Barnes & Noble Reports Fiscal 2011 Second Quarter Financial Results

Barnes & Noble.com Comparable Sales Increase 59% – Driven By Digital Initiatives

Barnes & Noble Launches NOOKcolor™ to Critical Acclaim

Holiday Sales Off to a Strong Start

NEW YORK--()--Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales and earnings for its fiscal 2011 second quarter ended October 30, 2010.

SECOND QUARTER RESULTS

Total sales for the second quarter were $1.9 billion, including sales of Barnes & Noble College Booksellers (“College”) of $798 million. Excluding College, total sales increased 1% over the prior year period. Comparable sales at Barnes & Noble.com increased 59% driven by increases in core products and sales of digital devices and digital content. Barnes & Noble comparable store sales decreased by 3.3% and College’s comparable store sales decreased by 1.5%.

The expansion of the Toys & Games department at Barnes & Noble stores produced a 42% sales increase for the department during the second quarter. In the third quarter, the company began testing additional concepts, including an expanded children’s offering and digital and electronics accessories, to drive further sales increases in 2011.

For the second quarter, the company reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $46 million. The consolidated second quarter net loss was $12.6 million, or $0.22 per share, in-line with previously issued guidance of earnings of $0.05 per share to a loss of $0.25 per share.

As previously announced, the company continued to invest heavily in digital initiatives including: software and cloud services development costs; expenses relating to NOOKcolor; the addition of hundreds of thousands of titles to its digital catalog including a subscription management platform for digital newspapers and magazines; creating interactive proprietary content for children’s books; developing applications to serve multiple reading and smartphone devices – including iPad®, iPhone®, Android™ and BlackBerry®; and the rollout of NOOK Boutiques in Barnes & Noble retail stores.

The additional investments are expected to continue and peak during the second half of the year, and then increase moderately in the years ahead. Payoff for these expenses is estimated to begin to appear in the third quarter, when NOOKcolor is expected to be one of the world’s most sought after eReaders, and in the third and fourth quarters, when NOOKcolor owners will begin downloading digital content, including books and magazines.

BARNES & NOBLE LAUNCHES NOOKcolor

At the end of the second quarter, Barnes & Noble launched NOOKcolor, the first Reader’s Tablet that enables customers to purchase interactive digital content on a full color touch screen. Concurrent with the introduction of NOOKcolor the company introduced NOOKnewsstand™ and NOOKkids™, enabling customers to access periodicals, magazines, and interactive children’s books. Additional device features include web browsing, the ability to listen to music and much more.

NOOKcolor has received widespread critical acclaim from many technology publications, including the Wall Street Journal, which called the product “a winner.” Orders for NOOKcolor significantly exceeded the company’s expectations, and since going on sale on November 16, 2010, it has become the single bestselling product at Barnes & Noble.

“Since launching our eBookstore in the second half of last year, Barnes & Noble has quickly captured approximately 20% of the exploding eBook market. We have plans to grow our share well beyond 20%, and the early success of NOOKcolor is encouraging,” said William Lynch, chief executive officer of Barnes & Noble, Inc. “Selling digital content is becoming a big business for us that we expect to grow at exciting rates. Based upon the double-digit comparable store sales achieved over the past weekend, we are further convinced that eReaders and accessories will be a key holiday gift item and driver of holiday sales this year, leading to accelerating eContent sales in the quarters and years ahead. We’re continuing to invest in this opportunity to build the most expansive catalog of digital content available for sale, the best reading software on the market, and devices that deliver the most innovative digital reading experiences.”

GUIDANCE

Barnes & Noble.com’s comparable sales are expected to increase by approximately 75% for both the third quarter and the full year. The company believes these sales increases will be driven primarily by growing sales in core products and the exploding digital content business. By fiscal year end, the company expects that digital content sales will achieve a $400 million full-year run-rate.

Barnes & Noble comparable store sales are expected to increase between 5% and 7% for the third quarter, and to be in a range of flat to 3% for the full year. Increases in sales will be largely driven by sales of NOOK™ devices and accessories, and by increases in children’s products and other non-book merchandise.

During the three-day post-Thanksgiving weekend, the company experienced a strong comparable store sales increase of 17.2% at Barnes & Noble stores and a comparable sales increase of 105.7% online.

College’s comparable store sales are expected to be in a range of flat to a decrease of 2% for the third quarter and the full year.

The company expects to achieve EBITDA of approximately $160 to $190 million and $170 million to $205 million, for the third quarter and the full year, respectively. Third quarter earnings per share are expected to be in a range of $0.90 to $1.20. Full-year fiscal 2011 losses per share are expected to be in a range of $0.75 to $1.15.

BARNES & NOBLE DECLARES QUARTERLY DIVIDEND

The company’s Board of Directors declared a quarterly cash dividend of $0.25 per share payable on December 31, 2010 to stockholders of record on December 10, 2010. At the end of the second quarter, the company had borrowings of approximately $377 million under its $1 billion revolving credit facility. The company’s financial position remains strong and the revolving credit facility provides ample room for the company to fund its strategic investments.

UPDATE ON STRATEGIC ALTERNATIVE PROCESS

As previously announced on August 3, 2010, Barnes & Noble’s Board of Directors has created a Special Committee to review strategic alternatives, including a possible sale of the company. This review process is currently ongoing and the company is meeting with both strategic and financial institutions.

There can be no assurance that the review of strategic alternatives will result in a sale of the company or in any other transaction. There is no timetable for the review, and the company does not intend to comment further regarding the evaluation of strategic alternatives, until a specific transaction is recommended by the Special Committee or the process is concluded.

CONFERENCE CALL

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Tuesday, November 30, 2010, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report holiday sales on or about January 6, 2011.

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 637 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 two million titles in its eBookstore (www.bn.com/ebooks). Through Barnes & Noble’s NOOK™ 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, and Section 21E of the Securities Exchange Act of 1934, as amended) 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,” “will” 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, 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.

               
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
 
                         
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
October 30, 2010 October 31, 2009 October 30, 2010 October 31, 2009
 
Sales $ 1,905,577 $ 1,160,895 $ 3,302,147 $ 2,316,576
Cost of sales and occupancy   1,455,457     818,706     2,500,327     1,618,532  
Gross profit   450,120     342,189     801,820     698,044  
Selling and administrative expenses 403,795 324,144 786,177 612,795
Depreciation and amortization 56,777 49,169 113,681 94,022
Pre-opening expenses   27     1,284     54     2,983  
Operating (loss) profit (10,479 ) (32,408 ) (98,092 ) (11,756 )
Interest expense, net   12,791     3,945     26,053     4,248  
(Loss) income before taxes (23,270 ) (36,353 ) (124,145 ) (16,004 )
Income taxes   (10,690 )   (12,421 )   (49,023 )   (4,311 )
Net (loss) income (12,580 ) (23,932 ) (75,122 ) (11,693 )
Net loss (income) attributable to noncontrolling interests   12     (25 )   37     4  
Net income attributable to Barnes & Noble, Inc. $ (12,568 ) $ (23,957 ) $ (75,085 ) $ (11,689 )
 
 
Basic (loss) income per common share:
(Loss) income attributable to Barnes & Noble, Inc. $ (0.22 ) $ (0.43 ) $ (1.34 ) $ (0.21 )
 
Diluted (loss) income per common share:
(Loss) income attributable to Barnes & Noble, Inc. $ (0.22 ) $ (0.43 ) $ (1.34 ) $ (0.21 )
 
Weighted average common shares outstanding
Basic 56,708 55,230 56,239 55,208
Diluted 56,708 55,230 56,239 55,208
 
Dividends declared per common share $ 0.25 $ 0.25 $ 0.50 $ 0.50
 
Percentage of sales:
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy   76.4 %   70.5 %   75.7 %   69.9 %
Gross profit   23.6 %   29.5 %   24.3 %   30.1 %
Selling and administrative expenses 21.2 % 27.9 % 23.8 % 26.5 %
Depreciation and amortization 3.0 % 4.2 % 3.4 % 4.1 %
Pre-opening expenses   0.0 %   0.1 %   0.0 %   0.1 %
Operating (loss) profit -0.5 % -2.8 % -3.0 % -0.5 %
Interest expense, net   0.7 %   0.3 %   0.8 %   0.2 %
(Loss) income before taxes -1.2 % -3.1 % -3.8 % -0.7 %
Income taxes   -0.6 %   -1.1 %   -1.5 %   -0.2 %
Net (loss) income -0.7 % -2.1 % -2.3 % -0.5 %

           
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
                   
October 30, 2010 October 31, 2009 May 1, 2010
 
 
ASSETS
Current assets:
Cash and cash equivalents $ 30,163

 

95,727 60,965
Receivables, net 185,253 146,035 106,576
Merchandise inventories 1,761,118 1,730,876 1,370,111
Prepaid expenses and other current assets   126,326     101,556   181,825  
Total current assets   2,102,860     2,074,194   1,719,477  
 
Property and equipment:
Land and land improvements 8,618 9,298 8,618
Buildings and leasehold improvements 1,210,232 1,212,259 1,212,567
Fixtures and equipment   1,638,652     1,563,163   1,594,048  
2,857,502 2,784,720 2,815,233
Less accumulated depreciation and amortization   2,101,057     1,932,410   2,003,199  
Net property and equipment   756,445     852,310   812,034  
 
Goodwill 526,327 524,060 528,541
Intangible assets, net 573,789 587,913 580,962
Other noncurrent assets   59,845     68,854   64,672  
Total assets $ 4,019,266     4,107,331   3,705,686  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,318,744

 

1,279,257 868,976
Accrued liabilities 608,311 716,685 755,432
Short-term note payable   100,000     -   100,000  
Total current liabilities   2,027,055     1,995,942   1,724,408  
 
Long-term debt 376,900 325,000 260,400
Deferred taxes 310,712 281,668 311,607
Other long-term liabilities 481,426 626,717 505,903
 
Shareholders' equity:
Common stock; $.001 par value; 300,000 shares
authorized; 90,231, 88,461 and 88,993
shares issued, respectively 90 88 89
Additional paid-in capital 1,313,668 1,277,674 1,286,215
Accumulated other comprehensive loss (13,212 ) (12,015 ) (13,212 )
Retained earnings 576,277 661,481 681,082
Treasury stock, at cost, 33,360, 33,213
and 33,285 shares, respectively   (1,053,650 )   (1,050,802 ) (1,052,356 )
Total Barnes & Noble, Inc. shareholders' equity   823,173     876,426   901,818  
Noncontrolling interest   -     1,578   1,550  
Total shareholders' equity   823,173     878,004   903,368  
Commitments and contingencies   -     -   -  
Total liabilities and shareholders' equity $ 4,019,266     4,107,331   3,705,686  

           
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
($ In thousands)
   
                           
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
October 30, 2010 October 31, 2009 October 30, 2010 October 31, 2009
 
Sales  
Barnes & Noble Retail $ 930,793 975,153 $ 1,957,062 2,028,819
Barnes & Noble College 798,081 65,254 1,023,670 65,254
Barnes & Noble.com 176,703 120,488 321,415 222,503
Total $ 1,905,577 1,160,895 $ 3,302,147 2,316,576
 
Gross Margin
Barnes & Noble Retail $ 269,714 307,127 $ 565,385 641,850
Barnes & Noble College 169,150 14,669 219,847 14,669
Barnes & Noble.com 11,256 20,393 16,588 41,525
Total $ 450,120 342,189 $ 801,820 698,044
 
Selling and Administrative Expenses
Barnes & Noble Retail $ 268,446 269,156 $ 538,616 530,498
Barnes & Noble College 73,845 20,940 134,028 20,940
Barnes & Noble.com 61,504 34,048 113,533 61,357
Total $ 403,795 324,144 $ 786,177 612,795
 
EBITDA
Barnes & Noble Retail $ 1,265 36,705 $ 26,786 108,387
Barnes & Noble College 95,281 (6,289) 85,748 (6,289)
Barnes & Noble.com (50,248) (13,655) (96,945) (19,832)
Total $ 46,298 16,761 $ 15,589 82,266
 
Net Loss
EBITDA $ 46,298 16,761 $ 15,589 82,266
Depreciation and Amortization (56,777) (49,169) (113,681) (94,022)
Interest Expense, net (12,791) (3,945) (26,053) (4,248)
Income Taxes 10,690 12,421 49,023 4,311
Total $ (12,580) (23,932) $ (75,122) (11,693)
 
 
 
Percentage of sales:
 
Gross Margin
Barnes & Noble Retail 29.0% 31.5% 28.9% 31.6%
Barnes & Noble College 21.2% 22.5% 21.5% 22.5%
Barnes & Noble.com 6.4% 16.9% 5.2% 18.7%
Total 23.6% 29.5% 24.3% 30.1%
 
Selling and Administrative Expenses
Barnes & Noble Retail 28.8% 27.6% 27.5% 26.1%
Barnes & Noble College 9.3% 32.1% 13.1% 32.1%
Barnes & Noble.com 34.8% 28.3% 35.3% 27.6%
Total 21.2% 27.9% 23.8% 26.5%

Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor:
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

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Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor:
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