Barnes & Noble Reports Fiscal 2013 Second Quarter Financial Results

Consolidated EBITDA Increases 16% to $65 million

NOOK Digital Content Sales Increase 38%

NOOK Device Unit Sales Double Over Four-Day Black Friday Period

NEW YORK--()--Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its fiscal 2013 second quarter ended October 27, 2012.

“In addition to growing our EBITDA 16% during the quarter, the company also completed the formation of our promising NOOK Media subsidiary and closed our investment from Microsoft”

Second quarter consolidated revenues were $1.9 billion, a decrease of 0.4% as compared to the prior year. Second quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased 16% as compared to a year ago to $65 million. Consolidated second quarter net earnings attributable to Barnes & Noble were $2 million, as compared to a loss of $7 million in the prior year. Second quarter net losses attributable to Barnes & Noble were $0.04 per share, which includes the impact of the dividend on redeemable preferred shares, as compared to a loss of $0.17 per share a year ago.

"In addition to growing our EBITDA 16% during the quarter, the company also completed the formation of our promising NOOK Media subsidiary and closed our investment from Microsoft," said William Lynch, Chief Executive Officer of Barnes & Noble. "We expect our two highly acclaimed new NOOK products, and our Microsoft partnership on Windows 8 to further fuel the growth of our digital business, and are encouraged by the promising start to the holidays in our retail and digital businesses."

Second Quarter 2013 Results from Operations

Segment results for the fiscal 2013 and fiscal 2012 second quarters are as follows:

                                   
Revenues EBITDA
$ in millions Increase/(Decrease) Increase/(Decrease)
Q2 2013 Q2 2012 $ % Q2 2013 Q2 2012 $ %
Retail $996.0 $1,025.8 ($29.8) -2.9% $28.4 $14.1 $14.3 101.5%
College $773.0 $769.7 $3.4 0.4% $87.8 $92.8 ($5.0) -5.4%
NOOK $160.3 $151.8 $8.5 5.6% ($51.4) ($50.8) ($0.6) -1.1%
Elimination (1) ($44.9) ($55.3) $10.5 -19.0% n/a n/a n/a n/a
Total $1,884.5 $1,892.0 ($7.4) -0.4% $64.8 $56.0 $8.7 15.6%
 

(1) Represents the elimination of intercompany sales from NOOK to Barnes & Noble Retail and Barnes & Noble College on a sell through basis.

Retail

The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $996 million for the quarter, decreasing approximately 3% over the prior year due to flat comparable store sales, store closures and lower BN.com sales. During the quarter, the company began to cycle against the favorable impact of the Borders liquidation a year ago. Core comparable bookstore sales, which exclude sales of NOOK products, increased 1.8% for the quarter as compared to the prior year.

Retail earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $14 million to $28 million during the second quarter, a 101% increase, led by a higher mix of higher margin core products. In addition, the quarter also included the reversal of $4.7 million of accrued legal costs recorded in fiscal 2012, resulting from the final settlement of the litigation related to the company’s 2009 acquisition of Barnes & Noble College.

College

The College segment, which consists of the Barnes & Noble College bookstores business, had revenues of $773 million, increasing 0.4% as compared to a year ago, led by new store growth. Comparable College store sales decreased 0.5% for the quarter, as compared to the prior year period. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

College EBITDA decreased $5 million during the quarter as compared to a year ago to $88 million, resulting from a higher revenue deferral on increased textbook rental volumes and continued investments in digital education.

NOOK

The NOOK segment, which consists of the company’s digital business (including Readers, digital content and accessories), had revenues of $160 million for the quarter, increasing 6% as compared to a year ago. Digital content sales increased 38% for the second quarter over the second quarter in the prior year. Digital content sales are defined to include digital books, digital newsstand, and the apps business. The two new NOOK devices, NOOK HD and NOOK HD+, began shipping after the close of the company’s fiscal second quarter, and sales from the launch of those products will be reflected in the current fiscal third quarter and subsequent quarters.

NOOK EBITDA losses were essentially flat, increasing by 1% over the prior year to $51.4 million, as margin improvements were offset by higher investments primarily in product development and international expansion.

Holiday Results to Date

NOOK unit sales doubled over the four-day Black Friday weekend, across all channels, based on information provided by our channel partners on a sell-through basis compared to the similar period last year. The growth was driven by increased promotional activity at channel partners, particularly Walmart and Target. Retail Core comparable sales, which exclude sales of NOOK products, slightly declined over the holiday weekend, in-line with company expectations.

Conference Call

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Thursday, November 29, 2012, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report holiday sales on or about January 3, 2013.

About Barnes & Noble, Inc.

Barnes & Noble, Inc. (NYSE:BKS) is a Fortune 500 company and the leading retailer of content, digital media and educational products. The company operates 689 Barnes & Noble bookstores in 50 states, and one of the Web’s largest e-commerce sites, BN.com (www.bn.com). Its NOOK Media LLC subsidiary is a leader in the emerging digital reading and digital education markets. The NOOK digital business offers award-winning NOOK® products and an expansive collection of digital reading and entertainment content through the NOOK Store™ (www.nook.com), while Barnes & Noble College Booksellers, LLC operates 674 bookstores serving over 4.6 million students and faculty members at colleges and universities across the United States. Barnes & Noble is proud to be named a J.D. Power and Associated 2012 Customer Service Champion and is only one of 50 U.S. companies so named. Barnes & Noble.com is ranked the number one online retailer in customer satisfaction in the book, music and video category and a Top 10 online retailer overall in customer satisfaction according to ForeSee E-Retail Satisfaction Index (Spring Top 100 Edition).

General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com.

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" 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, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions with Microsoft do not achieve the expected benefits for the parties including the risk that NOOK Media LLC’s applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that any subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media LLC results in adverse impacts on Barnes & Noble or NOOK Media LLC (including as a result of termination of agreements and other adverse impacts), the potential impact on Barnes & Noble’s retail business of the separation, the potential tax consequences for Barnes & Noble and its shareholders of a subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in NOOK Media LLC, the risk that the international expansion contemplated by the relationship or otherwise is not successful or is delayed, the risk that NOOK Media LLC is not able to perform its obligations under the commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation of the NOOK digital and College businesses, the risk that Barnes & Noble may not recoup its investments in the NOOK digital business as part of any separation transaction, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, "Risk Factors," in Barnes & Noble's Annual Report on Form 10-K and Form 10-K/A, and in Barnes & Noble's other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK e-reader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance.

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)
 
                           
 
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
October 27, 2012 October 29, 2011 October 27, 2012   October 29, 2011
 
Sales $ 1,884,532 1,891,961 $ 3,338,039 3,310,365
Cost of sales and occupancy   1,404,034 1,420,297   2,443,653 2,451,143
Gross profit   480,498 471,664   894,386 859,222
Selling and administrative expenses 415,747 415,632 825,802 826,750
Depreciation and amortization   57,613 57,755   115,648 113,427
Operating income (loss) 7,138 (1,723) (47,064) (80,955)
Interest expense, net   8,122 8,460   17,064 17,901
Income (loss) before taxes (984) (10,183) (64,128) (98,856)
Income taxes   (409) (3,620)   (22,573) (35,687)
Net income (loss) (575) (6,563) (41,555) (63,169)
Net loss attributable to noncontrolling interests   2,808 -   2,808 -
Net income (loss) attributable to Barnes & Noble, Inc. $ 2,233 (6,563) $ (38,747) (63,169)
 
 
Basic loss per common share:
Loss attributable to Barnes & Noble, Inc. available
for common shareholders $ (0.04) (0.17) $ (0.82) (1.16)
 
Diluted loss per common share:
Loss attributable to Barnes & Noble, Inc. available
for common shareholders $ (0.04) (0.17) $ (0.82) (1.16)
 
Weighted average common shares outstanding:
Basic 58,168 57,261 58,094 57,207
Diluted 58,168 57,261 58,094 57,207
 
Percentage of sales:
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy   74.5% 75.1%   73.2% 74.0%
Gross profit   25.5% 24.9%   26.8% 26.0%
Selling and administrative expenses 22.1% 22.0% 24.7% 25.0%
Depreciation and amortization   3.1% 3.1%   3.5% 3.4%
Operating income (loss) 0.4% -0.1% -1.4% -2.4%
Interest expense, net   0.4% 0.4%   0.5% 0.5%
Income (loss) before taxes -0.1% -0.5% -1.9% -3.0%
Income taxes   0.0% -0.2%   -0.7% -1.1%
Net income (loss) 0.0% -0.3% -1.2% -1.9%
Net loss attributable to noncontrolling interests   0.1% 0.0%   0.1% 0.0%
Net income (loss)   0.1% -0.3%   -1.2% -1.9%
 

         
BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
 
               
 
October 27, 2012 October 29, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 470,994 $ 23,633
Receivables, net 224,545 240,600
Merchandise inventories 1,796,208 1,836,740
Prepaid expenses and other current assets   223,325   180,352
Total current assets   2,715,072   2,281,325
 
Property and equipment:
Land and land improvements 2,541 8,617
Buildings and leasehold improvements 1,211,156 1,220,869
Fixtures and equipment   1,833,667   1,725,135
3,047,364 2,954,621
Less accumulated depreciation and amortization   2,462,310   2,280,551
Net property and equipment   585,054   674,070
 
Goodwill 515,524 521,899
Intangible assets, net 558,157 574,964
Other noncurrent assets   57,218   55,794
Total assets $ 4,431,025 $ 4,108,052
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,448,397 $ 1,461,981
Accrued liabilities 470,975 436,868
Gift card liabilities   297,191   287,268
Total current liabilities   2,216,563   2,186,117
 
Long-term debt 338,400 274,900
Long-term deferred taxes 292,879 275,868
Other long-term liabilities 364,966 418,923
 
Redeemable Preferred Shares; $.001 par value; 5,000
shares authorized; 204 and 204 shares issued, respectively 192,904 191,681
Preferred Member Interests in NOOK Media, LLC 289,054 -
 
Shareholders' equity:
Common stock; $.001 par value; 300,000 shares
authorized; 92,037 and 90,856 shares issued, respectively 92 91
Additional paid-in capital 1,377,992 1,331,983
Accumulated other comprehensive loss (16,635) (11,630)
Retained earnings 434,174 495,830
Treasury stock, at cost, 33,801 and 33,527 shares, respectively   (1,059,364)   (1,055,711)
Total shareholders' equity   736,259   760,563
Commitments and contingencies   -   -
Total liabilities and shareholders' equity $ 4,431,025 $ 4,108,052
 

     
BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
     
                       
 
13 weeks ended 13 weeks ended 26 weeks ended 26 weeks ended
October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
 
Sales  
Retail $ 996,028 1,025,802 $ 2,115,415 2,123,054
College 773,007 769,650 993,725 990,144
NOOK 160,347 151,847 352,322 343,259
Elimination   (44,850) (55,338)   (123,423) (146,092)
Total $ 1,884,532 1,891,961 $ 3,338,039 3,310,365
 
Gross Profit
Retail $ 293,362 290,490 $ 630,099 600,939
College 168,221 167,691 219,263 218,863
NOOK   18,915 13,483   45,024 39,420
Total $ 480,498 471,664 $ 894,386 859,222
 
Selling and Administrative Expenses
Retail $ 264,974 276,401 $ 527,150 547,154
College 80,434 74,900 145,508 138,276
NOOK   70,339 64,331   153,144 141,320
Total $ 415,747 415,632 $ 825,802 826,750
 
EBITDA
Retail $ 28,388 14,089 $ 102,949 53,785
College 87,787 92,791 73,755 80,587
NOOK   (51,424) (50,848)   (108,120) (101,900)
Total $ 64,751 56,032 $ 68,584 32,472
 
Net Loss
EBITDA $ 64,751 56,032 $ 68,584 32,472
Depreciation and Amortization (57,613) (57,755) (115,648) (113,427)
Interest Expense, net (8,122) (8,460) (17,064) (17,901)
Income Taxes   409 3,620   22,573 35,687
Total $ (575) (6,563) $ (41,555) (63,169)
 
 
 
Percentage of sales:
 
Gross Margin
Retail 29.5% 28.3% 29.8% 28.3%
College 21.8% 21.8% 22.1% 22.1%
NOOK   16.4% 14.0%   19.7% 20.0%
Total 25.5% 24.9% 26.8% 26.0%
 
Selling and Administrative Expenses
Retail 26.6% 26.9% 24.9% 25.8%
College 10.4% 9.7% 14.6% 14.0%
NOOK   60.9% 66.7%   66.9% 71.7%
Total 22.1% 22.0% 24.7% 25.0%
 

                               
BARNES & NOBLE, INC. AND SUBSIDIARIES
Loss Per Share
(In thousands, except per share data)
 
                                             
 
13 weeks ended 26 weeks ended
October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
                                       
Numerator for basic loss per share:
Income (loss) attributable to Barnes & Noble, Inc. $ 2,233 (6,563) $ (38,747) (63,169)
Preferred stock dividends (3,942) (3,118) (7,883) (3,118)
Accretion of dividends on preferred stock   (453) (262)   (769) (262)
Net loss available to common shareholders $ (2,162) (9,943) $ (47,399) (66,549)
 
Numerator for diluted loss per share:
Net loss available to common shareholders $ (2,162) (9,943) $ (47,399) (66,549)
 
Denominator for basic and diluted loss per share:
Basic weighted average common shares   58,168 57,261   58,094 57,207
 
 
Basic loss per common share

Net loss attributable to Barnes & Noble, Inc. available

for common shareholders

$ (0.04) (0.17) $ (0.82) (1.16)
 
Diluted loss per common share

Net loss attributable to Barnes & Noble, Inc. available

for common shareholders

$ (0.04) (0.17) $ (0.82) (1.16)
 

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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