Barnes Noble experienced a drop in revenue in all three of its major divisions – retail, college and Nook – for its fiscal third quarter, the company reported on Thursday morning. But the 26 percent falloff in the Nook segment, which includes digital tablets and e-readers, was particularly steep.
The company said earnings before interest, taxes, depreciation and amortization were $55 million for the quarter ended Jan. 26, compared with $150 million for the period a year earlier, while consolidated net losses were $6.1 million, compared with net earnings of $52 million.
Barnes Noble, the nation’s largest bookstore chain, had warned earlier in the month that Nook sales were disappointing, and executives had hinted that the company’s strategy of competing in the highly competitive tablet space had run its course.
“The Nook is not a failure, not technically,” said James McQuivey, an anaylst at Forrester Research. “If you go back two years and ask the Nook product managers how many Nooks they would want to sell by now, I bet they have blown past that number. The problem is not the Nook’s success or failure, it’s the fact that the overall tablet market has actually blown way past the Nook’s performance. This puts the Nook in a dim light at a time when the traditional retail business is already facing a cliff of its own.”
On Monday, Leonard Riggio, the company’s largest stockholder and the architect of the company’s ferocious and successful retail expansion in the 1980s and ’90s, announced he was considering buying Barnes Noble’s retail operation. Some analysts cheered this announcement because they felt the digital unit, meant to be the company’s savior, was in fact dragging down the worth of the retail stores, which for now remain a viable operation.
That notion got some support with the earnings report. The company said retail sales decreased more than 10 percent, largely because of store closings. But Barnes Noble had anticipated the lower revenue and, despite the sales decline, retail earnings increased 7.3 percent, to $212 million, “resulting from a higher sales mix of higher margin core products and expense management,” the company said.
Revenue in the Nook unit plunged by 26 percent, to $316 million for the quarter, compared with $426 million in the year-earlier period, while losses more than doubled, to $190 million, from $83 million. The losses were largely a result of lower-than-anticipated sales, inventory charges and higher operating expenses because of advertising costs, the company said.
One bright note was that digital content sales through the Nook unit increased 6.8 percent.
The company said that Nook was already implementing a cost reduction program.
“In terms of the Nook Media business, we’ve taken significant actions to begin to right size our cost structure in the Nook segment, while also taking a large markdown on Nook devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters,” William J. Lynch Jr., chief executive of Barnes Noble, said in a statement.
Still, Mr. Lynch emphasized that the company was not abandoning the Nook division or the digital devices.
“Nook Media has been financing itself since October of 2012 due to the strong investment partners we’ve been able to attract in Microsoft and Pearson,” he said. “Coming off the holiday shortfall, we’re in the process of making some adjustments to our strategy as we continue to pursue the exciting growth opportunities ahead for us in the consumer and digital education content markets.”
Article source: http://mediadecoder.blogs.nytimes.com/2013/02/28/barnes-noble-reports-big-falloff-in-nook-unit/?partner=rss&emc=rss
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