Barnes & Noble Still Positive on Holiday Sales Despite Q2 Loss

Overall sales for the quarter slipped from $1.9 billion to $1.89 billion, the company said. Retail store sales slid 1 percent from $931 million a year ago to $918 million in the quarter, the company said, with comparable store sales declining 0.6 percent. Declines in physical book sales were offset by gains in Nook products in the quarter, executives said.

The chain lowered its EBITDA guidance for the fiscal year due to increased advertising and developmental costs associated with Nook, but Chief Financial Officer Allen Lindstrom said Barnes & Noble’s revenue estimate of $1.8 billion for Nook-related products is still intact. In response to an analyst’s question about whether the sequential drop in revenue from $277 million to $220 million from Q1 to Q2 indicated a tailing off of demand for readers the farther they are from launch, Lynch said launch is just “one component of it.” The Simple Touch Reader launched at the end of May in time for the dads and grads buying season, he noted. A falloff in revenue in fiscal Q1 was part of “consumer electronics seasonality,” he said, which revolves around two key periods: dads and grads season and Christmas. “It’s endemic to the gadget business,” he said. Lindstrom said that in the back half of the year “heavier device seasonality” is followed by higher content sales.

Barnes & Noble saw positive effects from the liquidation of the remaining Borders stores, and Lindstrom said previous estimates that the Borders liquidation would bring $150 million-$200 million in revenue to Barnes & Noble were “trending in that range.” Lynch said retail comparable store sales “continue to improve,” benefiting from resurgence in previously stagnant categories including newsstand “where we hadn’t seen growth in several years.” Barnes & Noble has become “virtually the only place to browse and shop for books, magazines and other physical content,” he said, adding the company has a more favorable view of the physical media market based on improving sales in stores.

The retail chain participated in its first Black Friday promotion in several years, according to Lynch, who said sales for the company during the 3-day sales weekend were up 11 percent over 2010. The toys and games category continues to grow for Barnes & Noble but executives wouldn’t disclose revenue for the category. Barnes & Noble positioned one toy item at 50 percent off and worked with vendors to execute promotions, he said. Barnes & Noble’s toys and games strategy relies less on promotions than its competitors, including mass-market retailers and specialty toy dealers, Lynch said. “We wanted early in the holiday season to establish Barnes & Noble as a Thanksgiving shopping destination, and it seems to have worked,” he said.

As textbooks migrate to digital, Barnes & Noble expects to hold a leader position in the category, Lynch said, saying the digital textbook market is “still very, very early.” Barnes & Noble operates more than 600 college bookstores and is investing in the digital side, he said. “As that format continues to move to digital -- and it’s taking much longer than consumer trade -- not only will we have great technology and product experience, but we also have the sales and marketing channel to drive our solution to millions and millions of students,” he said. Amazon had a 2 1/2 year lead with Kindle when Nook launched, but in the digital education market, “We're leading,” he said. “If anything, we can play offense in digital education, but the percentage of sales in digital textbooks is very, very small.” Barnes & Noble’s college sales business dropped 4 percent from $797 million to $768 million in the quarter, due to a shift from selling new and used textbooks to lower priced, higher-margin textbook rentals, the company said. Barnes & Noble stock closed the day down 16.8 percent to $14.51.