Based on a recent MarketWatch article, bookstore sales seem to be improving.
(Book Store Sales, MarketWatch)
Barnes & Noble
In its annual filing, the company described itself as one of the U.S.’s largest booksellers. The company operated 640 stores in 50 states and also runs ecommerce sites, www.barnesandnoble.com, www.nook.com, www.BN.com.
(Barnes & Noble Booksellers, Image Source)
Some years ago, I thought that bookstores, such as Barnes & Noble (BKS, Financial), would soon be extinct when Amazon (AMZN, Financial) dominated selling books online. Currently, the U.S. has 12 different bookstore chains while 13 have gone out of business.
Evidently, Barnes & Noble demonstrated some form of resiliency as it had 640 stores nationwide as of April 30.
In 1997, Barnes & Noble had 431 stores nationwide*. Barnes & Noble reached its peak number of stores during the Great Recession period of 2008 and 2009. The bookseller had a 726-store count and declined gradually since.
*Barnes & Noble archive can only back track up to 1997 in its SEC filing website. Also, store number markedly went up upon inclusion of the B&N College business segment. Amazon started selling books online in 1994.
Mid-2015 was when Barnes & Noble decided to spin off its bookselling business segment, B&N College, that catered to both colleges and universities in the U.S. According to that fiscal year’s annual filing, B&N College operated 724 stores and had 453 contracts to operate with schools nationwide.
Business development
1997
Barnes & Noble’s brick-and-mortar stores contributed 76% to sales and 85% to its operating profits. The bookstore company also had another business segment called B. Dalton Bookseller, which carried Barnes & Noble’s mall strategy businesses. According to the 1997 annual filing, the latter business segment had been lagging for more than half a decade (1991-1996) and had shown negative comparative sales even before Amazon’s existence in 1994. In contrast, Barnes & Noble stores had a comparable store sale three-average of 8.93%.
Barnes & Noble acquired B. Dalton Bookseller in 1987 and continued to operate it until 2009.
2015
Barnes & Noble still had reported two business segments: B&N Retail and NOOK. B&N Retail primarily represented the 640 bookstores Barnes & Noble Booksellers trade name.
B&N Retail
According to its filings, these Barnes & Noble stores generally offer comprehensive trade book title base, a café and departments dedicated to Juvenile, Toys & Games, DVDs, Music & Vinyl, Gift, Magazine, Bargain products and a dedicated NOOK® area. The segment also included sales in the company’s ecommerce website, www.barnesandnoble.com, and its publishing operation, Sterling Publishing. Sterling Publishing, meanwhile, was founded in 1949 and is a leading publisher of nonfiction trade titles.
In fiscal year 2015, B&N Retail contributed 96.8% or $4 billion to the company’s overall sales.
NOOK
NOOK, on the other hand, represented Barnes and Noble’s digital business, such as the company’s eBookstore, digital newsstand and sales of NOOK® devices and accessories. NOOK was released initially in the U.S. in late 2009. NOOK is a brand of reading device developed by Barnes & Noble, based on the Android platform.
(A $209.99 Samsung Galaxy Tab E NOOK 9.6, Barnes & Noble website)
In 2014, NOOK Digital, wholly owned subsidiary of Barnes & Noble, and Samsung Electronics (XKRX:005930, Financial) entered a commercial agreement.
The agreement was for the subsidiary to purchase a minimum of 1 million NOOK®-Samsung co-branded devices from Samsung within 12 months from August 2014. Nonetheless, the agreement was first amended to fit a three-month extension from the original one-year period and extended to June 30, 2016, in a May 2015 amendment.
In fiscal year 2015, NOOK business segment contributed 4.6% or $191,000 to Barnes & Noble’s total sales.
Overall, neither B&N nor NOOK had been able to grow corresponding sales in the past three years, from 2014 to 2016. In fact, NOOK delivered an amazingly consistent highly disappointing negative growth figures as shown in the image below.
(Barns & Noble Business Segment Sales, Annual Filing)
Comparable sales
Barnes & Noble defined comparable store sales as the figure calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eReader device revenue deferred in accordance with Accounting Standards Codification 605-25 and did not include sales from closed or relocated stores.
Basically, comparable store sales refer to the amount of revenue a retail location generated in the most recent accounting period, relative to the amount of revenue it generated in a similar period in the past. Comparable store sales not only provide a picture of how specific locations are performing, they can also tell a story about how a retailer is performing on the whole.
(Read more: Comparable Store Sales Definition | Investopedia)
Meanwhile, the spun off B&N College also demonstrated negative comparable values. From 2013 to 2015 and prior to spinoff, the once wholly owned business delivered a comparable sales average of -1.3%.
Executive turnover
In 2013, William Lynch resigned as the bookseller’s CEO secondary to its tablet losses.
In 2015, Mitchell Klipper, CEO of Barnes & Noble’s retail group-the business segment, announced his retirement after serving as the company’s CEO since 2010. As of this time, Klipper is still in his late 50s. Nonetheless, he has been a special adviser at Barnes & Noble since May 2015.
In 2015, Michael P. Huseby resigned as Barnes & Noble CEO since 2014. Huseby received a $10.5 million severance payment. Further, Huseby has been the executive chairman of Barnes & Noble Education (BNED, Financial) since resignation from the once parent company.
On Aug. 16, Ronald Boire was ousted as the company CEO by Barnes & Noble's board of directors. According to the company announcement, “the board of directors determined that Mr. Boire was not a good fit for the organization and that it was in the interest of all parties for him to leave the company.”
A couple of days ago, Barnes & Noble's largest shareholder, 75-year-old Leonard Riggio, announced he will step down as the company’s executive chairman.
Sales and profits
In Barnes & Noble's March quarterly report, the bookseller reported a -1.82% sales growth to $1.414 billion and a contradicting 11.2% profit growth to $80.26 million year on year. The company performed well in reducing its selling and administrative expenses and also its interest expenses thereby resulting in the double-digit profit growth figure.
Valuations
According to GuruFocus data, Barnes & Noble reported a 1.4 times price-book (P/B) value ratio and a 0.19 times price-sales (P/S) ratio. The bookseller has -$24 million in trailing 12 month profits avoiding it to have a price-earnings (P/E) ratio.
The bookseller also has a trailing 12-month dividend yield of 5.24% with a 1,200% payout ratio.
Conclusion
Barnes & Noble appears to be in the search on how to eventually turn its business around. Company executives are also, in my opinion, demonstrating that it may eventually be unable to do an about face given its strategies so far.
Only the MarketWatch article above supported the conclusion that Barnes & Noble would eventually show a positive turnaround. Nonetheless, it may still be early to give up on a company that’s been earning at least $4 billion in sales annually for several years.
(Barnes & Noble share price, Google Finance)
Also, there would still be a greater risk that the company’s shares would get lower than its share price lows if it would not be successful in demonstrating good sales growth. Barnes & Noble is slated to report its quarterly earnings on Sept. 8. In this case, a conservative investor may just refuse to be attracted to Barnes & Noble’s attractive dividend yield and just watch the company from the sidelines.
Disclosure: I do not own any shares mentioned in this article.
Start a free seven-day trial of Premium Membership to GuruFocus.
