Publishers Weekly is reporting more detail than the plain vanilla B&N press release:
A 50% sales increase at BN.com plus a full year’s results from Barnes & Noble College Booksellers offset a decline at Barnes & Noble’s retail trade stores leading to a 20% increase in total revenue to $7 billion in the fiscal year ended April 30. The nation’s largest bookseller had a net loss of $74 million in the year, due in part to heavy investment in its digital initiatives. …
For the year, BN.com was clearly the star for B&N, driven by both sales of its Nook family of devices plus digital content sold through the Nook Bookstore. Comparable store sales at BN.com were up 65% for the year and 78% for the fourth quarter. The company said Nook sales throughout all its platforms were $250 million in the fourth quarter and that it opened over 1 million Nook accounts in the period. …
Despite the big jump in sales at BN.com, the unit had negative EBITDA of $204.5 million in the year, up from $80.8 million in the prior year. Selling and administrative costs at BN.com rose from $151 million in fiscal 2010 to $280 million last year. CEO William Lynch said gross margins at BN.com improved once again in the fourth quarter and said he feels confident that BN.com is on track to become profitable. In a Amazon-type number, Lynch said BN.com sold three times as many digital products through BN.com as it did all print products. He estimated BN.com’s e-book market share at 26-27%. Lynch said he doesn’t see combination print and e-book becoming a major sales opportunity any time soon. PubIt, however, has grown faster than expected and now has over 100,000 titles. The number of apps is “comfortably” in the thousands and has been a winner, Lynch noted.
Possibly as part of B&N’s recovery process, I received an offer for a B&N Mastercard in the mail the other day. (I declined…)
It’s worth parsing the facts a little more closely.
The official SEC filing can be found here: http://forinvestors.barnesandnobleinc.com/secfiling.cfm?filingID=1157523-11-3715
In spite of $7 billion in total sales — retail stores, college stores and ecommerce — the company lost money. Retail stores generated $4.4 billion, college stores $1.8 billion and online division $0.85 billion. Retail same store sales increased 0.7% for the year, college stores declined 0.8%, online gross revenue was up 50%.
On Jun 29, 2010, B&N forecast a 75% sales increase for 2011 at bn.com — its etailing division which sells physical books by mail and Nooks and ebooks over the Internet. But for the full year, it managed only 50% increase. Nice perforomance, but well off the plan as projected a year ago.
Overall, Barnes and Noble generated barely $163 million operating profit (2.3¢ on every dollar of revenue) — far below the projected $250 million in the Jun 2010 forecast (this, in spite of the collapse of a major competitor). After other expenses, the company netted out with a loss for the year of $74 million.
Year over year, several metrics are sobering. Receivables: $150 million vs. $106 million in 2010; Payables (mostly inventory): $949 million vs. $869 million in 2010; Sales ecommerce: $858 million vs. $572 million in 2010; Sales and admin expenses ecommerce: $280 million vs. $151 million in 2010; net LOSS ecommerce: $205 million vs. $81 million.
Overall, as a percentage of sales: ecommerce represented 8.8% of sales but 32.6% of selling and admin expenses.
It’s very cool Nook opened 1 million Nook accounts in Q4 (Feb 1 to Apr 30) but then Kobo reported the same thing on Apr 11, claiming 1 million new user accounts in the previous 90 days.
Barnes and Noble has some options but it remains on very shaky financial footing. The takeover by Liberty Media, and the injection of working and investment captial, can’t come too soon.
B&N claims that “the collapse of a major competitor” was part of the reason for the increased losses on the Retail side — the store-closing sales at Borders were temporarily pulling traffic away from B&N stores. B&N also says that now that those Borders stores are closed, the B&N stores are seeing increased traffic compared with the prior year.
What’s bothersome to me is that BN.com — the online arm of B&N — has *never* been profitable, and B&N isn’t expecting it to become profitable for a while yet. As noted, the fiscal 2011 numbers for BN.com show a 50% increase in sales over 2010, but EBITDA losses that were more than double what they lost in 2010. More sales, but massively higher losses?
BN.com’s dismal 2011 performance is apparent in its surrendering over 25% of its gross margin compared with fiscal 2010, and compounding that with an almost 25% increase in administrative cost/dollar sold. Lower margins, higher administrative expenses: not a good combination.
Fiscal 2011 pretty much coincides with the arrival of the Agency Model, which guarantees the bookseller 30% of the list price of those particular e-books. In fiscal 2010, BN.com was selling many e-book titles at below cost in order to match Amazon’s $9.99 pricing. So the drop to 8.8% gross margin in 2011 almost *can’t* be due to e-books, right? They must be *giving* away printed books ordered online.
I’d think that BN.com would be leading the way by now, and instead it’s a dragging anchor. Without the BN.com losses, B&N would’ve had about $125 million in profit for fiscal 2011. And despite the extra money being poured in, BN.com evinces a technical ineptness that is, at times, shocking. IMO, there’s no excuse for waiting until May to bill customers for e-books bought in January.
Aggressive discounting, free shipping, gift card promotions, marketing emails and daily website redesigns all cost money. Plus, software and app development for their various devices were heavy during the last quarter. IT personnel are very well compensated. I couldn’t even guess what it costs to maintain BN.com website alone.
In other words, internal costs are increasing (salaries and leases majorly) and yet most items sold are lower priced with even lower profit margins.