Barnes & Noble Reports Fiscal 2017 Third Quarter Financial Results

NEW YORK--()--Barnes & Noble, Inc. (NYSE:BKS) today reported sales and earnings for its fiscal 2017 third quarter ended January 28, 2017.

Total sales for the third quarter were $1.3 billion, declining 8.0% as compared to the prior year. Retail sales, which include Barnes & Noble stores and BN.com, declined 7.5% to $1.3 billion for the quarter. Comparable store sales declined 8.3% for the quarter largely due to lower traffic, as well as the decline in coloring books, artist supplies and last year’s best-selling album by Adele, which collectively accounted for nearly one third of the sales decline. Online sales increased 2.2% for the period. NOOK® sales, which include digital content, devices and accessories, declined 25.7% to $38.4 million for the quarter.

Consolidated third quarter net earnings were $70.3 million, or $0.96 per share, as compared to the prior year net earnings of $80.3 million, or $1.04 per share. For the quarter, Retail generated operating income of $135.0 million, while NOOK incurred an operating loss of $6.2 million, for a total operating income of $128.8 million.

Consolidated third quarter EBITDA was $157.8 million, as compared to $169.0 million a year ago. NOOK EBITDA losses of $2.4 million improved $8.8 million over the prior year, as the Company continues to reduce NOOK expenses. Retail EBITDA of $160.2 million declined $19.9 million on the sales decline.

The Company ended the third quarter with borrowings of $18.2 million under its $750 million credit facility.

Return of Capital

During the quarter, the Company returned $14.4 million in cash to its shareholders, including $10.9 million in dividends and $3.5 million through share repurchases. The Company acquired approximately 311,000 shares at an average price of $11.23 during the quarter, completing its $50 million stock repurchase program.

Outlook

Despite sales improvements post-holiday, trends softened in late January and into the fourth quarter. As a result, the Company now expects full year fiscal 2017 comparable store sales to decline approximately 7%, and consolidated EBITDA to be in a range of $180 million to $190 million, excluding the impact of any charges related to its cost reduction initiatives and costs associated with the CEO departure. Fiscal 2017 Retail EBITDA is now expected to be in a range of $200 million to $210 million, while NOOK’s EBITDA loss has improved and is now expected to be approximately $20 million, which includes previously announced transitional costs.

Conference Call

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Thursday, March 2, 2017, and is accessible at investors.barnesandnobleinc.com.

Barnes & Noble, Inc. will report fiscal 2017 fourth quarter results on or about June 22, 2017.

About Barnes & Noble, Inc.

Barnes & Noble, Inc. (NYSE:BKS) is a Fortune 500 company, the nation’s largest retail bookseller, and a leading retailer of content, digital media and educational products. The Company operates 634 Barnes & Noble bookstores in 50 states, and one of the Web’s premier e-commerce sites, BN.com (www.bn.com). The Nook Digital business offers a lineup of popular NOOK® tablets and eReaders and an expansive collection of digital reading and entertainment content through the NOOK Store®. The NOOK Store features more than 4.5 million digital books in the US (www.nook.com), plus periodicals and comics, and offers the ability to enjoy content across a wide array of popular devices through Free NOOK Reading Apps™ available for Android™, iOS® and Windows®.

General information on Barnes & Noble, Inc. can be obtained by visiting the Company's corporate website at www.barnesandnobleinc.com.

BKS – Financial

Forward-Looking Statements

This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.

Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble’s products, low growth or declining sales and net income due to various factors, including store closings, higher-than-anticipated or increasing costs, including with respect to store closings, relocation, occupancy (including in connection with lease renewals) and labor costs, the effects of competition, the risk of insufficient access to financing to implement future business initiatives, risks associated with data privacy and information security, risks associated with Barnes & Noble’s supply chain, including possible delays and disruptions and increases in shipping rates, various risks associated with the digital business, including the possible loss of customers, declines in digital content sales, risks and costs associated with ongoing efforts to rationalize the digital business and the digital business not being able to perform its obligations under the Samsung commercial agreement and the consequences thereof, the risk that financial and operational forecasts and projections are not achieved, the performance of Barnes & Noble’s initiatives including but not limited to its new store concept and e-commerce initiatives, unanticipated adverse litigation results or effects, potential infringement of Barnes & Noble’s intellectual property by third parties or by Barnes & Noble of the intellectual property of third parties, and other factors, including those factors discussed in detail in Item 1A, “Risk Factors,” in Barnes & Noble’s Annual Report on Form 10-K for the fiscal year ended April 30, 2016, and in Barnes & Noble’s other filings made hereafter from time to time with the SEC.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.

                 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
                                           
13 weeks ended 13 weeks ended 39 weeks ended 39 weeks ended
January 28, 2017 January 30, 2016 January 28, 2017 January 30, 2016
 
Sales $ 1,300,908 $ 1,413,947 $ 3,073,338 $ 3,287,160
Cost of sales and occupancy   864,107     922,292     2,103,623     2,225,621  
Gross profit   436,801     491,655     969,715     1,061,539  
Selling and administrative expenses 278,962 322,652 801,499 885,063
Depreciation and amortization   29,052     35,147     90,083     103,864  
Operating income 128,787 133,856 78,133 72,612
Interest expense, net   2,076     1,976     5,666     7,233  
Income before taxes 126,711 131,880 72,467 65,379
Income taxes   56,435     51,618     37,016     20,071  
Net income from continuing operations 70,276 80,262 35,451 45,308
Loss from discontinued operations   -     -     -     (39,146 )
Net income $ 70,276   $ 80,262   $ 35,451   $ 6,162  
 
Basic income (loss) per common share:
Income from continuing operations $ 0.97 $ 1.04 $ 0.48 $ 0.48
Loss from discontinued operations   -     -     -     (0.54 )
Basic income (loss) per common share $ 0.97   $ 1.04   $ 0.48   $ (0.06 )
 
Diluted income (loss) per common share:
Income from continuing operations $ 0.96 $ 1.04 $ 0.48 $ 0.48
Loss from discontinued operations   -     -     -     (0.54 )
Diluted income (loss) per common share $ 0.96   $ 1.04   $ 0.48   $ (0.06 )
 
Weighted average common shares outstanding:
Basic 71,581 74,856 72,232 71,987
Diluted 71,714 74,924 72,387 72,124
 
Dividends declared per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
 
Percentage of sales:
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy   66.4 %   65.2 %   68.4 %   67.7 %
Gross profit   33.6 %   34.8 %   31.6 %   32.3 %
Selling and administrative expenses 21.4 % 22.8 % 26.1 % 26.9 %
Depreciation and amortization   2.2 %   2.5 %   2.9 %   3.2 %
Operating income 9.9 % 9.5 % 2.5 % 2.2 %
Interest expense, net   0.2 %   0.1 %   0.2 %   0.2 %
Income before taxes 9.7 % 9.3 % 2.4 % 2.0 %
Income taxes   4.3 %   3.7 %   1.2 %   0.6 %
Net income from continuing operations 5.4 % 5.7 % 1.2 % 1.4 %
Loss from discontinued operations   0.0 %   0.0 %   0.0 %   -1.2 %
Net income 5.4 % 5.7 % 1.2 % 0.2 %
 

                 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
(Unaudited)
                                             
 
13 weeks ended 13 weeks ended 39 weeks ended 39 weeks ended
January 28, 2017 January 30, 2016 January 28, 2017 January 30, 2016
 
Sales
Retail $ 1,276,039 $ 1,378,887 $ 2,988,471 $ 3,178,590
NOOK 38,434 51,737 114,524 149,568
Elimination   (13,565 )   (16,677 )   (29,657 )   (40,998 )
Total $ 1,300,908   $ 1,413,947   $ 3,073,338   $ 3,287,160  
 
Gross Profit
Retail $ 422,251 $ 474,595 $ 919,473 $ 1,009,598
NOOK   14,550     17,060     50,242     51,941  
Total $ 436,801   $ 491,655   $ 969,715   $ 1,061,539  
 
Selling and Administrative Expenses
Retail $ 262,024 $ 294,438 $ 738,176 $ 783,353
NOOK   16,938     28,214     63,323     101,710  
Total $ 278,962   $ 322,652   $ 801,499   $ 885,063  
 
EBITDA
Retail $ 160,227 $ 180,157 $ 181,297 $ 226,245
NOOK   (2,388 )   (11,154 )   (13,081 )   (49,769 )
Total $ 157,839   $ 169,003   $ 168,216   $ 176,476  
 
Depreciation and Amortization
Retail $ (25,236 ) $ (26,853 ) $ (74,756 ) $ (78,079 )
NOOK   (3,816 )   (8,294 )   (15,327 )   (25,785 )
Total $ (29,052 ) $ (35,147 ) $ (90,083 ) $ (103,864 )
 
Operating Income (Loss)
Retail $ 134,991 $ 153,304 $ 106,541 $ 148,166
NOOK   (6,204 )   (19,448 )   (28,408 )   (75,554 )
Total $ 128,787   $ 133,856   $ 78,133   $ 72,612  
 
Net Income
Operating income $ 128,787 $ 133,856 $ 78,133 $ 72,612
Interest expense, net (2,076 ) (1,976 ) (5,666 ) (7,233 )
Income taxes (56,435 ) (51,618 ) (37,016 ) (20,071 )
Loss from discontinued operations   -     -     -     (39,146 )
Total $ 70,276   $ 80,262   $ 35,451   $ 6,162  
 
 
 
Percentage of sales:
 
Gross Margin
Retail 33.1 % 34.4 % 30.8 % 31.8 %
NOOK   58.5 %   48.7 %   59.2 %   47.8 %
Total 33.6 % 34.8 % 31.6 % 32.3 %
 
Selling and Administrative Expenses
Retail 20.5 % 21.4 % 24.7 % 24.6 %
NOOK   68.1 %   80.5 %   74.6 %   93.7 %
Total 21.4 % 22.8 % 26.1 % 26.9 %
 
EBITDA
Retail 12.6 % 13.1 % 6.1 % 7.1 %
NOOK   -9.6 %   -31.8 %   -15.4 %   -45.8 %
Total 12.1 % 12.0 % 5.5 % 5.4 %
 
Depreciation and Amortization
Retail -2.0 % -1.9 % -2.5 % -2.5 %
NOOK   -15.3 %   -23.7 %   -18.1 %   -23.7 %
Total -2.2 % -2.5 % -2.9 % -3.2 %
 
Operating Income (Loss)
Retail 10.6 % 11.1 % 3.6 % 4.7 %
NOOK   -24.9 %   -55.5 %   -33.5 %   -69.6 %
Total 9.9 % 9.5 % 2.5 % 2.2 %
 

         
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
(Unaudited)
                       
January 28, 2017 January 30, 2016
 
ASSETS
Current assets:
Cash and cash equivalents $ 11,628 $ 63,557
Receivables, net 70,434 69,364
Merchandise inventories, net 1,010,343 1,043,930
Prepaid expenses and other current assets   62,164     66,674  
Total current assets   1,154,569     1,243,525  
 
Property and equipment:
Land and land improvements 2,541 2,541
Buildings and leasehold improvements 1,060,416 1,047,357
Fixtures and equipment   1,597,435     1,571,457  
2,660,392 2,621,355
Less accumulated depreciation and amortization   2,378,925     2,314,176  
Net property and equipment   281,467     307,179  
 
Goodwill 211,276 215,197
Intangible assets, net 310,369 311,066
Other non-current assets   11,275     11,637  
Total assets $ 1,968,956   $ 2,088,604  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 500,751 $ 576,958
Accrued liabilities 319,145 334,314
Gift card liabilities   384,830     384,915  
Total current liabilities   1,204,726     1,296,187  
 
Long-term debt 18,200 -
Deferred taxes 54,290 16,289
Other long-term liabilities 105,212 138,668
 
Shareholders' equity:
Common stock; $0.001 par value; 300,000 shares authorized;
111,648 and 110,740 shares issued, respectively 112 111
Additional paid-in capital 1,743,562 1,734,898
Accumulated other comprehensive income (loss) 198 (16,533 )
Retained earnings (22,045 ) 17,629
Treasury stock, at cost, 40,093 and 36,797 shares, respectively   (1,135,299 )   (1,098,645 )
Total Barnes & Noble, Inc. shareholders' equity   586,528     637,460  
Commitments and contingencies   -     -  
Total liabilities and shareholders' equity $ 1,968,956   $ 2,088,604  
 

                 
BARNES & NOBLE, INC. AND SUBSIDIARIES
Earnings (Loss) Per Share
(In thousands, except per share data)
(Unaudited)
                                           
 
13 weeks ended 13 weeks ended 39 weeks ended 39 weeks ended
January 28, 2017 January 30, 2016 January 28, 2017 January 30, 2016
Numerator for basic income (loss) per share:
Net income from continuing operations $ 70,276 $ 80,262 $ 35,451 $ 45,308
Inducement fee paid upon conversion of Series J preferred stock - - - (3,657 )
Preferred stock dividends paid in shares - - - (1,783 )
Accretion of dividends on preferred stock - - - (4,204 )
Less allocation of dividends to participating securities (168 ) (307 ) (559 ) (999 )
Less allocation of undistributed earnings to participating securities   (948 )   (1,871 )   (42 )   -  
Net income from continuing operations available to common shareholders $ 69,160 $ 78,084 $ 34,850 $ 34,665
Net loss from discontinued operations available to common shareholders   -     -     -     (39,146 )
Net income (loss) available to common shareholders $ 69,160   $ 78,084   $ 34,850   $ (4,481 )
 
Numerator for diluted income (loss) per share:
Net income from continuing operations available to common shareholders $ 69,160 $ 78,084 $ 34,850 $ 34,665
Accretion of dividends on preferred stock (a) - - - -
Allocation of undistributed earnings to participating securities 948 1,871 42 -
Less diluted allocation of undistributed earnings to participating securities   (946 )   (1,869 )   (42 )   -  
Net income from continuing operations available to common shareholders 69,162 78,086 34,850 34,665
Net loss from discontinued operations available to common shareholders   -     -     -     (39,146 )
Net income (loss) available to common shareholders $ 69,162   $ 78,086   $ 34,850   $ (4,481 )
 
Denominator for basic income (loss) per share:
Basic weighted average common shares 71,581 74,856 72,232 71,987
 
Denominator for diluted income (loss) per share:
Basic weighted average common shares 71,581 74,856 72,232 71,987
Average dilutive options 68 68 77 136
Average dilutive non-participating securities   65     -     78     1  
Diluted weighted average common shares   71,714     74,924     72,387     72,124  
 
Basic income (loss) per common share:
Income from continuing operations $ 0.97 $ 1.04 $ 0.48 $ 0.48
Loss from discontinued operations   -     -     -     (0.54 )
Basic income (loss) per common share $ 0.97   $ 1.04   $ 0.48   $ (0.06 )
 
Diluted income (loss) per common share:
Income from continuing operations $ 0.96 $ 1.04 $ 0.48 $ 0.48
Loss from discontinued operations   -     -     -     (0.54 )
Diluted income (loss) per common share $ 0.96   $ 1.04   $ 0.48   $ (0.06 )
 
(a)   Although the Company was in a net income position during the 39 weeks ended January 30, 2016, the dilutive effect of the Company’s convertible preferred shares was excluded from the calculation of income per share using the two-class method because the effect would be antidilutive.
 

         
BARNES & NOBLE, INC. AND SUBSIDIARIES
Forward-Looking Statement Non-GAAP Reconciliation
(In millions)
(Unaudited)
                         
 
Forward-Looking Range
 
EBITDA
Retail $ 200 $ 210
NOOK   (20 )   (20 )
Total $ 180   $ 190  
 
Charges (a) 12 12
 
Operating Profit
EBITDA $ 168 $ 178
Depreciation and amortization   (118 )   (118 )
Total $ 50   $ 60  
 
(a)   Charges related to its cost reduction initiatives and costs associated with the CEO departure.
 

Contacts

Barnes & Noble, Inc.
Media:
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investors:
Andy Milevoj, 212-633-3489
Vice President, Investor Relations
amilevoj@bn.com

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