Is Barnes & Noble All Set For A Comeback?

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Jan 14, 2015

The Association of American Publishers registered an increase of 4.4% in book sales, during the first eight months of the year. Sales were driven by 25% higher demand in the young adult category. Thus, this brings some good news to the traditional booksellers who have been suffering since the advent of online shopping of books as well as e-readers. Most of the booksellers had to close down as they were unable to compete with the growing online market.

However, Barnes & Noble (BKS, Financial) is one of those companies which has managed to sustain and remain in business by expanding its business as per the changing trends. The company introduced Nook, an e-reader, to expand its product portfolio and to compete with Amazon's (AMZN, Financial) Kindle. But the bookseller recently announced the termination of its partnership with Microsoft (MSFT, Financial) for Nook reader. This news shattered all hopes of investors since it was accompanied by lackluster second-quarter results for the company.

The numbers

The top line dropped 2.7% to $1.69 billion, as compared to the previous year. This was lower than the analysts' estimate of $1.70 billion as comp sales, including Nook sales, declined 3.6% during the quarter. Nook sales plunged 41% over last year's quarter, clocking in at $64 million since it is unable to compete with Kindle.

In fact, same store sales at the bookstores also registered growth of 0.5%. This was mainly due to an improvement in the physical book industry trends as well as many merchandising initiatives undertaken by the company.

However, the college segment was a bright spot. Revenue from this category surged 1.9% during the quarter as same store sales grew by 0.4%. Comp sales were driven by higher sales of textbooks as well as an increase in merchandising sales.

The gross margin of the company expanded 61 basis points to 27.25%. But the earnings dropped 6.8% to $0.12 per share, below the estimate of $0.17 per share.

Various initiatives

Barnes & Noble took a number of initiatives to increase Nook sales. Although it has terminated the agreement with Microsoft, it plans to spin off Nook by August next year. Also, it will have to pay $60 million to Microsoft for terminating the deal. It also introduced Samsung-branded Nook tablets in the summer season this year.

Further, it has expanded its portfolio of products in order to attract more customers. It has added new gift items, such as USB Turntable and beer kits, in addition to many toys and games so that family people can come and spend time in its stores.

Also, it partnered with Google Shopping Express to offer same-day delivery of books and other products. In addition, it made special signed book promotion on Black Friday which helped revenue grow. It made 500,000 copies of signed books from 100 authors, thereby taking advantage of the close relationship with authors and publishers.

It plans to focus on the self-publishing market through the launch of print-on-demand business to attract new authors.

Summary

These efforts together should help the book seller make customers visit its stores. Further, the upcoming holiday season should bring in more customers to the stores, especially due to the new products added to its portfolio. Moreover, the retailer has undertaken cost-cutting efforts to minimize its losses. But it is difficult to say how the company will succeed in the future since the Nook's future is still uncertain. Therefore, staying on the sidelines is a better option.