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Barnes & Noble Q1 Results Top Estimates; Backs 2014 Outlook

Bookstore chain Barnes & Noble, Inc. (BKS) reported Tuesday a loss for the first quarter that sharply widened from last year, reflecting a sales drop, higher income tax expenses and lower margins.

However, adjusted loss per share came in narrower than analysts' expectations, and quarterly revenues also topped their estimates. The company also maintained its guidance for the full-year 2014.

Additionally, the company's Chairman Leonard Riggio has advised the board of directors that he has suspended his planned efforts to make an offer for the company's retail business.

"While I reserve the right to pursue an offer in the future, I believe it is in the company's best interests to focus on the business at hand. Right now our priority should be to serve the more than 10 million customers who own NOOK devices, to concentrate on building our Retail business, and to accelerate the sale of NOOK products in our stores, and in the marketplace," Riggio said in a statement.

The announcements have caused that the company's shares to plummet more than 14 percent in early dealings on Tuesday.

The New York-based company posted a net loss of $87.02 million or $1.56 per share for the first quarter, wider than $39.83 million or $0.76 per share in the year-ago quarter.

Excluding a non-cash valuation allowance against certain deferred tax assets, adjusted loss for the quarter would have been $0.86 per share.

On average, five analysts polled by Thomson Reuters expected the company to report a loss of $0.89 per share for the quarter. Analysts' estimates typically exclude special items.

Consolidate sales for the quarter decreased 8.5 percent to $1.33 billion from $1.45 billion in the same quarter last year, but topped five Wall Street analysts' consensus estimate of $1.32 billion by a whisker.

Barnes & Noble retail store sales, which consists of the Barnes & Noble bookstores and BN.com businesses, decreased 9.9 percent to $1.01 billion, and comparable store sales drop was 9.1 percent. Exclude sales of NOOK products, core comparable bookstore sales decreased only 7.2 percent.

Meanwhile, Barnes & Noble College sales grew 2.4 percent to $226 million, but comparable store sales declined 1.2 percent.

The company's NOOK segment, which consists of its digital business (including devices, digital content and accessories), reported a 20.2 percent revenue drop to $153 million from last year. Device and accessories sales decreased 23.1 percent, and digital content sales were down 15.8 percent from last year.

Gross profit for the quarter contracted 90 basis points to 27.7 percent from last year's 28.6 percent.

The company incurred an income tax expense of $15.53 million in the quarter, compared to a tax benefit of $21.40 million last year.

Looking ahead to fiscal 2014, Barnes & Noble continues to expect retail comparable store sales to decline in the high single digits and College comparable store sales to drop in the low single digits. The company also still projects core retail comparable bookstore sales to decline in the low- to mid-single digits.

"Our top priority in our operating strategy is to increase all categories of our content revenue. We are working on innovative ways to sell content to our existing customers and are exploring new markets we can serve successfully," President Michael Huseby stated.

Huseby, who is also CEO of NOOK Media, added that the company intends to continue to design and develop cutting-edge NOOK black and white and color devices. The company said it intends to release at least one new NOOK device for the coming holiday season and further products are in development.

BKS closed Monday's regular trading session at $16.67, down $0.87 on a volume of 1.46 million shares.

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