CORRECTING and REPLACING Barnes & Noble Reports Fiscal 2011 First Quarter Financial Results

Digital Strategy Drives 53% Comparable Sales Increase at Barnes & Noble.com

Earnings per Share In-Line with Company Guidance

CORRECTION...by Barnes & Noble, Inc.

NEW YORK--()--Tenth graph of release should read: The second quarter earnings per share is expected to be in a range of $0.05 to a loss of $0.25 (sted The second quarter loss per share...).

The corrected release reads:

BARNES & NOBLE REPORTS FISCAL 2011 FIRST QUARTER FINANCIAL RESULTS

Digital Strategy Drives 53% Comparable Sales Increase at Barnes & Noble.com

Earnings per Share In-Line with Company Guidance

Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales and earnings for its fiscal 2011 first quarter ended July 31, 2010. The company also announced that its Board of Directors has declared a quarterly cash dividend of $0.25 per share payable on September 30, 2010 to stockholders of record on September 9, 2010.

NOOK™ ACCELERATES DIGITAL MARKET SHARE GAINS

Barnes & Noble is well along the path of transforming its business model from that of a multi-channel retailer to that of a leading content, commerce and technology company. In nine short months, since the launch of its NOOK eBook Reader, and one year after it entered the eBook arena, Barnes & Noble has already achieved greater market share in digital books than it has in physical books. Since launch, sales of NOOK have been nothing short of spectacular and consistently above plan – sales momentum accelerated even further following the company’s move to lower the price of NOOK from $259 to $199 and the introduction of NOOK Wi-Fi® for $149. The company continues to demonstrate the strength of its retail footprint, as NOOK counters and knowledgeable booksellers in Barnes & Noble bookstores continue to be a key component to the success of NOOK. Following the trajectory of NOOK sales, eBook sales are accelerating week-over-week, as the company continues to gain share in this incredibly fast-growing market.

“The company made significant strides executing its digital strategy during the first quarter, and all our key metrics on the digital business are well ahead of plan,” said William Lynch, chief executive officer of Barnes & Noble, Inc. “The company launched NOOK Wi-Fi, the most full-featured, low-cost dedicated eBook Reader on the market, the launch of NOOKstudy™, an innovative study platform that enables easy eTextbook and digital content management for college students, and the introduction of NOOK for Android™, free software that brings our eReading experience to millions using Android smartphones and the first of our eReading apps to feature Barnes & Noble’s new NOOK-centric branding. In addition, we are increasing the competitive advantage provided by our bookstores through the launch of full-service NOOK Boutiques, where customers can experience NOOK and speak with knowledgeable booksellers who provide device demonstrations and ongoing product support. Our digital strategy has clearly resonated with our customers as our Members – our best customers – with NOOK devices have increased their spending by approximately 20%. NOOK has also greatly expanded the Barnes & Noble customer base, with 25% of all NOOK customers new to BN.com.”

FIRST QUARTER RESULTS

Total sales for the first quarter were $1.4 billion, a 21% increase compared to the prior year. Barnes & Noble.com sales increased 42% as compared to the prior year to $145 million, with comparable sales increasing 53%. Barnes & Noble store sales decreased 2% to $1.0 billion, with comparable store sales decreasing 0.9% for the quarter. In 2011, total sales include Barnes & Noble College Bookstore (“College”) sales of $226 million. College’s comparable store sales increased 2.9%, exceeding guidance of flat comparable store sales.

For the first quarter, the company reported a consolidated net loss of $63 million, or $1.12 per share. Included in these results are pre-tax legal expenses of $9.5 million, or $0.11 per share, resulting primarily from the Delaware Court of Chancery litigation, in which the Court flatly rejected Yucaipa’s challenge to the company’s stockholders rights plan. Excluding these expenses, the first quarter net loss was $1.02 per share, in-line with previously issued guidance of $0.85 to $1.15 per share.

“As we have previously stated, the company is allocating significant financial resources to strengthen its digital businesses in fiscal 2011 to maximize our ability to power growth and capture share of the emerging digital market,” continued William Lynch. “We are encouraged by our results to date, which are ahead of plan, and remain committed to transforming Barnes & Noble to a company committed to expanding and enhancing the reading experience for book lovers and college students through rich physical and digital content, an industry-leading retail and eCommerce offering and world-class digital devices, software and technology.”

The company is financing investments in its digital strategy through working capital and its $1 billion revolving credit facility, of which $380 million was outstanding as of the end of the quarter.

GUIDANCE

For the fiscal 2011 second quarter ending October 30, 2010, comparable store sales at Barnes & Noble stores are expected to decrease between 1% to 3% and College’s comparable store sales to be flat. The company continues to expect full-year comparable store sales at Barnes & Noble stores to be in a range of flat to an increase of 3% and continues to expect College’s comparable store sales to be flat.

Due to significant legal costs incurred in the first quarter as well as anticipated future legal costs, including costs in connection with a proxy contest, the company is lowering its full year guidance by $0.25 per share. The company now expects full year net loss per share to be in a range of $0.25 to $0.65. Excluding these legal costs, the company’s full year earnings per share guidance remains essentially unchanged with previously issued guidance of $0.00 to a loss of $0.40.

The second quarter earnings per share is expected to be in a range of $0.05 to a loss of $0.25.

COMPARABLE STORE SALES DEFINITIONS

Given the recent changes in revenue recognition for the company’s business, as previously announced, the company changed its computation of comparable sales beginning with the first quarter of fiscal 2011. The Company believes that the new computation of comparable sales results will provide investors useful and important information regarding the Company’s growth and operating results. The Company's management reviews this measure internally to evaluate the Company's performance and manage its operations. The following changes to the comparable sales calculations commenced on May 3, 2010, the first day of the fiscal year ending on April 30, 2011:

Barnes & Noble Retail – Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eBook Reader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores.

Barnes & Noble College – Comparable store sales increase (decrease) is calculated on a 52-week basis, including sales from stores that have been open for at least 15 months and all eBook Reader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements, and does not include sales from closed or relocated stores. Additionally, comparable sales reflect the actual retail selling price for eBooks sold under the agency model, rather than solely the commission received. Also, for textbook rentals, comparable sales reflects 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.

Barnes & Noble.com – Comparable sales increase (decrease) is calculated on a 52-week basis and includes sales of physical and digital products made online through the company’s website and eBookstore, including sales through its eBook Reader devices, and all eBook Reader device revenue deferred in accordance with ASC 605-25 Revenue Recognition, Multiple Element Arrangements. Additionally, comparable sales reflect the actual retail selling price for eBooks sold under the agency model, rather than solely the commission received. Also, for textbook rentals, comparable sales reflects 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.

CONFERENCE CALL

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Tuesday, August 24, 2010, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report second quarter earnings results for the 2011 fiscal year ending October 30, 2010, on or about November 23, 2010.

ABOUT BARNES & NOBLE, INC.

Barnes & Noble, Inc. (NYSE: BKS), the world's largest bookseller and a Fortune 500 company, operates 717 bookstores in 50 states. Barnes & Noble College Booksellers, LLC, a wholly-owned subsidiary of Barnes & Noble, also operates 633 college bookstores serving nearly 4 million students and faculty members at colleges and universities across the United States. Barnes & Noble is the nation's top bookseller brand for the seventh year in a row, as determined by a combination of the brand's performance on familiarity, quality, and purchase intent; the top bookseller in quality for the second year in a row and the number two retailer in trust, according to the EquiTrend® Brand Study by Harris Interactive®. Barnes & Noble conducts its online business through Barnes & Noble.com (www.bn.com), one of the Web's largest e-commerce sites, which also features more than one million titles in its eBookstore (www.bn.com/ebooks). Through Barnes & Noble’s NOOKTM eReading product offering, customers can buy and read eBooks on the widest range of platforms, including NOOK eBook Readers, devices from partner companies, and hundreds of the most popular mobile and computing devices using free NOOK software.

General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com.

NOOK™, NOOKstudy™, LendMe™, Read In Store™, More In Store™ and Lifetime Library™ are trademarks of Barnes & Noble, Inc.

Other trademarks referenced in this release are the property of their respective owners.

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FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) 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” 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, 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, 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, the results or effects of any governmental review of Barnes & Noble’s stock option practices, product and component shortages, the outcome of Barnes & Noble’s evaluation of strategic alternatives, including a possible sale of Barnes & Noble, as announced on August 3, 2010, the effect on Barnes & Noble of the outcome of the election of directors at Barnes & Noble’s 2010 Annual Meeting, 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, filed with the SEC on June 30, 2010, and in Barnes & Noble’s other filings made hereafter from time to time with the SEC. 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.

IMPORTANT INFORMATION

On August 19, 2010, Barnes & Noble, Inc. (“Barnes & Noble”) filed with the Securities and Exchange Commission (the “SEC”) a revised preliminary proxy statement in connection with its 2010 Annual Meeting. Barnes & Noble plans to file with the SEC and mail to its stockholders a definitive proxy statement in connection with its 2010 Annual Meeting. Investors and stockholders are urged to read the revised preliminary proxy statement, which is available now, and the definitive proxy statement relating to the 2010 Annual Meeting and any other relevant documents filed with the SEC when they become available, because they contain (or will contain) important information. Investors and stockholders may obtain a free copy of the proxy statement and other documents (when available) that Barnes & Noble files with the SEC at the SEC’s website at www.sec.gov and Barnes & Noble’s website at www.barnesandnobleinc.com. In addition, the proxy statement and other documents filed by Barnes & Noble with the SEC may be obtained from Barnes & Noble free of charge by directing a request to Barnes & Noble, Inc., Attention: Investor Relations, 122 Fifth Avenue, New York, New York 10011.

CERTAIN INFORMATION REGARDING PARTICIPANTS

Barnes & Noble, its directors, its director nominees and certain of its officers may be deemed to be participants in the solicitation of Barnes & Noble’s stockholders in connection with its 2010 Annual Meeting. Stockholders may obtain information regarding the names, affiliations and interests of such individuals in Barnes & Noble’s Annual Report on Form 10-K for the year ended May 1, 2010, which was filed with the SEC on June 30, 2010, and its revised preliminary proxy statement for the 2010 Annual Meeting, which was filed with the SEC on August 19, 2010. To the extent holdings by certain participants of Barnes & Noble securities have changed since the amounts contained in the revised preliminary proxy statement for the 2010 Annual Meeting, such changes have been or will be reflected on Form 4s filed with the SEC. Additional information regarding the interests of such individuals can also be obtained from the definitive proxy statement relating to the 2010 Annual Meeting when it is filed by Barnes & Noble with the SEC. These documents (when available) may be obtained free of charge from the SEC’s website at www.sec.gov and Barnes & Noble’s website at www.barnesandnobleinc.com.

       
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
             
13 weeks ended   13 weeks ended
July 31, 2010 August 1, 2009
 
Sales $ 1,396,570 $ 1,155,681
Cost of sales and occupancy   1,044,870     799,826  
Gross profit   351,700     355,855  
Selling and administrative expenses 382,381 288,651
Depreciation and amortization 56,905 44,854
Pre-opening expenses   27     1,698  
Operating (loss) profit (87,613 ) 20,652
Interest expense, net   13,263     304  

(Loss) income before taxes

(100,876 ) 20,348
Income taxes   (38,333 )   8,110  
Net (loss) income (62,543 ) 12,238
Net loss attributable to noncontrolling interests   25     29  
Net income attributable to Barnes & Noble, Inc. $ (62,518 ) $ 12,267  
 
 
Basic (loss) income per common share:

(Loss) income attributable to Barnes & Noble, Inc.

$ (1.12 ) $ 0.22
 
Diluted (loss) income per common share:

(Loss) income attributable to Barnes & Noble, Inc.

$ (1.12 ) $ 0.21
 
Weighted average common shares outstanding
Basic 55,770 55,186
Diluted 55,770 56,221
 
Dividends declared per common share $ 0.25 $ 0.25
 
Percentage of sales:
Sales 100.0 % 100.0 %
Cost of sales and occupancy   74.8 %   69.2 %
Gross profit   25.2 %   30.8 %
Selling and administrative expenses 27.4 % 25.0 %
Depreciation and amortization 4.1 % 3.9 %
Pre-opening expenses   0.0 %   0.1 %
Operating (loss) profit -6.3 % 1.8 %
Interest expense, net   0.9 %   0.0 %

(Loss) income before taxes

-7.2 % 1.8 %
Income taxes   -2.7 %   0.7 %
Net (loss) income -4.5 % 1.1 %
 
         
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
                 
July 31, 2010 August 1, 2009   May 1, 2010
 
 
ASSETS
Current assets:
Cash and cash equivalents $ 27,019 157,743 60,965
Receivables, net 111,087 93,693 106,576
Merchandise inventories 1,787,683 1,229,761 1,370,111
Prepaid expenses and other current assets   187,362   124,216   181,825  
Total current assets   2,113,151   1,605,413   1,719,477  
 
Property and equipment:
Land and land improvements 8,617 9,298 8,618
Buildings and leasehold improvements 1,206,255 1,105,660 1,212,567
Fixtures and equipment   1,613,754   1,338,289   1,594,048  
2,828,626 2,453,247 2,815,233
Less accumulated depreciation and amortization   2,048,760   1,675,461   2,003,199  
Net property and equipment   779,866   777,786   812,034  
 
Goodwill 527,434 255,845 528,541
Intangible assets, net 577,300 89,798 580,962
Other noncurrent assets   62,103   13,287   64,672  
Total assets $ 4,059,854   2,742,129   3,705,686  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,267,786 760,467 868,976
Accrued liabilities 674,460 610,472 755,432
Short-term note payable   100,000   -   100,000  
Total current liabilities   2,042,246   1,370,939   1,724,408  
 
Long-term debt 380,000 - 260,400
Deferred taxes 311,158 78,960 311,607
Other long-term liabilities 496,329 379,319 505,903
 
Shareholders' equity:
Common stock; $.001 par value; 300,000 shares
authorized; 89,102, 88,380 and 88,993
shares issued, respectively 89 88 89
Additional paid-in capital 1,290,803 1,273,598 1,286,215
Accumulated other comprehensive loss (13,212 ) (12,015 ) (13,212 )
Retained earnings 603,850 699,802 681,082
Treasury stock, at cost, 33,314, 33,181
and 33,285 shares, respectively   (1,052,935 ) (1,050,115 ) (1,052,356 )
Total Barnes & Noble, Inc. shareholders' equity   828,595   911,358   901,818  
Noncontrolling interest   1,526   1,553   1,550  
Total shareholders' equity   830,121   912,911   903,368  
Commitments and contingencies   -   -   -  
Total liabilities and shareholders' equity $ 4,059,854   2,742,129   3,705,686  
 
     
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
($ In thousands)
     
      Percentage of Sales
13 weeks ended   13 weeks ended 13 weeks ended   13 weeks ended
July 31, 2010 August 1, 2009 July 31, 2010 August 1, 2009
 
Sales  
Barnes & Noble Retail $ 1,026,269 1,053,666
Barnes & Noble College 225,589 -
Barnes & Noble.com   144,712   102,015  
Total $ 1,396,570   1,155,681  
 
Gross Margin
Barnes & Noble Retail $ 295,671 334,755 28.8 % 31.8 %
Barnes & Noble College 50,697 - 22.5 % -
Barnes & Noble.com   5,332   21,100   3.7 % 20.7 %
Total $ 351,700   355,855   25.2 % 30.8 %
 
Selling and Administrative Expenses
Barnes & Noble Retail $ 270,167 261,374 26.3 % 24.8 %
Barnes & Noble College 60,184 - 26.7 % -
Barnes & Noble.com   52,030   27,277   36.0 % 26.7 %
Total $ 382,381   288,651   27.4 % 25.0 %
 
EBITDA
Barnes & Noble Retail $ 25,523 71,683
Barnes & Noble College (9,534 ) -
Barnes & Noble.com   (46,697 ) (6,177 )
Total $ (30,708 ) 65,506  
 
Net (Loss) Income
EBITDA $ (30,708 ) 65,506
Depreciation and Amortization (56,905 ) (44,854 )
Interest Expense, net (13,263 ) (304 )
Income Taxes   38,333   (8,110 )
Total $ (62,543 ) 12,238  

Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor Contacts:
Barnes & Noble, Inc.
Joseph J. Lombardi, 212-633-3215
Chief Financial Officer
jlombardi@bn.com
or
Barnes & Noble, Inc.
Andy Milevoj, 212-633-3489
Director of Investor Relations
amilevoj@bn.com

Sharing

Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor Contacts:
Barnes & Noble, Inc.
Joseph J. Lombardi, 212-633-3215
Chief Financial Officer
jlombardi@bn.com
or
Barnes & Noble, Inc.
Andy Milevoj, 212-633-3489
Director of Investor Relations
amilevoj@bn.com