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March 8 – March 15, 2007 Edition
Barnes & Noble
NEW YORK, NY/3/5/07–Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, March 5 reported sales for the fourth quarter and for the full year ended February 3, 2007, falling well below analysts expectations. The company also announced the consolidation of its Internet distribution center, updated previously issued guidance for 2006 and announced an anticipated growth for the full year of 2007 of a slim 2%-to 4%.
FOURTH QUARTER AND FULL YEAR 2006 SALES
Barnes & Noble store sales were $1.5 billion for the quarter and $4.5 billion for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble store sales increased 2% for the quarter and the full year as compared to the same periods in fiscal 2005. Comparable store sales decreased 0.1% for the quarter and 0.3% for the year. The company opened 32 Barnes & Noble stores in fiscal 2006 and closed 18. B. Dalton store sales were $36 million for the quarter and $102 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, B. Dalton store sales decreased 30% for the quarter and 29% for the full year as compared to the same periods in fiscal 2005, primarily due to the closing of 20 stores since the fourth quarter of 2005. Comparable store sales decreased 7.5% for the quarter and 6.1% for the year.
Barnes & Noble.com sales were $164 million for the quarter and $433 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble.com comparable sales increased 5.1% for the quarter and decreased 1.1% for the full year as compared to the same periods in fiscal 2005.
Consolidated sales were $1.9 billion for the quarter and $5.3 billion for the full year.
DISTRIBUTION CENTER CONSOLIDATION
In 2007, the company will close its Internet distribution center located in Memphis, Tennessee. Upon closing Memphis, all Internet orders will be fulfilled from the company’s newly constructed state-of-the-art distribution center in Monroe, New Jersey and from the company’s Reno, Nevada facility, both of which provide ample capacity and coverage for Internet orders. As a result, the company will incur charges, net of tax benefits, of $2.2 million in 2006 ($0.03 per share) and $4.9 million in 2007 ($0.07 per share) related to accelerated depreciation, severance, remaining rental obligations and other costs associated with the close-down of the Memphis facility. Included in these charges of $7.1 million are $4.1 million of cash charges.
AFFIRMS 2006 GUIDANCE
Excluding the Memphis distribution center closing charge of $0.03 per share, the company affirms that it will be in the low to middle range of its previously announced 2006 earnings per share guidance for the fourth quarter and full year of $1.86 to $1.96 and $2.20 to $2.30, respectively.
“We achieved our earnings guidance for the fourth quarter and the full year despite sales being at the low end of our sales plan,” said Steve Riggio, chief executive officer of Barnes & Noble, Inc. “The negative impact of the disappointing sales was offset by an increase in gross margin, attributable to fewer bestseller markdowns, lower inventory shrink and improvements throughout our supply chain, all of which enabled us to generate earnings that are within our previously announced guidance.”
FULL YEAR 2007 EXPECTATIONS
The following forward-looking statements reflect Barnes & Noble’s expectations as of March 5, 2007. * Barnes & Noble store sales are expected to be between $4.6 billion and $4.7 billion, increasing approximately 2% to 4% over 2006. Comparable store sales are expected to be flat to slightly positive for the year, including sales from J.K. Rowling’s Harry Potter & the Deathly Hallows, which will go on sale July 21st. The company notes that while the release of this book will produce a large sales spike in the second quarter, it will be sold at a deep discount, producing very little gross margin. The company expects to open between 30-40 new Barnes & Noble stores and close approximately 19 stores. ross margin is expected to decline by 90 to 100 basis points due to the full year impact of the new lower Member prices the company introduced in October 2006. Both new enrollments and sales to the company’s Members continue to grow and are running ahead of previous forecasts, negatively impacting both sales and gross margins as the unit sales growth has not yet offset the amount of additional discounts. In addition, gross margin will continue to be compressed by the highly competitive bookselling environment,
as well as the deep discounting associated with the new Harry Potter book. he company expects to record a one-time charge of $0.07 per share related to the closing of its Internet distribution center, as noted above. he company expects to record charges, net of tax benefits, of between $4 million and $6 million ($0.06 and $0.09 per share) related to legal expenses in the company’s ongoing investigation of its stock option practices.
On a continuing operating basis, full-year earnings per share are expected to be in the range of $1.65 to $1.80 per share. Including charges for the distribution center closing and legal fees, full year earnings are expected to be in the range of $1.49 to $1.67 per share.
The fully diluted weighted average share count used in the computation of earnings per share for the full year is 70 million shares.
“Over the past few years our earnings and cash flow have benefited from steady increases in gross margin. The gains came from a variety of factors, including lower purchases from book wholesalers, improvements in inventory control and supply chain efficiencies,” continued Steve Riggio. “These gross margin gains have helped produce a compounded earnings per share growth rate from continuing operations (excluding non-operating charges) of approximately 20% over the last five years. At the same time, we have significantly strengthened our balance sheet, which is virtually debt-free. We have decided to reinvest a portion of our cash flow to reward our best customers by the recent lowering of prices to our Members. Though in the short term, this will have a negative impact both on top line and gross margins, we believe that it is the right move for us at this time and for the long term.”
The company also plans to open between 30 to 40 new stores this year, but will close its Internet fulfillment center in Memphis, and will merge its operations into its new New Jersey warehouse.
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