Barnes & Noble Reports Fiscal 2016 Second Quarter Financial Results

NEW YORK--()--Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its fiscal 2016 second quarter ended October 31, 2015.

Sales for the second quarter were $895 million, decreasing 4.5% as compared to a year ago. The second quarter EBITDA loss was $20.5 million, which included a $10.5 million executive severance charge related to the Barnes & Noble College spin-off. Excluding this charge, the EBITDA loss was $10.0 million, a $2.2 million improvement over the prior year.

The second quarter net loss from continuing operations was $27.2 million or $0.36 per share, compared to net loss from continuing operations of $5.1 million, or $0.16 per share, in the prior year. The after-tax impact of the severance charge was $0.08 per share for the quarter.

Retail

Retail sales, which include Barnes & Noble stores and BN.com, were $861 million, decreasing 3.1% due to lower online sales, store closures and a 1% comparable store sales decrease. Excluding NOOK products, comparable store sales decreased 0.5% for the quarter.

Retail EBITDA was $0.8 million, decreasing $23.4 million as compared to the prior year. $10.5 million of the decrease was attributable to the severance charge, while the balance of the decrease was due to lower bookstore and online sales as well as bookstore wage increases.

NOOK

NOOK sales of $43.5 million decreased 31.9% due primarily to lower content sales. NOOK EBITDA losses of $21.3 million declined $15.1 million versus the prior year as the company continues to reduce expenses.

Holiday Season Update

Through Black Friday weekend, third quarter comparable store sales excluding NOOK products increased 1.1%.

“This holiday season, Barnes & Noble executed large-scale, nationwide events to create excitement and drive traffic to our stores,” said Ron Boire, chief executive officer of Barnes & Noble, Inc. “Barnes & Noble’s buyers and merchants have curated an outstanding selection of books, toys and games and gifts, and our booksellers are prepared to help customers find the perfect gift for everyone on their holiday shopping list.”

Outlook

For fiscal year 2016, the Company continues to expect comparable store sales to be approximately flat with the prior year. Excluding NOOK products, comparable store sales are expected to increase approximately 1%. The Company also expects full fiscal year EBITDA losses in the NOOK segment to decline versus the prior year.

Discontinued Operations

As a result of the College spin-off, historical College results have been adjusted to include separation related costs, including investment banking fees of $7 million, and exclude corporate allocations with Retail and have been classified as discontinued operations. Quarterly information is provided at the end of this release.

Conference Call

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 5:00 P.M. ET on Thursday, December 3, 2015, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report holiday sales on or about January 7, 2016.

About Barnes & Noble, Inc.

Barnes & Noble, Inc. (NYSE: BKS) is a Fortune 500 company, the nation’s largest retail bookseller, and a leading retailer of content, digital media and educational products. The Company operates 647 Barnes & Noble bookstores in 50 states, and one of the Web’s premier e-commerce sites, BN.com (www.bn.com). The NOOK Digital business offers a lineup of popular NOOK (www.nook.com) and UK ® tablets and eReaders and an expansive collection of digital reading and entertainment content through the NOOK Store®. The NOOK Store features more than 4 million digital books in the US (www.nook.co.uk), plus periodicals, comics, apps, movies and TV shows, and offers the ability to enjoy content across a wide array of popular devices through Free NOOK Reading Appsavailable for Android, iOS® and Windows®.

General information on Barnes & Noble, Inc. can be obtained by visiting the Company's corporate website at www.barnesandnobleinc.com.

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,” “forecasts,” “projections,” 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, including store closings, higher-than-anticipated or increasing costs, including with respect to store closings, relocation, occupancy (including in connection with lease renewals) and labor costs, the effects of competition, the risk of insufficient access to financing to implement future business initiatives, risks associated with data privacy and information security, risks associated with Barnes & Noble’s supply chain, including possible delays and disruptions and increases in shipping rates, various risks associated with the digital business, including the possible loss of customers, declines in digital content sales, risks and costs associated with ongoing efforts to rationalize the digital business and the digital business not being able to perform its obligations under the Samsung commercial agreement and the consequences thereof, the risk that financial and operational forecasts and projections are not achieved, the performance of Barnes & Noble’s online and other initiatives, effects on Barnes & Noble and its remaining businesses resulting from the separation of Barnes & Noble Education, unanticipated adverse litigation results or effects, potential infringement of Barnes & Noble’s intellectual property by third parties or by Barnes & Noble of the intellectual property of third parties, risks associated with the SEC investigation disclosed in the quarterly report on Form 10-Q for the fiscal quarter ended October 26, 2013, and other factors, including those factors discussed in detail in Item 1A, “Risk Factors,” in Barnes & Noble’s Annual Report on Form 10-K for the fiscal year ended May 2, 2015, 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)
(Unaudited)
 
  13 weeks ended   13 weeks ended     26 weeks ended   26 weeks ended

October 31, 2015

 

November 1, 2014

October 31, 2015

 

November 1, 2014

 
Sales $ 894,654 $ 936,544 $ 1,873,213 $ 1,946,897
Cost of sales and occupancy   624,868     650,813     1,303,329     1,326,564  
Gross profit   269,786     285,731     569,884     620,333  
Selling and administrative expenses 290,281 297,914 562,411 571,647
Depreciation and amortization   35,064     36,954     68,717     74,679  
Operating loss (55,559 ) (49,137 ) (61,244 ) (25,993 )
Interest expense, net   2,338     5,288     5,257     11,202  
Loss before taxes (57,897 ) (54,425 ) (66,501 ) (37,195 )
Income taxes   (30,694 )   (49,316 )   (31,547 )   (34,109 )
Net loss from continuing operations (27,203 ) (5,109 ) (34,954 ) (3,086 )
Income (loss) from discontinued operations   (12,023 )   17,407     (39,146 )   (13,065 )
Net income (loss) $ (39,226 ) $ 12,298   $ (74,100 ) $ (16,151 )
 

Basic income (loss) per common share:

Loss from continuing operations

$

(0.36 )

$

(0.16 )

$

(0.64 )

$

(0.21 )
Income (loss) from discontinued operations   (0.16 )   0.28     (0.55 )   (0.22 )
Basic income (loss) per common share

$

(0.52 )

$

0.12  

$

(1.20 )

$

(0.43 )
 
Diluted income (loss) per common share:
Loss from continuing operations

$

(0.36 )

$

(0.16 )

$

(0.64 )

$

(0.21 )
Income (loss) from discontinued operations   (0.16 )   0.28     (0.55 )   (0.22 )
Diluted income (loss) per common share

$

(0.52 )

$

0.12  

$

(1.20 )

$

(0.43 )
 
Weighted average common shares outstanding:
Basic 75,557 59,343 70,552 59,289
Diluted 75,557 59,343 70,552 59,289
 
Dividends declared per common share $ 0.15 $ - $ 0.30 $ -
 
Percentage of sales:
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy   69.8 %   69.5 %   69.6 %   68.1 %
Gross profit   30.2 %   30.5 %   30.4 %   31.9 %
Selling and administrative expenses 32.4 % 31.8 % 30.0 % 29.4 %
Depreciation and amortization   3.9 %   3.9 %   3.7 %   3.8 %
Operating loss -6.2 % -5.2 % -3.3 % -1.3 %
Interest expense, net   0.3 %   0.6 %   0.3 %   0.6 %
Loss before taxes -6.5 % -5.8 % -3.6 % -1.9 %
Income taxes   -3.4 %   -5.3 %   -1.7 %   -1.8 %
Net loss from continuing operations -3.0 % -0.5 % -1.9 % -0.2 %
Income (loss) from discontinued operations   -1.3 %   1.9 %   -2.1 %   -0.7 %
Net income (loss) -4.4 % 1.3 % -4.0 % -0.8 %
 

 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
(Unaudited)
 
       
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended

October 31, 2015

 

November 1, 2014

October 31, 2015

 

November 1, 2014

 
Sales  
Retail $ 860,705 $ 888,159 $ 1,799,703 $ 1,842,966
NOOK 43,496 63,866 97,831 133,893
Elimination   (9,547 )   (15,481 )   (24,321 )   (29,962 )
Total $ 894,654   $ 936,544   $ 1,873,213   $ 1,946,897  
 
Gross Profit
Retail $ 253,219 $ 265,203 $ 535,003 $ 559,193
NOOK   16,567     20,528     34,881     61,140  
Total $ 269,786   $ 285,731   $ 569,884   $ 620,333  
 
Selling and Administrative Expenses
Retail $ 252,435 $ 240,991 $ 488,915 $ 469,991
NOOK   37,846     56,923     73,496     101,656  
Total $ 290,281   $ 297,914   $ 562,411   $ 571,647  
 
EBITDA
Retail $ 784 $ 24,212 $ 46,088 $ 89,202
NOOK   (21,279 )   (36,395 )   (38,615 )   (40,516 )
Total $ (20,495 ) $ (12,183 ) $ 7,473   $ 48,686  
 
Net Income (Loss)
EBITDA $ (20,495 ) $ (12,183 ) $ 7,473 $ 48,686
Depreciation and amortization (35,064 ) (36,954 ) (68,717 ) (74,679 )
Interest expense, net (2,338 ) (5,288 ) (5,257 ) (11,202 )
Income taxes 30,694 49,316 31,547 34,109
Income (loss) from discontinued operations   (12,023 )   17,407     (39,146 )   (13,065 )
Total $ (39,226 ) $ 12,298   $ (74,100 ) $ (16,151 )
 
 
Percentage of sales:
 
Gross Margin
Retail 29.4 % 29.9 % 29.7 % 30.3 %
NOOK   48.8 %   42.4 %   47.5 %   58.8 %
Total 30.2 % 30.5 % 30.4 % 31.9 %
 
Selling and Administrative Expenses
Retail 29.3 % 27.1 % 27.2 % 25.5 %
NOOK   111.5 %   117.6 %   100.0 %   97.8 %
Total 32.4 % 31.8 % 30.0 % 29.4 %
 

 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
  October 31, 2015   November 1, 2014
 
ASSETS
Current assets:
Cash and cash equivalents $ 13,367 $ 31,869
Receivables, net 82,355 76,505
Merchandise inventories 1,219,878 1,203,988
Prepaid expenses and other current assets 148,589 91,180
Short-term deferred taxes 117,816 117,819
Current assets of discontinued operations   -     786,725  
Total current assets 1,582,005 2,308,086
 
Property and equipment:
Land and land improvements 2,541 2,541
Buildings and leasehold improvements 1,061,527 1,071,489
Fixtures and equipment   1,573,300     1,687,368  
2,637,368 2,761,398
Less accumulated depreciation and amortization   2,314,184     2,395,347  
Net property and equipment   323,184     366,051  
 
Goodwill 215,197 219,119
Intangible assets, net 315,038 316,921
Other noncurrent assets 12,302 11,902
Noncurrent assets of discontinued operations   -     617,737  
Total assets $ 2,447,726   $ 3,839,816  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 730,387 $ 761,259
Accrued liabilities 325,393 315,880
Gift card liabilities 330,474 328,403
Current liabilities of discontinued operations   -     545,320  
Total current liabilities   1,386,254     1,950,862  
 
Long-term debt 192,000 64,000
Deferred taxes 133,611 146,537
Other long-term liabilities 153,435 339,438
Noncurrent liabilities of discontinued operations - 131,205
 
Redeemable Preferred Shares - 195,428
 
Preferred Member Interests in NOOK Media, LLC - 384,282
 
Shareholders' equity:
Common stock; $0.001 par value; 300,000 shares authorized;
110,595 and 93,956 shares issued, respectively 111 94
Additional paid-in capital 1,731,696 1,409,088
Accumulated other comprehensive loss (16,533 ) (27,520 )
Retained earnings (51,045 ) 318,471
Treasury stock, at cost, 34,961 and 34,519, respectively   (1,081,803 )   (1,072,069 )
Total Barnes & Noble, Inc. shareholders' equity   582,426     628,064  
Noncontrolling interest   -     -  
Total shareholders' equity   582,426     628,064  
Commitments and contingencies   -     -  
Total liabilities and shareholders' equity $ 2,447,726   $ 3,839,816  
 

 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Earnings (Loss) Per Share
(In thousands, except per share data)
(Unaudited)
 
       
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended

October 31, 2015

November 1, 2014

October 31, 2015

November 1, 2014

Numerator for basic income (loss) per share:
Net loss from continuing operations attributable to Barnes & Noble, Inc. $ (27,203 ) $ (5,109 ) $ (34,954 ) $ (3,086 )
 
Inducement fee paid upon conversion of Series J preferred stock - - (3,657 ) -
Preferred stock dividends - (3,941 ) - (7,883 )
Preferred stock dividends paid in shares - - (1,783 ) -
Accretion of dividends on preferred stock - (758 ) (4,204 ) (1,516 )
Less allocation of dividends to participating securities (332 ) - (692 ) -
Less allocation of undistributed earnings to participating securities   -     587     -     -  
 
Net loss from continuing operations available to common shareholders (27,535 ) (9,221 ) (45,290 ) (12,485 )
 

Net income (loss) from discontinued operations attributable to Barnes &
Noble, Inc.

(12,023 ) 17,407 (39,146 ) (13,065 )
Less allocation of undistributed earnings to participating securities   -     (1,042 )   -     -  
 

Net income (loss) from discontinued operations available to common
shareholders

  (12,023 )   16,365     (39,146 )   (13,065 )
Net income (loss) available to common shareholders $ (39,558 ) $ 7,144   $ (84,436 ) $ (25,550 )
 
Numerator for diluted income (loss) per share:
Net loss from continuing operations available to common shareholders $ (27,535 ) $ (9,221 ) $ (45,290 ) $ (12,485 )
 
Preferred stock dividends (a) - - - -
Accretion of dividends on preferred stock (a) - - - -
Allocation of undistributed earnings to participating securities - 587 - -
Less diluted allocation of undistributed earnings to participating securities   -     (587 )   -     -  
Net loss from continuing operations available to common shareholders (27,535 ) (9,221 ) (45,290 ) (12,485 )
 

Net income (loss) from discontinued operations available to common
shareholders

(12,023 ) 16,365 (39,146 ) (13,065 )
Allocation of undistributed earnings to participating securities - 1,042 - -
Less diluted allocation of undistributed earnings to participating securities   -     (1,042 )   -     -  

Net income (loss) from discontinued operations available to common
shareholders

  (12,023 )   16,365     (39,146 )   (13,065 )
Net income (loss) available to common shareholders $ (39,558 ) $ 7,144   $ (84,436 ) $ (25,550 )
 
Denominator for basic income (loss) per share:
Basic weighted average common shares 75,557 59,343 70,552 59,289
 
Denominator for diluted income (loss) per share:
Basic weighted average common shares 75,557 59,343 70,552 59,289
Preferred shares (a) - - - -
Average dilutive options (a)   -     -     -     -  
Diluted weighted average common shares   75,557     59,343     70,552     59,289  
 
Basic income (loss) per common share:
Loss from continuing operations $ (0.36 ) $ (0.16 ) $ (0.64 ) $ (0.21 )
Income (loss) from discontinued operations   (0.16 )   0.28     (0.55 )   (0.22 )
Basic income (loss) per common share $ (0.52 ) $ 0.12   $ (1.20 ) $ (0.43 )
 
Diluted income (loss) per common share:
Loss from continuing operations $ (0.36 ) $ (0.16 ) $ (0.64 ) $ (0.21 )
Income (loss) from discontinued operations   (0.16 )   0.28     (0.55 )   (0.22 )
Diluted income (loss) per common share $ (0.52 ) $ 0.12   $ (1.20 ) $ (0.43 )
 

(a) Although the Company was in a net income position during the 13 weeks ended November 1, 2014, the dilutive effect of the Company’s convertible preferred shares and stock options were excluded from the calculation of income per share using the two-class method because the effect would be antidilutive.

 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
(Unaudited)
 
           
13 weeks ended 13 weeks ended 13 weeks ended 13 weeks ended 52 weeks ended 13 weeks ended
August 2, 2014   November 1, 2014   January 31, 2015   May 2, 2015   May 2, 2015   August 1, 2015
 
Sales
Retail $ 954,807 $ 888,159 $ 1,395,917 $ 869,360 $ 4,108,243 $ 938,998
NOOK 70,027 63,866 77,509 52,431 263,833 54,335
Elimination   (14,481 )   (15,481 )   (33,294 )   (11,712 )   (74,968 )   (14,774 )
Total $ 1,010,353   $ 936,544   $ 1,440,132   $ 910,079   $ 4,297,108   $ 978,559  
 
Gross Profit
Retail $ 293,990 $ 265,203 $ 481,760 $ 268,444 $ 1,309,397 $ 281,784
NOOK   40,612     20,528     24,024     31,363     116,527     18,314  
Total $ 334,602   $ 285,731   $ 505,784   $ 299,807   $ 1,425,924   $ 300,098  
 
Selling and Administrative Expenses
Retail $ 229,000 $ 240,991 $ 286,371 $ 235,307 $ 991,669 $ 236,480
NOOK   44,733     56,923     53,061     45,679     200,396     35,650  
Total $ 273,733   $ 297,914   $ 339,432   $ 280,986   $ 1,192,065   $ 272,130  
 
EBITDA
Retail $ 64,990 $ 24,212 $ 195,389 $ 33,137 $ 317,728 $ 45,304
NOOK   (4,121 )   (36,395 )   (29,037 )   (14,316 )   (83,869 )   (17,336 )
Total $ 60,869   $ (12,183 ) $ 166,352   $ 18,821   $ 233,859   $ 27,968  
 
Net Income (Loss)
EBITDA $ 60,869 $ (12,183 ) $ 166,352 $ 18,821 $ 233,859 $ 27,968
Depreciation and amortization (37,725 ) (36,954 ) (35,271 ) (33,715 ) (143,665 ) (33,653 )
Interest expense, net (5,914 ) (5,288 ) (3,521 ) (2,955 ) (17,678 ) (2,919 )
Income taxes (15,207 ) 49,316 (88,583 ) 14,830 (39,644 ) 853
Income (loss) from discontinued operations   (30,472 )   17,407     33,191     (16,402 )   3,724     (27,123 )
Total $ (28,449 ) $ 12,298   $ 72,168   $ (19,421 ) $ 36,596   $ (34,874 )
 
Net income (loss) as previously reported (28,449 ) 12,298 72,168 (19,421 ) 36,596 (34,874 )
 
Percentage of sales:
 
Gross Margin
Retail 30.8 % 29.9 % 34.5 % 30.9 % 31.9 % 30.0 %
NOOK   73.1 %   42.4 %   54.3 %   77.0 %   61.7 %   46.3 %
Total 33.1 % 30.5 % 35.1 % 32.9 % 33.2 % 30.7 %
 
Selling and Administrative Expenses
Retail 24.0 % 27.1 % 20.5 % 27.1 % 24.1 % 25.2 %
NOOK   80.5 %   117.6 %   120.0 %   112.2 %   106.1 %   90.1 %
Total 27.1 % 31.8 % 23.6 % 30.9 % 27.7 % 27.8 %

Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, (212) 633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor:
Barnes & Noble, Inc.
Andy Milevoj, (212) 633-3489
Vice President, Investor Relations
amilevoj@bn.com

Contacts

Media:
Barnes & Noble, Inc.
Mary Ellen Keating, (212) 633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor:
Barnes & Noble, Inc.
Andy Milevoj, (212) 633-3489
Vice President, Investor Relations
amilevoj@bn.com