Barnes & Noble Reports Fiscal 2013 Third Quarter Financial Results
Barnes & Noble Reports Fiscal 2013 Third Quarter Financial Results
Strategic Committee to Evaluate Sale of Retail Business
NEW YORK--(BUSINESS WIRE)-- Barnes & Noble, Inc.
Third quarter consolidated revenues were $2.2 billion, a decrease of 8.8% as compared to the prior year. Third quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) were $55 million, as compared to $150 million a year ago. Third quarter consolidated net losses were $6.1 million, as compared to net earnings of $52 million a year ago. Third quarter results were adversely impacted by NOOK inventory charges and promotional allowances discussed below in the NOOK section. Third quarter net losses were $0.18 per share, which includes the impact of the dividend on redeemable preferred shares, as compared to net earnings of $0.71 per share a year ago.
On January 23, 2013, the company announced the completion of its strategic partnership with Pearson, which invested $89.5 million in NOOK Media LLC for preferred membership interests representing a 5% equity stake. Following the closing of the transaction, Barnes & Noble now owns approximately 78.2% of the NOOK Media subsidiary and Microsoft, which also holds preferred membership interests, owns approximately 16.8%.
The company ended the third quarter with cash of $214 million and no borrowings under its $1 billion Revolving Credit facility, as compared to a net debt position of $74 million a year ago.
Third Quarter 2013 Results from Operations
Segment results for the fiscal 2013 and fiscal 2012 third quarters are as follows:
|$ in millions||Increase/(Decrease)||Increase/(Decrease)|
|Q3 2013||Q3 2012||$||%||Q3 2013||Q3 2012||$||%|
(1) Represents the elimination of intercompany sales from NOOK to Barnes & Noble Retail and Barnes & Noble College on a sell through basis.
The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $1.5 billion for the quarter, decreasing 10.3% over the prior year. This decrease was attributable to a 7.3% decline in comparable store sales, store closures and lower online sales. Core comparable store sales, which exclude sales of NOOK products, decreased 2.2% as compared to the prior year. Sales of NOOK products in the Retail segment declined during the quarter due to lower unit volume.
Despite the sales decline, Retail EBITDA increased 7.3%, from $198 million to $212 million during the third quarter, resulting from a higher sales mix of higher margin core products and expense management.
The College segment, which consists of the Barnes & Noble College bookstores business, had revenues of $517 million, decreasing 1.6% as compared to a year ago. Comparable College store sales decreased 5.2% for the third quarter as compared to the prior year period, as the back-to-school rush season extended past the close of the company's third fiscal quarter. Factoring in the two additional weeks in February that contributed to this year's rush season, comparable store sales decreased 2.1% for the quarter. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.
College EBITDA decreased $1.3 million during the quarter as compared to a year ago to $34 million. College's product margins improved during the quarter on a higher mix of higher margin textbook rentals, while expenses increased due to new store growth and continued investments in digital education.
The NOOK segment, which consists of the company's digital business (including devices, digital content and accessories), had revenues of $316 million for the quarter. This represents a decline of 26% as compared to the same period a year ago, primarily as a result of lower device unit volume. In addition, the company 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. Digital content sales increased 6.8% for the third quarter over the prior year.
NOOK EBITDA losses were $190 million for the third quarter, as compared to $83 million a year ago, primarily resulting from the previously noted sales shortfall, inventory charges, and higher operating expenses. The company recorded $59 million of additional inventory charges during the third quarter, as the holiday sales shortfall resulted in higher than anticipated levels of finished and unfinished goods. Operating expenses increased over the prior year on higher advertising costs.
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 the company projects will significantly reduce NOOK's expenses.
"In terms of the NOOK Media business, we've taken significant actions to begin to right size our cost structure in the NOOK segment, while also taking a large markdown on NOOK devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters," said William Lynch, Chief Executive Officer of Barnes & Noble. "NOOK Media has been financing itself since October of 2012 due to the strong investment partners we've been able to attract in Microsoft and Pearson. Coming off the holiday shortfall, we're in the process of making some adjustments to our strategy as we continue to pursue the exciting growth opportunities ahead for us in the consumer and digital education content markets." Mr. Lynch also said that going forward NOOK Media still remains committed to its Tablet and e-Reader business. And, he reiterated that NOOK and Barnes & Noble bookstores will continue to have a close relationship. "Without question, our bookstores have made a significant contribution to NOOK's success over the past three years. And, in turn, our award-winning line of NOOK products have proven to be a strong driver of traffic to our stores."
For fiscal year 2013, the company continues to expect Retail comparable bookstore sales to decline on a percentage basis in the low- to mid-single digits. College comparable store sales are now expected to decline on a percentage basis in the low single digits. NOOK Media revenues, which includes the NOOK and College businesses, are expected to be approximately $2.5 billion. The company expects fourth quarter NOOK segment EBITDA losses to be comparable to last year's fourth quarter loss.
Strategic Committee to Evaluate Sale of Retail Business
On February 25, 2013, the company announced that its Board of Directors has received notice from Mr. Leonard Riggio, the Company's founder, largest stockholder and Chairman of the Board, that Mr. Riggio plans to propose to purchase all of the assets of the retail business of Barnes & Noble.
The process of evaluating a proposal and negotiation of any transaction will be overseen by a Strategic Committee of three independent directors: David G. Golden, David A. Wilson and Patricia L. Higgins, who is Chair of the Strategic Committee.
There can be no assurance that the review of Mr. Riggio's proposal or the consideration of any transaction will result in a sale of the retail business or in any other transaction. There is no timetable for the Strategic Committee's review. The Company does not intend to comment further regarding the evaluation of Mr. Riggio's proposal, unless and until definitive agreements for a transaction are entered into or the Strategic Committee determines to conclude the process.
A conference call with Barnes & Noble, Inc.'s senior management will be webcast beginning at 10:00 A.M. ET on Thursday, February 28, 2013, and is accessible at www.barnesandnobleinc.com/webcasts.
Barnes & Noble, Inc. will report fiscal 2013 year-end results on or about June 18, 2013.
About Barnes & Noble, Inc.
Barnes & Noble, Inc. (NYS: BKS) is a Fortune 500 company and the leading retailer of content, digital media and educational products. The company operates 677 Barnes & Noble bookstores in 50 states, and one of the Web's largest e-commerce sites, BN.com (www.bn.com). Its NOOK Media LLC subsidiary is a leader in the emerging digital reading and digital education markets. The NOOK digital business offers award-winning NOOK® products and an expansive collection of digital reading and entertainment content through the NOOK Store™ (www.nook.com), while Barnes & Noble College Booksellers, LLC operates 678 bookstores serving over 4.6 million students and faculty members at colleges and universities across the United States. Barnes & Noble is proud to be named a J.D. Power and Associated 2012 Customer Service Champion and is only one of 50 U.S. companies so named. Barnes & Noble.com is ranked the number one online retailer in customer satisfaction in the book, music and video category and a Top 10 online retailer overall in customer satisfaction according to ForeSee E-Retail Satisfaction Index (Spring Top 100 Edition).
General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com.
This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "will," "forecasts," "projections," and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.
Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble's products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risk that component parts will be rendered obsolete or otherwise not be able to be effectively utilized in devices to be sold, possible risk that financial and operational forecasts and projections are not achieved, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders' store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions with Microsoft and Pearson do not achieve the expected benefits for the parties including the risk that NOOK Media's applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that any subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media or other separation of Barnes & Noble's businesses results in adverse impacts on Barnes & Noble or NOOK Media (including as a result of termination of agreements and other adverse impacts), the potential impact on Barnes & Noble's retail business of any separation, the potential tax consequences for Barnes & Noble and its shareholders of a subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media or other separation of Barnes & Noble's businesses, the risk that the international expansion contemplated by the relationship with Microsoft or otherwise is not successful or is delayed, the risk that NOOK Media is not able to perform its obligations under the Microsoft commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation of the NOOK digital and College businesses or other separation of Barnes & Noble's businesses, the risk that Barnes & Noble may not recoup its investments in the NOOK digital business as part of any separation transaction, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble's control, including those factors discussed in detail in Item 1A, "Risk Factors," in Barnes & Noble's Annual Report on Form 10-K and Form 10-K/A, and in Barnes & Noble's other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK e-reader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.
|BARNES & NOBLE, INC. AND SUBSIDIARIES|
|Consolidated Statements of Operations|
|(In thousands, except per share data)|
|13 weeks ended||13 weeks ended||39 weeks ended||39 weeks ended|
|January 26, 2013||January 28, 2012||January 26, 2013||January 28, 2012|
|Cost of sales and occupancy||1,674,384||1,786,308||4,118,037||4,237,451|
|Selling and administrative expenses||494,094||502,870||1,319,896||1,329,620|
|Depreciation and amortization||55,761||60,273||171,409||173,699|
|Operating income (loss)||(294||)||89,673||(47,358||)||8,719|
|Interest expense, net||8,772||8,773||25,835||26,675|
|Income (loss) before taxes||(9,066||)||80,900||(73,193||)||(17,956||)|
|Net income (loss)||$||(6,058||)|
|Income (loss) per common share:|
|Weighted average common shares outstanding:|
|Percentage of sales:|
|Cost of sales and occupancy||75.3||%||73.2||%||74.0||%||73.7||%|
|Selling and administrative expenses||22.2||%||20.6||%||23.7||%||23.1||%|
|Depreciation and amortization||2.5||%||2.5||%||3.1||%||3.0||%|
|Operating income (loss)||0.0||%||3.7||%||-0.9||%||0.2||%|
|Interest expense, net||0.4||%||0.4||%||0.5||%|