Barnes & Noble’s Nook division did not have a very good holiday quarter, but that isn’t stopping the retailer from believing in the brand.
In the latest quarterly report from Barnes & Noble, the company revealed that its Nook division saw revenues of $157 million, a decrease of 50.4 percent from year ago quarter. Of that amount, two-thirds came from hardware sales, but despite the addition of more users, digital content sales dipped by 26.5 percent.
Overall, the Nook division lost $129 million for the quarter, a marked increase of 67.5 percent over the previous year.
With all of this bad news it would be difficult to blame Barnes & Noble if it decided to drop the Nook initiative, but it appears the company is going to go in the opposite direction. In the press release for the quarter, CEO Michael P. Huseby said, “We have taken steps to reduce costs and device exposure, while focusing our efforts to reverse the content sales decline.” He went on to add, “We remain committed to delivering world-class reading experiences to our customers through our reading centric e-Ink and color reading devices. The Company is actively engaged in discussions with several world-class hardware partners related to device development as well as content packaging and distribution. As a result, we plan to launch a new NOOK color device in early fiscal 2015.”
The company is currently in the fourth quarter of fiscal 2014, so its 2015 fiscal year will begin in April of this year.
We haven’t yet heard anything about a Nook for this year, but we will definitely keep an eye out for it once it does arrive.
Barnes & Noble Reports Fiscal 2014 Third Quarter Financial Results
Consolidated EBITDA of $173 million
Core Comparable Bookstore Sales Trend Improves
NOOK® Losses Narrow on Cost Reductions, Device Strategy Shift and Comparisons to Prior Year Charges
New York, NY (February 26, 2014)—Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its fiscal 2014 third quarter ended January 25, 2014.
Third quarter consolidated revenues decreased 10.3%, to $2.0 billion, as compared to the prior year. Third quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $59 million a year ago to $173 million. Prior year results were adversely impacted by $74 million of NOOK inventory-related charges. The remaining year-over-year EBITDA increase was primarily attributable to lower NOOK expenses.
“During the third quarter, the company significantly improved its balance sheet and bottom line, while making real progress on our strategic priorities,” said Michael P. Huseby, Chief Executive Officer of Barnes & Noble, Inc. “Retail’s core comparable store sales benefited from a strong title line-up, strong execution and an effective advertising campaign. College entered into the spring back-to-school rush and saw continued growth in its higher margin textbook rental business. This resulted in a slight EBITDA increase for College, even after funding and developing our digital educational applications. We expect the soft launch of our higher education digital product before the end of this fiscal year. NOOK losses narrowed significantly as we achieved our objective of selling through much of our pre-holiday device inventory, while managing promotions to optimize sales.”
Third Quarter 2014 Results from Operations
Retail generated EBITDA of $200 million in the quarter, decreasing 7.5% as compared to a year ago. The sales decline was partially mitigated by a higher mix of higher margin core products and continued expense management.
College EBITDA increased 3.9% as compared to a year ago to $35 million despite the sales decline, as higher margins outpaced additional investments in digital product development.
The Company did not introduce any new tablet products this past holiday season, contributing to the third quarter sales decline. Instead, the Company executed its plan to sell through most of its existing device inventory, while also building additional tablet devices to meet holiday and post-holiday demand, using previously acquired parts and components.
NOOK EBITDA losses decreased $129 million, or 67.5%, as compared to a year ago to $62 million. As noted earlier, prior year results were adversely impacted by $74 million of inventory-related charges. The remainder of the EBITDA loss reduction was primarily due to a decline in NOOK expenses of $52 million for the quarter on lower advertising and targeted cost rationalization.
As part of the Company’s ongoing efforts to rationalize the NOOK business and position it for future success and value creation, staffing levels in certain areas of the organization have changed, leading to certain job eliminations after the quarter ended. These ongoing efforts may involve additional actions.
“We have taken steps to reduce costs and device exposure, while focusing our efforts to reverse the content sales decline,” continued Michael P. Huseby. “We remain committed to delivering world-class reading experiences to our customers through our reading centric e-Ink and color reading devices. The Company is actively engaged in discussions with several world-class hardware partners related to device development as well as content packaging and distribution. As a result, we plan to launch a new NOOK color device in early fiscal 2015.”
During the quarter, the Company recorded an additional valuation allowance against certain deferred tax assets as a result of decisions made regarding the Company’s future device strategy in international markets. The impact of this item on third quarter net income was $44 million.
The Company ended the quarter with $490 million in cash, $276 million higher than last year, with no borrowings drawn under its $1 billion credit facility. As the Company executed its plan to sell through its device inventory, it converted inventory to cash, which contributed to the Company’s improved liquidity position.
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