Barnes & Noble Earns a Measly $80 Million in Three Months

[Jack Getze]

Somebody's making money selling books.....

DOW JONES NEWSWIRES -- Barnes & Noble Inc.'s (BKS) fiscal third-quarter earnings dropped 0.9% amid the company's recent acquisition of its leader's college-bookstore business. 

But shares dropped 4.7% to $20.50 premarket as same-store sales declined more than forecast and Barnes & Noble said same-store sales will fall 3% to 5% this year, not 2% to 4% as previously expected. 

It also forecast a fourth-quarter loss of 85 cents to $1.15 a share, worse than the 61-cent loss forecast by Thomson Reuters-polled analysts. Same-store sales are seen down 2% to 4%. 

Nonetheless, Chief Executive Steve Riggio also said Barnes & Noble was "thrilled" with how customers have embraced its e-reader, the nook. "In addition to the accelerating online sales trends, nook sales have been strong at our bookstores since the product became available earlier this month," he added. 

The world's biggest brick-and-mortar bookseller has continued to struggle with weak store traffic amid the recession and sales that have been hurt even more by a movement of shoppers toward online and discount booksellers. In January, the company said it saw lower-than-expected holiday sales. 

For the quarter ended Jan. 30, Barnes & Noble reported a profit of $80.4 million, or $1.38 a share, down from $81.2 million, or $1.42, a year earlier. The company in January cut its forecast to between $1.20 and $1.40 a share. 

Sales jumped 33% to $2.17 billion on the recent acquisition of the college business as same-store sales decreased 5.5%. Analysts had forecast $2.16 billion in revenue, and the company had expected same-store sales to decline 1% to 3%. 

Gross margin fell to 28.3% from 32%. 

-By Nathan Becker, Dow Jones Newswires; 212-416-2855; [e-mail]

[B.R.Stateham]

Just $80 million? Jesus. The slackers.

[Jack Getze]

I keep going back to that margin number. I know it dropped, but I think most retailers would love to keep one-third of sales.

[Jon Loomis]

Considering the size of the operation, $80 million doesn't seem like big money to me. The college bookstore thing is also a risky bet: there's a huge amount of pressure to push textbooks into e-formats, which means the expensive, high margin textbooks will end up on bittorrent the day they're released. I worry for B&N; I like their brick and mortar operation a lot.

[John McFetridge]

I don't know Jon, if they admitted to 80 imagine what it really was.

Do chain bookstores sell many textbooks in the US? In Canada they're pretty much only sold at campus bookstores.

I was talking to a textbook publisher last week and he said, "Steve Jobs just saved the textbook industry." He told me that all the big textbook publishers are moving to a subscription service through the schools - so when students pay their tuition they'll get online access to all the textbooks they need.

[Jon Loomis]

John--B&N owns and operates campus bookstores all over the country, in licensing deals with universities. They even run ours, and by contract no one else can sell books on campus. So if we book a poet, say, to do a reading, we can't bring our local indie bookseller to campus to set up a book table. If textbooks go all E all the time, and I think that's going to happen very quickly (good-by to lugging huge backpacks loaded with Norton anthologies all over campus), B&N's campus operations will be cut out of the loop. It's a big profit center for them at the moment, so the loss of that revenue will hurt.

The idea of a subscription service is interesting, and may put the brakes on the file-sharing deal--but in order to maintain current margins the fee would have to be pretty steep. Would students be required to pay it? Here in Wisconsin we actually have this wacky law that makes it illegal for universities to require students to buy books (wtf, right?), so we have this crazy rental system, and books that aren't available to rent are "optional." Just another bit of Wisconsin weirdness that makes professors' lives just a bit more miserable, even though most of us ignore it.

[John McFetridge]

They're talking about a subscription service that's included in the tuition like lab fees. The idea is that the school will have agreements wth the publishers and there'll be a database of material. Then you, the prof, will set up the course and identify the material the students will need and when they payfor the class they'll get access to it.

In theory it will mean if you assign only some of an anthology that's all the school will pay for and that's all th studets will get access to.

So, yes, it's supposed to take on file sharing and the used book market. I guess in some ways it's like your wacky Wisconsin system of 'renting' books.

[I. J. Parker]

Nah! And textbooks are horribly overpriced. Not to mention the dirty tricks of making tiny changes every year so that all students hAve to buy the new book instead of used copies.

[Jon Loomis]

This actually drives me mad. Just when I find a teaching anthology I really like, whether it's poetry or short fiction, they bring out a new edition which drops half of the stuff I've been teaching, forcing me to either do a whole new prep the next time I teach the class, or put together PDF "packets" of material, which is time consuming and violates copyright. Argh.

[Jack Getze]

The stock market didn't like this earnings report, either, Jon, but I can't imagine you worrying about a business with a 28% profit margin. Growth is difficult for them now, but not making money.

McFetridge, you are a commie, aren't you? If the shareholders get $80 million, so is the American public through federal, state and local taxes (50% overall tax rate). The IRS is all over their return looking for more.

[John McFetridge]

I like to think I have a healthy amount of skepticism, Jack, that's all ;)

[Dana King]

Jack,
Who has a 50% tax rate in this country? Even if the statutory rate is that high--is there one?--no one actually pays that much. It's like businesses crying because they have a 35% tax rate. By the time they take their deductions it's more like 3-4%.

[Jack Getze]

Over the past five years (ended Jan 31, 2009), Barnes & Noble paid income taxes of $92 million, $100 million, $100 million, $75 million, and $56 million at an effective rate of between 30 and 40%, the chief deduction over and above operating expenses being amortization on their property and buildings. Dana, I guess if you include operating expenses (salaries, interest on borrowed funds, and no doubt some corporate excess), that 3 or 4% rate could be close.

Listen, gents. I understand. There are no facts in this new world, only opinion. I'm just an old geezer ranting against a changing tide (Corporations are bad, profit is bad). I will shut the hell up and stick to my original premise: B&N is generally very healthy despite a lack of top line growth for several years. So Jon, you could be right to worry about the future. Their costs will grow, so their top lne better start, too.