Barnes & Noble sees further losses from Burkle fight

By Phil Wahba

NEW YORK (BestGrowthStock) – Barnes & Noble Inc (BKS.N: ) posted a steeper-than-expected quarterly loss and said a proxy battle with billionaire investor Ron Burkle would put it even further in the red this year, sending its shares lower.

The standoff with Burkle has already raised doubts about Barnes & Noble’s ability to attract buyers after it put itself up for sale earlier this month.

The top U.S. bookstore chain’s results on Tuesday could add to those concerns as it forecast further same-store sales declines and said it was investing a significant amount of its resources to bolster its digital business. Shares in the company fell 3.7 percent.

“Our physical trade book business continues to be under some pressure,” Chief Executive William Lynch said on a conference call. Lynch said that the company will continue to spend a significant portion of its financial resources to strengthen its digital businesses.

Barnes & Noble reported a net loss of $62.5 million, or $1.12 per share, for the first quarter ended July 31, compared with a year-earlier profit of $12.3 million, or 21 cents per share.

Excluding items such as litigation costs from the battle with Burkle, the loss was $1.02 per share, deeper than the 80 cents per share that Wall Street analysts had expected, according to Thomson Reuters I/B/E/S.

The bookseller said legal and other costs surrounding the contest would hurt results and lowered its full-year forecast by 25 cents per share to a loss of 25 cents to 65 cents per share.

Excluding those litigation costs, it still expects full-year results to range from break-even to a loss of 40 cents per share, compared with Wall Street forecasts of a gain of 6 cents.

For the current quarter, Barnes & Noble expects results to range from a loss of 25 cents to a profit of 5 cents per share, compared with analysts’ estimates of a profit of 15 cents.

Same-store sales at namesake bookstores fell 0.9 percent during the first quarter, and the company said it expected a decline of 1 percent to 3 percent in the current second quarter. For the full year, it still expects same-store sales to be flat to up 3 percent.

Analysts have said Barnes & Noble must consider paring back its 717 namesake stores. Lynch did not say whether store closings were in the works, but said the Nook boutiques in its retail stores were essential to selling e-books and that the company would dedicate more in-store space to toys and games.


Earlier this month, Barnes & Noble put itself up for sale after years of sales declines. Chairman Leonard Riggio, who has a 28.7 percent stake, is trying to recruit investors to join him in a bid for the company.

A source familiar with the matter told Reuters last week that the company’s auction could be a drawn-out process and may lean toward a financial restructuring.

Burkle’s Yucaipa Companies firm owns 19.2 percent of Barnes & Noble shares and has sought control of the chain in the past. He launched a proxy battle to nominate himself and two other directors to the board two weeks ago after losing a court challenge to an anti-takeover poison pill.

Barnes & Noble has invested in its Nook electronic reader as it tries to adapt to the industrywide shift to digital bookselling, but has struggled to compete with popular devices from Inc (AMZN.O: ) and Apple Inc (Read more about Apple stock future.) (AAPL.O: ).

In the first quarter, a price war on e-readers helped pushed gross margins at its online division below what analysts were expecting. The company on Tuesday also named two new executives to head up its e-books and e-commerce business.

Lynch said these efforts were gaining traction and that the bookseller has a greater market share in digital book sales than in physical book sales, noting that people who have bought Nook e-readers spend 20 percent more on books.

Online sales, which include the Nook launched in October and e-books, rose 42 percent to $145 million, but only made up about one-tenth of revenues.

Companywide sales, which reflect last September’s purchase of College Booksellers, rose 20.8 percent to $1.4 billion. College represented about one-sixth of overall sales.

Same-store sales at Barnes & Noble College, which the company bought last year for $514 million from Riggio, were up 2.9 percent during the first quarter. The company said they would be flat in the second quarter.

(Reporting by Phil Wahba; Editing by Michele Gershberg, Lisa Von Ahn, Dave Zimmerman and Richard Chang)

Barnes & Noble sees further losses from Burkle fight