March 28, 2024

Fork in the Road for Barnes & Noble

He and other executives proudly displayed their new devices, talked about plans to expand and promised that the bookstore chain could go head-to-head with the giants of Silicon Valley.

“We’re a technology company, believe it or not,” Mr. Lynch said.

But only 16 months later, Barnes Noble’s digital plans are crumbling. Last month, a disastrous earnings report coincided with the company’s announcement that it would no longer manufacture color tablets. And on Monday, Barnes Noble announced that Mr. Lynch, the young, tech-savvy architect of the company’s digital strategy, had abruptly resigned. A new chief executive was not named.

That leaves the nation’s only major bookstore chain without a clear path forward, reviving fears among publishers, authors and agents — who are deeply dependent on a viable Barnes Noble — about its future.

Barnes Noble executives have acknowledged one fact: the digital business that was to be the centerpiece of its growth strategy must be retooled.

After introducing its first black-and-white e-reader in 2009, called the Nook, Barnes Noble joined the tablet race, a move that industry experts have pointed to as a source of the company’s current troubles. Barnes Noble’s inexpensive color tablets aimed for a niche in the market below the iPad. But while the company grabbed close to 25 percent of the e-book market, its digital division was getting pummeled by larger competitors, and bleeding money.

“Barnes Noble was in a Catch-22. They had to do something in digital and Nook was their best shot at it,” said Peter Wahlstrom, a retail analyst with Morningstar Equity Research. “William Lynch had a good vision, but he was overwhelmed and fighting with one hand behind his back.”

Mr. Lynch’s departure, which was effective immediately, leaves Leonard Riggio, the chairman of Barnes Noble, with a much more visible and powerful role within the company. Mr. Riggio, who built the company into a national force, is known to cherish the physical bookstores. His increased influence, analysts said, could shift the company’s focus more toward the retail side of the business.

Mr. Riggio, the public face of Barnes Noble for decades, declined a request for an interview on Tuesday. But in meetings and memos in the last two days, Barnes Noble employees have been assured that despite the recent tumult, their fundamental mission remains the same.

“As you know, we reported year-end results two weeks ago, and Barnes Noble Retail and Barnes Noble College delivered very solid performances and remain profitable businesses,” Mr. Riggio wrote in an e-mail to employees after the resignation of Mr. Lynch was announced. “While the losses were significant in the Nook business, I feel certain we will get the business back on track.”

For the fiscal fourth quarter, the Nook unit showed a $177 million loss in earnings before interest, taxes, depreciation and amortization, or Ebitda, more than doubling the loss from the period a year earlier. Sales fell 34 percent, to $108 million.

“We’re trying to figure out the right strategy, but it can’t happen overnight,” said one executive, who spoke on condition of anonymity because he was not authorized to talk publicly. “E-books are still expanding, and we still have a piece of that market. We just have to find other ways to grow our digital business.”

Analysts said the resignation of Mr. Lynch could increase the likelihood of a formal split of the company. In April 2012, the Nook was spun off as a separate business from Barnes Noble’s nearly 700 retail stores. Microsoft, which paid hundreds of millions of dollars for 17.6 percent of the Nook division, has expressed interest in buying the entire division, but it is unclear if a deal will be reached.

“The question is, can they truly take the Nook and sell it to someone who’s interested?” said Jack W. Perry, a publishing consultant. “I don’t know if the Nook name has the value to it. But with the customers Barnes Noble has, there’s still value there.”

In February, Mr. Riggio indicated that he wanted to buy the retail stores and take them private, but he has not publicly acted on those plans since.

On Monday, the company said it was reviewing its strategic plan and would provide an update “when appropriate.”

Michael Norris, a senior analyst with Simba Information, said Barnes Noble was “in a period of serious and meaningful transition.”

“I think that they need to really ask themselves what kind of business they want to be in,” Mr. Norris said. “And they need to figure out how they expect to make money from both the bookstore business and the e-reader business.”

John Tinker, an analyst for the Maxim Group, said the retail stores were still an attractive property, something that had been obscured by missteps from the digital division. Mr. Lynch, who came to Barnes Noble with a background in technology and e-commerce rather than book-selling, spent most of his time focused on the digital side of the company. Mr. Riggio has expressed support of the Nook business to employees, but has always devoted his energies to old-fashioned retail book-selling.

“The huge losses and the huge noise on the Nook side are masking a very interesting business on the retail side,” Mr. Tinker said. “If there’s one thing that Riggio is good at, it’s running stores.”

Article source: http://www.nytimes.com/2013/07/10/business/fork-in-the-road-for-a-bookseller.html?partner=rss&emc=rss

DealBook: Michael Kors Stock, Like His Frocks, Is Selling Fast

A Michael Kors store on Madison Avenue in New York.Peter Foley/Bloomberg NewsA Michael Kors store on Madison Avenue in New York.Michael Kors, who started his business in 1981, has developed a loyal following, including Michelle Obama and Angelina Jolie.Tina Fineberg/Associated PressMichael Kors, who started his business in 1981, has developed a loyal following, including Michelle Obama and Angelina Jolie.

8:29 p.m. | Updated

Michael Kors seems to be everywhere. The fashion designer’s stores are popping up across the world, with his largest just opening in Paris. His oversize gold watches are white-hot Christmas gifts. As a judge on Lifetime’s “Project Runway,” Mr. Kors is also a staple on cable television.

His latest debut is less haute couture and more high finance.

On Wednesday, his Hong Kong-based company, where Mr. Kors is the chief creative officer, priced its initial public offering at $20, above the expected range of $17 to $19. The stock sale, which raised nearly $950 million, values the company at $3.8 billion.

The I.P.O. caps a period of extraordinary growth for the company. Profits are on track to more than double this year, and sales are increasing at an annual rate of about 60 percent.

Such rapid expansion has raised the eyebrows of retail analysts, who question whether the Kors label will maintain its cachet or succumb to the fickleness of fashion.

“Everybody wants to be the next Ralph Lauren,” said Faye Landes, a retail analyst at Consumer Edge Research in Stamford, Conn. “But how lasting the brand will be remains an open question.”

Kors is also selling its shares into a choppy market. Investors have shied away from unproven companies, amid concerns over the European debt crisis and the sluggish United States economy. Stock of several hot debuts, like the Internet companies Groupon and Pandora, have dropped below their offering prices.

Newly public fashion stocks have been soft, too. Prada, the Italian luxury retailer, is down since its debut, while a rival, Ferragamo, is flat.

Analysts are worried that Kors could suffer too, especially with the insiders paring back their holdings through the I.P.O. and an earlier private sale of shares. The stock is set to start trading Thursday on the New York Stock Exchange under the ticker KORS.

For now, it appears Kors stock is as hot as its dresses. Orders for the I.P.O. greatly exceeded the amount of shares sold, people briefed on the deal said, driving up the price of the offering.

“In the early days of trading, the hot money drives the performance of Michael Kors, the stock,” said John E. Fitzgibbon Jr., publisher of IPOscoop.com. “But over time, as that moves out, investors will start to focus on Michael Kors, the company.”

Michael Kors, the person, was born Karl Anderson Jr. He changed his first name and borrowed the last name, Kors, from his mother’s second husband, Bill Kors, who had adopted him. He grew up in Merrick, N.Y., which he has called the home of “Olympic shoppers” and credits with fostering his fashion sense.

Mr. Kors, a Fashion Institute of Technology dropout, designed a collection for Lothar’s, the Manhattan boutique, now defunct. He started his own business in 1981, creating designer apparel that developed a cult following among the Upper East Side crowd. Today, trendsetters like Michelle Obama and Angelina Jolie favor his frocks.

But most of the company’s recent growth has come from its lower-end Michael by Michael Kors line, which sells sequined wrap dresses for $150 and python-embossed shoulder bags for $228. The cheaper clothes and purses, which a Kors executive described to potential investors last week as “Hermès for Staten Island,” are big sellers at Macy’s and Lord Taylor.

Or, as Mr. Kors put it in an interview with Women’s Wear Daily, “It doesn’t matter what your pocketbook is, everyone wants to look thin and rich.”

While not affecting Mr. Kors’s waistline, the I.P.O. will make him rich. Mr. Kors, 52, the company’s honorary chairman and chief creative officer, is selling stock worth about $117 million, or roughly a third of his holdings. He maintains an 8.6 percent ownership stake, worth about $327 million at the offering price.

The I.P.O. adds to a year of personal milestones for Mr. Kors. In August, he and his boyfriend, Lance LePere, married in a barefoot ceremony on Dune Beach in Southampton. They met two decades ago when Mr. LePere worked as an intern at Michael Kors. Today, Mr. LePere is the creative director of the company’s women’s line.

Kors stock, in many ways, is not a bet on Mr. Kors, but on Lawrence S. Stroll and Silas K. F. Chou, the fashion tycoons who control the majority of the company’s stock and have fueled its growth. Mr. Stroll and Mr. Chou run Sportswear Holdings Limited, which acquired Kors in 2003 for about $100 million. Their ambitions were to bring the luxury sensibility of Mr. Kors to the masses and turn it into the next great American designer firm.

They sought to replicate their success with the Tommy Hilfiger Corporation. Mr. Stroll and Mr. Chou were early Tommy Hilfiger investors in the late 1980s and aggressively expanded that business, pushing it into department stores and broadening its customer base. The two men made millions when the company went public in 1992. (Today, Tommy Hilfiger is owned by the apparel giant PVH Corporation.)

Retail analysts say that while Mr. Stroll and Mr. Chou have a record of success, they have also had some stumbles, including their failed investment in Asprey, the London luxury brand.

They also point to some specific concerns with the Kors deal. Because the company is based in Hong Kong and Mr. Stroll and Mr. Chou control the majority of its stock, Kors does not have to comply with certain New York Stock Exchange corporate governance requirements. For instance, the company will not be required to have a majority of independent board members.

The I.P.O. does not include Kors’s Chinese business, which is a separate entity and remains controlled by Mr. Stroll, Mr. Chou and Mr. Kors. That means that the company, at least for now, will not benefit from the tremendous growth that other luxury retailers have seen in China.

Another red flag is the large amount of stock being sold by the owners. Besides Mr. Kors’s stake, the holding company of Mr. Stroll and Mr. Chou is selling $519 million worth of stock. After the I.P.O., they will own 35 percent of the company, worth $1.4 billion.

It is the second time this year the owners have cut their holdings. This summer, they sold $500 million worth of shares in a private sale to mutual fund firms like Fidelity and T. Rowe Price.

“There are aspects of this deal that are opaque,” said Ms. Landes, the analyst. “Plus, the fact that the insiders are selling so much stock is a potential cause for concern.”


This post has been revised to reflect the following correction:

Correction: December 14, 2011

An earlier version of this article misstated the network currently showing “Project Runway,” the cable television series on which Michael Kors is a judge. It is now shown on Lifetime; it was previously shown on Bravo.

Article source: http://feeds.nytimes.com/click.phdo?i=d76adff4e84afca7a5553371bd21c5b7

Retailers Glean Profit in Slow Sales

Some retailers turning a solid profit are doing so despite sluggish sales, including Wal-Mart, which said on Tuesday that same-store sales in the United States had declined for the ninth consecutive quarter. Still, the company, the country’s largest retail chain, reported that net income had increased 5.7 percent because of what it called “strong expense management,” among other things.

Retail analysts said results reported over the last week by a broad cross section of retailers — including Macy’s, Saks Fifth Avenue and Kohl’s — suggested that whatever happened with consumer spending, the retail sector was better equipped to cope than it was when the recession hit.

Among the lessons learned, said Bradley Thomas, a retail analyst with KeyBanc Capital Markets, are keeping inventories lean, using marketing dollars strategically and quickly marking down slow-moving items so they do not have to be priced later at rock-bottom clearance prices.

“Companies are doing more with less,” Mr. Thomas said. “The downside risk is not as great as it was in 2008.”

The slate of results reported on Tuesday showed varied sales numbers. Saks Fifth Avenue had a large same-store sales increase of 15.5 percent for the quarter. Home Depot’s sales were strong; the discount retailer T. J. Maxx had a good sales quarter; and Wal-Mart said its same-store sales in the United States had declined by 0.9 percent.

All four retailers posted profits better than Wall Street had expected, and all except Saks raised their full-year profit projections. In explaining the results, retail executives said that although the economy was volatile, they had been through ups and downs like this before.

“If we do experience a prolonged downturn, we’ll approach it in the same way we did in the past, focusing on controlling what we can control: expenses, capital spending and inventory,” Stephen I. Sadove, chairman and chief executive of Saks, told investors Tuesday. He said Saks was better positioned than in 2008 because of “carefully controlled” inventory, a stronger balance sheet, decreased capital spending and the closure of seven full-line stores in the last year and a half.

Retailers of all stripes said they had not yet seen outsize effects among shoppers from the recent stock market swings, but the higher-end retailers expressed greater confidence about sales in the future than did the lower-end ones.

“Our August comp sales are in line with our comp sales forecasts for the fall season,” Mr. Sadove said. He added that full-price selling was now more prevalent than it had been before the recession, and that he expected that trend to continue.

Mr. Sadove’s comments echoed those last week from executives at Nordstrom and Macy’s, which owns the higher-end Bloomingdale’s. Like Saks, both companies posted strong sales and higher-than-expected profits. Both also raised their profit outlook for the year.

At Nordstrom, full-price items are also selling well, even as prices climb, executives said. And at Macy’s, nonsale items were also big sellers, and “our outlook for the remainder of the year reflects the optimism we feel about the direction of the business, as well as realism about the macroeconomic environment,” Karen M. Hoguet, the chief financial officer, said. Macy’s said it had its best second quarter in more than a decade.

At the lower end of the retail world, the mood has been more subdued. At Wal-Mart, executives said Tuesday that shoppers were under as much economic pressure as ever, and that the job market was now worrying them even more than high gas and food prices.

“They’re trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label and purchasing half gallons of milk instead of gallons,” Michael T. Duke, the chief executive, said.

Those worries among customers contributed to the continuing slide in same-store sales, but Wal-Mart posted a higher-than-expected profit nonetheless. Net income at the company increased to $3.8 billion, or $1.09 a share, a penny better than analysts had projected. Its revenue rose 5.4 percent to $109.3 billion.

In addition to “strong expense management,” Mr. Duke said, Wal-Mart was getting inventory levels under control, while better sales at Sam’s Club and Wal-Mart’s international division also contributed to the healthier bottom line.

Wal-Mart said its full-year profit should be higher than expected, at $4.41 to $4.51 a share, versus the $4.35 to $4.50 guidance it had previously given. That again seemed to be based on expense controls and growth overseas and at Sam’s, not on strong domestic sales.

“Negative headlines don’t help consumer sentiment at any level of income, but our customer, also just from a job perspective and a real income perspective, is really stretched,” Charles M. Holley Jr., the chief financial officer, said in a call with reporters. “The unemployment is actually a lot higher for people who have less education and had less income to begin with — it’s much more severe as you go down the economic scale.”

At Kohl’s, which caters to shoppers who are generally better off than those at Wal-Mart, Kevin Mansell, chairman and chief executive, said he was not happy with the sales. Kohl’s profits, though, beat expectations. Kohl’s same-store sales were lower than the 2 to 4 percent increase the retailer had projected, coming in at 1.9 percent. Yet the retailer nevertheless posted a 17 percent increase in profit, which it attributed to controlling expenses, stocking more profitable private brands, and keeping inventory levels modest.

Dillard’s, another midrange chain, said last week that its profit for the quarter more than doubled from a year before, rising to $17.6 million from $6.8 million a year before. Same-store sales rose 6 percent for the quarter. Over the last couple of years, Dillard’s has closed stores and reduced its inventory.

J. C. Penney posted a quarterly profit of $14 million, or 7 cents a share, last week, about what analysts expected. Penney noted it was cutting $50 million from expenses.

Article source: http://feeds.nytimes.com/click.phdo?i=88de7bededca909e930386f6fa8ae019