Dive Brief:
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Shares of Barnes & Noble were down 9% early Friday after the bookseller on Thursday posted a fiscal 2017 third quarter sales drop of 8% compared to the same period last year, with Q3 same-store sales declining an even more alarming 8.3%. Roughly one third of that decline is due to falling demand for once-popular coloring books and art supplies, as well as the lack of new music from Adele, the company said.
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The company’s Q3 retail sales, including stores and its website, declined 7.5% to $1.3 billion for the quarter, as e-commerce sales in the period rose 2.2%. Q3 NOOK sales, which include e-books, devices and accessories, declined 25.7% to $38.4 million. Consolidated third quarter earnings before interest, tax, depreciation and amortization was $157.8 million, as compared to $169 million a year ago.
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The retailer said it expects its troubles to continue into this year, warning that same-store sales could decline 7% and consolidated EBITDA would be in a range between $180 million and $190 million, excluding some items.
Dive Insight:
There is perhaps no other fad that rose and fell quite as dramatically as the adult coloring book phenomenon. The activity — touted as a path to the inner child, creativity and meditative calm — helped jack up Barnes and Noble’s results at the holidays in 2015. But these days the books and attendant art supplies can be mostly found in clearance shelves at retailers from big box stores to drugstores. The retailer was also apparently dependent on Adele, who also helped drive sales in 2015 with a blockbuster release.
That suggests that Barnes and Noble’s fortunes are terribly dependent on the most whimsical aspects of the market. Plus, Leonard Riggio, in a conference call with analysts, made a convincing argument that the election, controversies in the news, debates and other events dominating the news pushed book authors off the evening news, therefore denying booksellers a natural, unpaid marketing channel.
“I’m not looking to and we are not looking to make any excuses here for our decline in sales. Nevertheless, we have to identify what the causes are before we take action,” Riggio said, according to a transcript from Seeking Alpha. “The book authors and the book subjects stop appearing on the evening news programs, certainly the commentator programs, great shows like CBS Sunday Morning, and even one of the biggest drivers of book sales, which is the morning news shows, the morning entertainment shows. All the talk now is about politics, and books have been starved of any presence there. We see cookbooks and health books and fashion and dieting — so, so many books become explosive as a result of their exposure on TV and in the newspapers. That has all but dried up.”
That has recovered somewhat from the election, he added, though new controversies are still keeping softer segments like book talks off the news.
He told analysts that the company will be cutting expenses to protect profits, but acknowledged that the real challenge is to reverse its sales trends. “[S]mart expense reduction… will only last so long. Maybe we’ve got another two years of having expense reductions,” he said. “I don’t know that we can get to the $80 million again, but we’ll have expense reductions but then you kind of run out of gas there. Our future is going to be determined by reversing the negative sales.”
On the bright side, the company’s new stores are doing well, and children’s books continue to be a healthy segment. The company is also still in search of a new chief executive, said Riggio, who delayed his retirement to return as CEO after the abrupt departure last year of Ronald D. Boire (who spent less than a year in the role). Riggio is in no hurry to leave the post, he said, adding that Chief Operating Officer Demos Parneros — whom he described as “intelligent, he is vastly experienced in retail, he’s run more than 3,000 stores for Staples. He’s a lifetime retailer, he’s very smart, he’s taken to this job, he’s all-in”— is a top candidate for the position.