Shares of Barnes & Noble (BKS, Financial) jumped as the bookstore retailer posted better-than-expected first quarter numbers. Investors celebrated as the results came in ahead of the Street’s estimates, despite various challenges faced by the company.
It is indeed difficult for bookstores to register growth in sales mainly due to the emergence of ebook readers, which makes it easy for customers to read books at any point of time, without the hassle of carrying it. Further, availability of books on websites has led to a sharp decline in sales at the brick-and-mortar stores. Thus, Barnes & Nobles’ sufferings were obvious. However, the company has undertaken a lot of initiatives to overcome the prevailing problems. Let us dig into the details of the quarter.
The snapshot of the results
Revenue dropped 7% to $1.24 billion over last year’s quarter. This was lower than the analysts’ estimate of $1.29 billion. The drop can be attributed to a same-store sales decline of 5%, which affected the top line. The worst performing segment was the Nook segment, wherein sales declined 54.3% over the prior year.
On the other hand, core bookstore sales slipped 0.4% as the retailer benefitted from store promotions and change in merchandise. Also, the bookstore industry is showing signs of improvement. One of the reasons for this is online giant Amazon (AMZN, Financial) is having issues with the authors. In order to negotiate price, Amazon has adopted various tactics for the book publishers. This has led to negative publicity of the online giant. Hence, Barnes & Noble should benefit from this.
In fact, the book seller’s college segment too is showing improvement as the company pushes its textbook rental business. Also, a cut in the Nook staff resulted in lower costs. It is indeed managing its costs better, as reflected in its bottom line which improved to a loss of $0.56 per share, much lower than $1.56 per share in the previous year. Further, analysts were expecting it to be at $0.58 per share.
Combating competition
Barnes & Noble faces stiff competition from Amazon, which leads the ebook industry. However, it is making moves to overcome competition. First, it recently launched the Samsung Galaxy Tab 4 Nook reader, in collaboration with Samsung. This was the first book reader, which was not manufactured in house. In fact, the retailer expects to sell 1 million Nook devices in the next two years.
Further, the bookseller has partnered with Google (GOOG, Financial) in order to improve its online operations. This initiative was especially important because sales have been declining at the physical stores, forcing the company to shut down 60 stores in the last few years.
The company has also introduced Yuzu eReading and studying app, which should again help in boosting demand and generating sales.
Summarizing
It is quite clear that Barnes & Noble is off to a great future. Its efforts look interesting and its new partnerships should be helpful in the near future. Moreover, its marketing efforts and cost cutting measures should also bear fruits. Thus, a 63% jump in its share price, since the beginning of the year, is pretty obvious. I think investing in this company should be rewarding in the long run.
