Summary
- Barnes & Noble is in trouble, as its struggling Nook division posted another steep decline in sales.
- There were some bright spots in the report however, including an encouraging core retail comp figure.
- With the spin-off of its college division set to close in August, this new stock may prove to be the more appealing option.
Barnes & Noble (NYSE:BKS), one of America’s biggest and best-known book retailers, is struggling. In fact, some may wonder how the company is staying afloat at all, as it faces weak store traffic, cutthroat competition from online retailers, and a more or less failed e-reader offering. The company’s latest earnings report once again showed a steep decline in its Nook business, which has so far failed to pinch any significant market share from Amazon’s (NASDAQ:AMZN) Kindle. Still, there are a few bright spots to be found.
Nook headaches
With all the trouble surrounding the company’s e-reader business, some might wonder why Barnes & Noble didn’t axe the product as it had previously intended. In any case, it’s not doing results much good. Overall revenue dipped 1.8%, largely as a result of Nook sales tanking some 51% for the period. Still, the figure beat estimates. Overall comp retail store sales declined by 1%, in line with estimates, while retail core comparable sales rose by 1.7% as a result of stabilization in its physical book business and strength in other divisions such as Gifts.
Earnings weren’t quite as forgiving. Although net income rose by 14% and EPS rose 8.1% to $ 0.93, this number missed the $ 1.41 mark by miles. Still, the lackluster print wasn’t all due to weakness in the company’s all but failed e-reader venture. Taxes were a serious drag on the bottom line, with income tax for the period some 55% higher than a year ago. Also hurting results were investments in the company’s soon-to-be spun-off college textbook division.
Still, not all the news was bad. The company halved its losses in the Nook division, as cost-cutting efforts paid off for the quarter. Also, the 1.7% print in core retail same-store sales was considerably better than last year’s 0.5% decline. Finally, the company stated it would be closing less stores than previously anticipated, which is an encouraging sign.
Spin-Off
The plan to separate the company’s college textbook and retail/Nook divisions into two separate publicly-traded entities was announced last month. The move, which will manifest as a tax-free distribution to current shareholders, is expected to close in August. According to management, the split will allow investors to more accurately gauge the individual strengths and weaknesses of both divisions, as well as provide an increased focus on strategy for management.
Indeed, College seems, for all intents and purposes, to be the better performing segment. During the third quarter, sales rose by 7.2% although comps slipped by around 1.4%. EBITDA also slid by some $ 7 million as a result of continued investments to support growth and develop the digital education platform. As such, the new publicly-traded entity may prove to be a more compelling choice than the company’s retail business.
Conclusion
Faced with stiff competition from online retailers and a largely failed e-reader product, Barnes & Noble seems to be fighting an uphill battle. Q3 results were disappointing to many investors, with EPS severely missing the mark and poor revenue growth weighing on sentiment. However, plans to spin off the company’s better-performing college textbook division should allow the company to more effectively pool its resources, and with core retail comp store sales on the rise, things may not be as bad as they seem. At the moment, the stock looks like a “wait-and-see”.
Seeking Alpha PRO helps fund managers:
- Research new investment ideas
- Reduce risk
Thank you for your interest in Seeking Alpha PRO
We look forward to contacting you shortly for a conversation.
Our PRO subscription service was created for fund managers, and the cost of the product is prohibitive for most individual investors. PRO Alerts is our flagship product for individual investors who want to be faster and smarter about their stocks. To learn more about it, click here. If you are an investment professional with over $ 1M AUM and received this message in error, click here and you will be contacted shortly. Thank you for your interest in Seeking Alpha PRO
We look forward to contacting you when we have an individual investor product ready!
No comments:
Post a Comment