Barnes & Noble has a Nook problem
Barnes & Noble on Thursday reported that fiscal 2018 first quarter total sales fell 6.6% year over year to $853 million. Same-store sales in the quarter fell 4.9% as declines in non-book categories outpaced improved book trends during the quarter, the company said in a press release. The retailer also saw lower online and Nook sales in the period, hurt by the prior year e-book settlement and lower promotional activity.
The retailer is working to rationalize its footprint, which includes both closing and opening stores, executives told analysts Thursday, according to a transcript from Seeking Alpha. CEO Demos Parneros said the company hopes to have more store openings than closures, including a smaller format that is almost ready, but "not quite there yet." Stores could open in still-appealing markets where B&N previously shuttered locations, as well as in areas without one, he said. "[I]t’s an aggressive plan and we’ll look at stores that need to close," he also said. "We’re not afraid to close an underperforming store or two."
For the full fiscal year 2018, the retailer said it continues to expect same-store bookstore sales to decline in the low single digits and full year consolidated EBITDA to be approximately $180 million.
Unlike many independent booksellers across the country, Barnes & Noble continues to falter against Amazon, which launched its massive retail disruption as a bookseller two decades ago. Some of the retailer’s ongoing struggles are due to its struggling Nook operations, its answer to Amazon’s dominant Kindle, according to GlobalData Retail Managing Director Neil Saunders, who said the company’s "unwillingness to deal with Nook is a source of frustration" and suggested the best move would be to "scrap Nook entirely."
Consolidated first quarter earnings before interest, tax, depreciation and amortization, a reflection of margins, was $11.2 million, up from $9.6 million a year ago. Nook generated EBITDA of $0.6 million, an $8.6 million improvement over the prior year on expense reductions. Retail EBITDA of $10.6 million fell $7 million, primarily due to the same-store sales decline, though that was somewhat mitigated by expense reductions, the company said.
"As usual, the disastrous Nook division led the declines, with sales plunging by 28.1% — the biggest drop in over a year," Saunders noted in an email to Retail Dive. "While Nook is now profitable at EBITDA level, its contribution of $617,000 is negligible. In any case, the segment remains loss making at an operational level and this quarter dragged down the bottom line by $2.7 million.”
Believe it or not, the bookseller is doing well selling books, but after relying heavily on adult coloring books (which are no longer so trendy) and occasional breakout music sales from the likes of Adele, its non-book sales are struggling. That showed up during this year’s back-to-school season, Saunders said.
"Customer traffic continues to weaken, and sales are down," he said of the retailer’s stores. "Some of this is down to the fact that many Barnes & Noble stores, especially older ones, are a hodgepodge of product with seemingly little coordination and thought given to ranging. As much as it is sensible to stock things like toys and games, there are lots of other places that sell these items, often at lower prices. In essence, Barnes & Noble needs to refine its non-book offer and work harder to create differentiation."
Even the company’s move to introduce more—and fancier—food and beverage sales is failing to bring in customers, in part because the effort is "rather lackluster," Saunders said.
The company has likely been held back by a series of executive shuffles in recent years, including a revolving door at the top; when Parneros arrived in April, he was the fourth named to the spot in as many years.
Barnes & Noble is likely to find success holding back expenses, but as executives admitted Thursday, it must also grow the top line. "[W]e remain far less optimistic about the sales line," Saunders warned. "While Barnes & Noble is testing new store layouts and formats, these will take time to filter through the chain. The year ahead looks like another one of slipping back."
- press release Barnes & Noble Reports Fiscal 2018 First Quarter Financial Results
- Seeking Alpha Earnings Call Transcript Barnes & Noble's CEO Demos Parneros on Q1 2018 Results
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