New York, NY (August 20, 2013)—Barnes & Noble reported today that consolidated revenues for the first quart of fiscal 2014 dropped by 8.5% to $1.3 billion. A slow decline is expected to continue for the rest of the fiscal year.
The first quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) loss was $8.9 million, compared to positive EBITDA of $5.8 million a year ago. Nook sales also declined by 20.2 % from the year before while the college segment had a slight increase.
Company chairman Leonard Riggio also informed the board of directors that he was dropping his offer to purchase the retail segment of the business.
First Quarter 2014 Results from Operations
Segment results for the fiscal 2014 and fiscal 2013 first quarters are as follows:
Retail
The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $1.0 billion for the quarter, a decrease of 9.9% from the prior year. The sales decrease was attributable to a comparable store sales decrease of 9.1% for the quarter, store closures and lower online sales, in line with company expectations. First quarter comparable bookstore sales decreased, reflecting lower NOOK device unit volume and a title lineup last year that included unusually strong sales from The Hunger Games and Fifty Shades of Grey trilogies. “Core” comparable bookstore sales, which exclude sales of NOOK products, decreased 7.2% for the quarter. Excluding the impact of the two mentioned trilogies, Core comparable bookstore sales decreased 2.9%.
Retail generated EBITDA of $65 million in the quarter, a decline of $12 million compared to a year ago, as a result of the sales decline noted above.
College
The College segment had revenues of $226 million during a period that did not include a back-to-school rush season, increasing 2.4% compared to a year ago, as a result of new store growth. Comparable College store sales decreased 1.2% for the quarter, reflecting the retail selling price of new or used textbooks when rented, rather than solely the rental fees received and amortized over the rental period.
College EBITDA losses were $19 million, compared to losses of $14 million last year. The difference reflected new store expenses and investments in digital education, primarily additional product development costs in accordance with the company’s plans to introduce additional digital products to the higher education market under its partnership with Pearson.
NOOK
The NOOK segment, which consists of the company’s digital business (including devices, digital content and accessories), reported revenues of $153 million for the quarter, a decrease of 20.2% from a year ago. Device and accessories sales were $84 million for the quarter, a decrease of 23.1% from a year ago, due to lower unit selling volume. Digital content sales were $69 million for the quarter, a decline of 15.8% compared to a year ago, due in part to lower device unit sales as well as the comparison to The Hunger Games and Fifty Shades of Grey trilogies. Excluding the impact of these two titles, digital content sales decreased 6.9%.
Despite the sales decline, NOOK EBITDA losses of $55 million were comparable to the prior year, as lower gross margins were offset by expense reductions.
Consolidated Results
The consolidated first quarter net loss was $87.0 million, or $1.56 per share, compared to a loss of $39.8 million, or $0.76 per share, in the prior year.
The wider loss was driven by the EBITDA decline, as well as higher income tax expense. Under applicable accounting guidance, given the significance of cumulative losses in recent years, the company recorded a non-cash valuation allowance against certain deferred tax assets. The impact of this item on first quarter results was $41 million, or $0.70 per share. Excluding this tax item, first quarter losses would have been $0.86 per share.
Guidance
The company reaffirms its previously issued full-year guidance, in which it expects Retail comparable store sales to decline in the high single digits and College comparable store sales to decline in the low single digits. The company also expects full-year Core Retail comparable bookstore sales to decline in the low- to mid-single digits.
Balance Sheet
The company ended the first quarter with a net cash position of $73 million, reducing bank borrowings by $295 million compared to a year ago. In fiscal 2013, despite the NOOK segment losses, the company improved the strength of its balance sheet as a result of the cash flow generated by the Retail and College businesses, as well as funds received from strategic investments in NOOK Media.
Board Chairman Files Schedule 13D Amendment
The company said its Chairman, Leonard Riggio, has advised the Board of Directors that he has suspended his efforts to make an offer for the company’s Retail business. Mr. Riggio expressed a plan to make such an offer when he amended his Schedule 13D on file with the Securities and Exchange Commission in February.
In an amended SEC filing today, Mr. Riggio said, “While I reserve the right to pursue an offer in the future, I believe it is in the company’s best interests to focus on the business at hand. Right now our priority should be to serve the more than 10 million customers who own NOOK devices, to concentrate on building our Retail business, and to accelerate the sale of NOOK products in our stores, and in the marketplace.”
