(Adds details from executives interviews, conference call)
By Phil Wahba
Nov 26 Barnes & Noble Inc, the largest
U.S. bookstore chain, on Tuesday reported a higher than expected
quarterly profit as it cut store workers' hours scaled back its
money losing Nook business, helping it offset sharp sales
The bookseller reported an 8 percent drop in quarterly
revenue to $1.73 billion, below analyst estimates, hurt
primarily by its deteriorating digital books and Nook device
business, and a drop in business at its college campus
bookstores and at its namesake superstores.
Shares were down 6.5 percent to $15.37 in midday trading.
Barnes & Noble has been struggling for years with readers'
shift to e-books. Its Nook devices, launched in 2009 to give the
retailer a fighting chance against Amazon.com Inc, and
initially a success, has cost it hundreds of millions of
Earlier this year, Barnes & Noble scaled back its Nook
business, saying it would look for a partner to make Nook
tablets in the future. The move helped Barnes & Noble pare its
Nook loss for the quarter ended Oct. 26 to $45.3 million
compared to $51.4 million a year earlier.
According to data from the Association American Publishers,
sales of e-books rose 45 percent between 2011 and 2013, and now
account for 20 percent of U.S. book sales.
Barnes & Noble estimates it has a 20 percent share of the
U.S. e-books market, compared to about 27 percent in February.
Barnes & Noble reaffirmed its commitment to its Nook
business, saying devices were essential for selling e-books and
other content and building back that market share.
"We are in the device business to stay," said Michael
Huseby, CEO of Nook Media, the company's digital division. The
company is focusing its Nook development on features directed at
book readers rather than consumers looking for an entertainment
FEWER STORES FEWER HOURS
Barnes & Noble re-iterated its forecast that retail sales
should fall by a high single digit percentage in its current
financial year that ends in April 2014. The company blamed the
absence of a blockbuster like last year's 'Fifty Shades of Grey'
trilogy for the sales shortfall in the second quarter.
Its retail business remains highly profitable, despite
sluggish sales. Most of Barnes & Noble's workers are part-time,
giving it flexibility to adjust workers' hours as needed, Mitch
Klipper, head of the chain's retail business, told Reuters.
The company also continued to close stores and now operates
673 stores, compared to 689 a year ago. Most of Barnes & Noble's
leases are up for renewal within only a few years, making it
relatively easy for it to shrink its store base as needed.
Barnes & Noble expects to continue to cut 15 to 20 stores a
year, Klipper said.
The company posted a net profit of 15 cents a share,
compared with a loss of 7 cents per share a year earlier.
Analysts on average were expecting a loss of 3 cents per share
on revenue of $1.77 billion, according to Thomson Reuters
Barnes & Noble's profit got help from the higher margins on
book rentals at its College bookstore chain, helping it offset a
3.6 percent decline in comparable sales in that division. Its
textbook rental revenue rose 63 percent during the quarter.
The retailer has seen turmoil in its top ranks this year.
CEO William Lynch, the architect of Barnes & Noble's failed Nook
strategy, quit and founder and Chairman Leonard Riggio suspended
a bid to buy the chain's retail business. Earlier this year, it
dropped a plan to split the company in two.
(Additional reReporting by Aditi Shrivastava and Neha Alawadhi
in Bangalore; Editing by Rodney Joyce and Andrew Hay)