Traditional bookseller Barnes & Noble (NYSE:BKS) reported a huge first-quarter loss, which was made worse by legal expenses stemming from its proxy fight. Surprisingly, although earnings fell dramatically, revenue actually rose.
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Online Sales Up, Store Sales Down
Revenue from online sales grew to $145 million in the quarter, a 42% increase, while sales in Barnes & Noble stores fell to $1 billion, a 2% decline. Total revenue was $1.4 billion, a 21% increase, but this was heavily dented by cost of sales. The company lost $1.12 per share, or $62.5 million, down from a profit of 21 cents a share for $12.3 million in last year's same quarter. The shift to online sales continues, as the company reported it has a larger share of the digital book market than its 17% share of traditionally printed paper books.
Trying To Find Its Nook
Along with improved online sales, Barnes & Noble has stepped up its e-reader presence with Nook, which it will continue to market aggressively. Nook competes with Amazon's (Nasdaq:AMZN) strong-selling Kindle and Sony's (NYSE:SNE) entrant in the e-reader field. Barnes & Noble faces a formidable obstacle in the online business with Amazon's dominance, as Barnes & Noble's online segment is still a small part of its business.
Long-Term Trouble
Barnes & Noble, along with fellow bricks-and-mortar bookseller Borders Group (NYSE:BGP), faces long term difficulties. Though we wish it weren't true, the place of physical books and actual bookstores in the culture is dwindling. The technological and cultural shift to ebooks and away from physical books leaves both chains highly vulnerable with their heavy commitment to physical stores. While some booksellers such as Books A Million (Nasdaq:BAMM) continue to do well for now, Barnes & Noble is caught in the maelstrom of a declining industry. One thinks of once-mighty Blockbuster (BLOKA.PK) as a potential parallel.
Proxy Fight And Company Sale
As if the long-term downward spiral of the bricks-and-mortars book selling business isn't enough, Barnes & Noble also has been involved in a debilitating proxy fight. Billionaire Ron Burkle and his Yucaipa investment company own roughly 19% of Barnes & Noble. Burkle wants to buy more, but the Barnes & Noble board has resisted. The company said this has already cost it $9.5 million, or 11 cents a share, in pretax legal expenses. Barnes & Noble has put itself up for sale.
More Of The Same
This quarter's results shouldn't be a great surprise to those who've been following the titanic shifts in the reading and buying habits of consumers. The shift to e-reading and the eventual shift away from physically printed books being sold through bricks-and-mortar bookstores is in its infancy. Greater change will come. Not only has guidance been lowered by Barnes & Noble, but it has already experienced an alarming cash shrinkage. Though it's possible to believe that the sale of the company or perhaps Burkle wrangling control will turn the bookseller around, we don't see that. This stock is not a long term investment. It screams to investors to stay away. (For related reading, take a look at 10 Books Worth Investing In.)
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