Barnes & Noble Posts Loss In Q3 On Lower Sales, Nook Costs

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Bookstore chain and Nook eReading software provider Barnes & Noble, Inc. (BKS) on Thursday reported a loss for the third quarter, hurt by Nook inventory charges and promotional allowances in addition to lower sales at all three of its segments.

Barnes & Noble's third-quarter net loss was $6.06 million or $0.18 per share, compared to net earnings of $52.03 million or $0.71 per share in the prior-year period. The loss per share for the quarter includes the impact of a dividend on redeemable preferred shares.

On average, six analysts polled by Thomson Reuters expected earnings of $0.54 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the quarter declined 9 percent to $2.22 billion from $2.44 billion in the same period last year and missed analysts' consensus revenue estimate of $2.40 billion.

Gross margin declined to 24.7 percent from 26.8 percent in the year-ago period.

Barnes & Noble's retail store sales for the quarter declined 10 percent from last year to $1.51 billion, reflecting a 7.3 percent decline in comparable-store sales, store closures and lower online sales.

Core comparable bookstore sales, which exclude sales of Nook products, decreased 2 percent. Sales of Nook products in the retail segment declined due to lower unit volume. The retail segment includes results from the Barnes & Noble bookstores and BN.com businesses.

The College segment, which consists of the Barnes & Noble College bookstores business, recorded a 2 percent decline in revenues to $517.23 million. Comparable college store sales decreased 5.2 percent, as the back-to-school rush season extended past the close of the company's third fiscal quarter.

Sales at the Nook segment, which consists of Barnes & Noble's digital business, declined 26 percent to $315.97 million. The decline reflects lower device unit volume.

The company also recorded $21 million of incremental channel partner returns given the holiday sales shortfall, as well as $15 million of promotional allowances to optimize future sales opportunities. Meanwhile, digital content sales, including digital books, digital newsstand and the apps business, grew 7 percent from last year.

Barnes & Noble said that in response to the device sales shortfall over the holiday season, Nook is calibrating its business model and has implemented a cost reduction program that is expected to significantly reduce expenses. The company said that going forward, Nook Media still remains committed to its Tablet and e-Reader business.

Looking ahead to the fourth quarter, Barnes & Noble expects fourth-quarter Nook segment EBITDA losses to be comparable to last year's fourth-quarter loss.

For fiscal 2013, Barnes & Noble still expects retail comparable bookstore sales to decline on a percentage basis in the low- to mid-single digits, while college comparable-store sales are now expected to decline on a percentage basis in the low single digits. Nook Media revenues, including the Nook and College businesses, are projected to be about $2.5 billion.

On Monday, Barnes & Noble said its board of directors received notice from Leonard Riggio, the company's founder, largest stockholder and chairman of the board, that he plans to offer to purchase all assets of the company's retail business.

The company is in the process of evaluating a proposal and negotiation of any transaction will be overseen by a Strategic Committee of three independent directors.

In Thursday's regular session, BKS is trading at $15.00, down $0.23 or 1.51 percent on a volume of 93,439 shares.

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