Five years ago, few people would have guessed that physical books at this stage would be the brightest part of a Barnes & Noble (BKS) earnings report.
But sure enough, comparable sales at its retail stores sales, excluding the ongoing fiasco that is Barnes & Noble’s digital Nook business, rose 1.7%, increasing for the third quarter in a row and by the widest margin yet, showing there is life yet in selling actual books.
Meanwhile, despite a new partnership with Samsung that saw the top U.S. Bookstore chain launch its first Nook tablet device in two years last fall, Nook sales fell 50.6% to $77.5 million during the key holiday quarter, which ran from November to January. A cost-cutting program allowed Barnes & Noble to also cut its losses in half on the Nook.
But the dismal performance is likely a key reason Barnes & Noble did an about-face last month, when it announced its intention to spin off its College division on its own, and not paired off with the Nook business as originally planned.
So Nook, despite all of Barnes & Noble’s efforts, looks set to continue to be a drain on the company’s numbers, hence the 9% drop in shares on Tuesday.
Still, B&N CEO Michael Huseby says the company won’t walk away from the Nook business, which it launched in 2009 to fend of Amazon.com’s (AMZN) Kindle e-reader and e-books business. B&N eventually garnered 27% of the U.S. E-books market, but couldn’t keep pace with deep-pocketed Amazon, and by last year, after losing hundreds of millions of dollars on Nook, B&N announced Samsung would produce its device from now on.
“Our Nook team continues to seek opportunities to stabilize, and potentially reverse, the decline in content sales in what continue to be a challenging environment,” Huseby told Wall Street analysts on a conference call. “We remain committed to supporting the Nook product, which remains an integral part of our future because it is important to our customers.”
Meanwhile, its College business saw its profit fall 20% to $28 million, as comparable sales dipped 1.4%, which contributed to a lower than expected profit for the whole company that spooked investors, and an untimely result given that College will likely be spun off by the late summer. (To be fair, the current season got off to a good season, and Barnes & Noble raised its full-year sales forecast for the college division.)
Still, the core B&N business looks like it is on the path to recovery. The e-books craze has peaked, with growth in that avenue similar to that of paper books.
In fact, Barnes & Noble said it was cutting back on store closures this year, shuttering 13 instead of 20. There is life left in books after all.
