selling and Administrative Expenses | ||||||||||||||||||
|
Retail |
$ | 233,783 | 264,974 | $ | 469,748 | 527,150 | ||||||||||||
|
College |
83,718 | 80,434 | 153,062 | 145,508 | ||||||||||||||
|
NOOK |
68,772 | 70,339 | 140,609 | 153,144 | ||||||||||||||
| Total | $ | 386,273 | 415,747 | $ | 763,419 | 825,802 | ||||||||||||
| EBITDA | ||||||||||||||||||
|
Retail |
$ | 36,575 | 30,179 | $ | 101,336 | 106,657 | ||||||||||||
|
College |
84,317 | 87,787 | 65,222 | 73,755 | ||||||||||||||
|
NOOK |
(45,223 | ) | (51,424 | ) | (99,834 | ) | (108,120 | ) | ||||||||||
| Total | $ | 75,669 | 66,542 | $ | 66,724 | 72,292 | ||||||||||||
| Net Income (Loss) | ||||||||||||||||||
|
EBITDA |
$ | 75,669 | 66,542 | $ | 66,724 | 72,292 | ||||||||||||
|
Depreciation and Amortization |
(53,684 | ) | (57,613 | ) | (108,683 | ) | (115,648 | ) | ||||||||||
|
Interest Expense, net |
(7,555 | ) | (8,122 | ) | (15,107 | ) | (17,064 | ) | ||||||||||
|
Income Taxes |
(1,201 | ) | (306 | ) | (16,727 | ) | 21,093 | |||||||||||
| Total | $ | 13,229 | 501 | $ | (73,793 | ) | (39,327 | ) | ||||||||||
| Percentage of sales: | ||||||||||||||||||
| Gross Margin | ||||||||||||||||||
|
Retail |
29.4 | % | 29.6 | % | 29.6 | % | 30.0 | % | ||||||||||
|
College |
22.8 | % | 21.8 | % | 22.7 | % | 22.1 | % | ||||||||||
|
NOOK |
31.1 | % | 16.4 | % | 23.9 | % | 19.7 | % | ||||||||||
| Total | 26.6 | % | 25.6 | % | 27.1 | % | 26.9 | % | ||||||||||
| Selling and Administrative Expenses | ||||||||||||||||||
|
Retail |
25.4 | % | 26.6 | % | 24.3 | % | 24.9 | % | ||||||||||
|
College |
11.4 | % | 10.4 | % | 15.9 | % | 14.6 | % | ||||||||||
|
NOOK |
91.0 | % | 60.9 | % | 82.3 | % | 66.9 | % | ||||||||||
| Total | 22.3 | % | 22.1 | % | 24.9 | % | 24.7 | % | ||||||||||
| BARNES & NOBLE, INC. AND SUBSIDIARIES | |||||||||||||||||
| NOOK Fiscal 2013 Segment Sales Information | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| 13 weeks ended | 13 weeks ended | 13 weeks ended | 13 weeks ended | 52 weeks ended | |||||||||||||
| July 28, 2012 | October 27, 2012 | January 26, 2013 | April 27, 2013 | April 27, 2013 | |||||||||||||
| Device and Accessories | $ | 110,256 | 87,613 | 238,118 | 35,286 | $ | 471,273 | ||||||||||
| Digital Content | 81,719 | 72,734 | 77,847 | 76,861 | $ | 309,161 | |||||||||||
| $ | 191,975 | 160,347 | 315,965 | 112,147 | $ | 780,434 | |||||||||||
| BARNES & NOBLE, INC. AND SUBSIDIARIES | ||||||||||||||||||
| Income (Loss) Per Share | ||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| 13 weeks ended | 26 weeks ended | |||||||||||||||||
| October 26, 2013 | October 27, 2012 | October 26, 2013 | October 27, 2012 | |||||||||||||||
| Numerator for basic income (loss) per share: | ||||||||||||||||||
| Income (loss) | $ | 13,229 | 501 | $ | (73,793 | ) | (39,327 | ) | ||||||||||
| Preferred stock dividends | (3,942 | ) | (3,942 | ) | (7,884 | ) | (7,884 | ) | ||||||||||
| Accretion of dividends on preferred stock | (316 | ) | (453 | ) | (631 | ) | (769 | ) | ||||||||||
| Less allocation of earnings and dividends to participating securities | (363 | ) | - | - | - | |||||||||||||
| Net income (loss) available to common shareholders | $ | 8,608 | (3,894 | ) | $ | (82,308 | ) | (47,980 | ) | |||||||||
| Numerator for diluted income (loss) per share: | ||||||||||||||||||
| Net income (loss) available to common shareholders | $ | 8,608 | (3,894 | ) | $ | (82,308 | ) | (47,980 | ) | |||||||||
| Accrual of preferred stock dividends (a) | - | - | - | - | ||||||||||||||
| Accretion of dividends on preferred stock (a) | - | - | - | - | ||||||||||||||
| Effect of dilutive options | - | - | - | - | ||||||||||||||
| Net income (loss) available to common shareholders | $ | 8,608 | (3,894 | ) | $ | (82,308 | ) | (47,980 | ) | |||||||||
| Denominator for basic and diluted income (loss) per share: | ||||||||||||||||||
| Basic weighted average common shares | 58,956 | 58,168 | 58,862 | 58,094 | ||||||||||||||
| Denominator for diluted income (loss) per share: | ||||||||||||||||||
| Basic weighted average common shares | 58,956 | 58,168 | 58,862 | 58,094 | ||||||||||||||
| Preferred shares (a) | - | - | - | - | ||||||||||||||
| Diluted weighted average common shares | 58,956 | 58,168 | 58,862 | 58,094 | ||||||||||||||
| Income (loss) per common share | ||||||||||||||||||
| Basic | $ | 0.15 | (0.07 | ) | $ | (1.40 | ) | (0.83 | ) | |||||||||
| Diluted | $ | 0.15 | (0.07 | ) | $ | (1.40 | ) | (0.83 | ) | |||||||||
| (a) Although the Company was in a net income position during the 13 weeks ended October 26, 2013, the dilutive effect of the Company’s convertible preferred shares were excluded from the calculation of income per share using the two-class method because the effect would be antidilutive. |