Barnes & Noble Falls Short Amid Retail Headwinds

By Markets Fool.com

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Barnes & Noble(NYSE: BKS)released fiscal first-quarter 2017 results Thursday before the market opened. Shares of the bookseller fell 4% on the day as losses persisted, sales continued to slip, and the company reduced its full-year outlook. But before we get there, let's take a closer look at how Barnes & Noble kicked off its latest fiscal year.

Barnes & Noble results: The raw numbers

Metric

Fiscal Q1 2017 Actuals

Fiscal Q1 2016 Actuals

Growth (YOY)

Revenue

$913.9 million

$978.6 million

(6.6%)

Net income (loss) from continuing operations

($14.4 million)

($7.8 million)

N/A

EPS (loss) from continuing operations

($0.20)

($0.68)

N/A

Data source: Barnes & Noble.

What happened with Barnes & Noble this quarter?

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  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $9.6 million, including $7.9 million in severance charges and consulting fees related to cost-reduction initiatives in the retail segment, and $7.2 million in severance and transitional costs related to the outsourcing of NOOK services and office closures.
  • Excluding those charges, Barnes & Noble's net loss would have been $5 million, or $0.07 per share.
  • Retail sales (including BN.com) fell 6.1% year over year, to $881.7 million.
  • Comparable-store sales fell 6%, below expectations given the current "challenging retail environment."
  • Retail EBITDA was $17.6 million, including the above charges. Excluding charges, retail EBITDA would have been $25.5 million, marking a $19.8 million decline from last year's fiscal first quarter.
  • NOOK sales (including digital content, devices, and accessories) declined 24.5% year over year, to $41 million.
  • NOOK EBITDA losses were $7.9 million, including the above charges. Excluding those charges, NOOK EBITDA losses would have been $0.7 million, narrowed from an EBITDA loss of $17.3 million in the same year-ago period.
  • Barnes & Noble paid $11.1 million in dividends during the quarter, and repurchased roughly 830,000 shares for $9.7 million, or $11.73 per share.

What management had to say

During the subsequent conference call, Barnes & Noble CFO Allen Lindstrom reminded investors that comparable-store sales were expected to be soft -- albeit not quite as soft as they were --in the first half of the year before improving in the second half. Lindstrom elaborated:

Sales trends are expected to improve in the back half of the year, which includes a stronger title lineup with new releases from authors such as Bruce Bernstein, Megan Callery J. K. Rowling, Amy Schumer, Joel Osteen, Nicholas Spark and Bill O'Reilly.During the fourth quarter, we returned a significant amount of inventory and are now in the process of adjusting inventory and payroll levels on a store-by-store basis, which we believe will improve sales conversion rates. Store traffic trends are expected to improve given the current retail environment. And our management team remains focused on executing its strategic initiatives as outlined at our June Investor Day.

Looking forward

Barnes & Noble now expects full fiscal-year 2017 comparable sales to decline in the low single digits compared to previous guidance for comps to be flat to an increase of 1% over fiscal 2016. But thanks to Barnes & Noble's cost-reduction initiatives, it still anticipates full-fiscal-year consolidated EBITDA of $200 million to $250 million, as NOOK EBITDA losses of $30 million to $40 million should be more than offset by retail EBITDA of $240 million to $280 million. Note that this guidance excludes any further charges related to cost-reduction initiatives, orlast month's worrisome departure of CEO Ron Boire.

In the end, the market can take some solace knowing Barnes & Noble's cost-reduction efforts are proving effective, and the outsourcing of parts of the NOOK business have helped the segment narrow its losses considerably. But the wider-than-expected decline of comparable-store sales in today's difficult retail environment leaves investors understandably concerned for the health of Barnes & Noble's core retail business. So while the company is right to look forward to the second half of the year, it's no surprise to see shares trading lower today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of Barnes and Noble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.