Following are excerpts from Barnes & Noble 4th quarter earnings call from a bit earlier today.
Demos Paneros is the President
From Seeking Alpha:
Thanks, Andy, and good morning, everyone. I’ll begin with a brief review of our results and then turn to our fiscal 2019 plans and outlook. Fiscal 2018 proved to be a challenging year for Barnes & Noble as retail dynamics continue to present headwinds for our business.
That said, the actions we’ve undertaken regarding our strategic turnaround plan have laid the groundwork for the future and we are beginning to see modest improvement in some areas.
Our comp sales declined 5.4% in fiscal ’18, and we generated EBITDA of $145 million excluding nonrecurring charges. To put these results in context, you’ll recall that in fiscal ’18, we created an aggressive long-term strategic turnaround plan, which we have already begun to execute.
Turnaround plans take time; and while our performance has been somewhat disappointing, we began to make steady progress in fiscal ’18.
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Now turning to fiscal ’19, we expect our comp sales trends to improve over the prior year. To improve our sales trends, we’re focused on enhancing the customer experience, better curation, increasing the value for our members and also investing in marketing to drive traffic. We’re also innovating for the future through newly designed stores, focusing on existing high-potential businesses and developing a pipeline of new businesses.
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To enhance the customer experience and to reassert our leadership as a bookseller, we’re creating new programs such as the Barnes & Noble Book Club, which debuted in May. I’m really excited about this program, which builds on Barnes & Nobles’ unique heritage to bring together and engage readers in a national conversation about books.
This is core to what we do at Barnes & Noble, connecting readers and communities through engaging content and programs. We’re featuring a new title every quarter and partnering with authors and publishers to create exclusive content. Our inaugural selection was Meg Wolitzer’s The Female Persuasion and we have thousands of customers participate in our book club discussion.
Our Chief Marketing Officer, Tim Mantel, joined the company earlier this year and has been focused on opportunities to improve the customer experience and to drive the business. Our goal is to be relevant during key holidays and to be a destination for unique and thoughtful gifts.
A great example of this is our Exclusive and Signed Editions program. This program resonates very well with our customers during the Black Friday holiday period, and we plan to grow sales by extending this program to other holidays, such as Mother’s Day, Father’s Day, when customers are looking for great one-of-a-kind gift. Additionally, we see opportunities to expand our toys and games business and are revamping our gift business.
Over the course of the past year, we established a business development team that is responsible for creating a pipeline of fresh new concepts to engage our customers. This team is responsible for the introduction of some new back-to-school products that we’ll be selling in our stores in July. This product including pens, notebooks, backpacks and water bottles is very complementary to our summer reading program.
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In fiscal ’18, we transitioned to our new, more efficient store labor model that resulted in a $40 million cost reduction and we’re continuing to review costs throughout the organization including indirect procurement, supply chain efficiencies and we also plan to reduce cost further in fiscal ’19.
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Consolidated sales were $786 million for the quarter and $3.7 billion for the year. Retail sales decreased 3.9% to $765 million for the fourth quarter and 5.5% to $3.6 billion for the full year. Comps decreased 4.1% during the fourth quarter on lower store traffic.
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Book comps decreased 3.4% for the quarter, continuing to outpace the balance of the store. Non-book comps decreased 4.5% for the quarter. Our Gift, Music and DVD businesses all experienced double-digit declines, partially offset by favorable trends in our café and toys and games categories. Overall, members continue to outperform non-members.
Comparable store sales decreased 5.4% for the full fiscal year on lower traffic. Online sales declined 9.6% for the full year on lower conversion rates. Fourth quarter consolidated gross margins decreased $13.5 million, primarily due to the lower sales volume. Rates declined 40 basis points for the quarter and 80 basis points for the full year, both due primarily to occupancy de-leverage and higher markdowns to clear-up non-returnable merchandise.
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Fourth quarter operating losses were $25.5 million including $7.7 million of non-recurring or unusual items, primarily severance. Excluding these items, adjusted fourth quarter EBITDA was $6.7 million. The full-year operating loss was $128 million inclusive of $167 million of nonrecurring or unusual items.
The $176 million is comprised of four items; $136 million of non-cash asset impairment charges, mostly goodwill; $16 million of nonrecurring severance costs primarily resulting from the implementation of the new store labor model; $5 million of strategic consulting as we transform our business; and $10 million of markdowns declared non-returnable merchandise.
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The consolidated fourth quarter net loss was $21.1 million or $0.29 a share compared to a loss of $13.4 million or $0.19 a share in the prior year. The consolidated full-year net loss was $125.5 million or $1.73 a share compared to net earnings of $22 million or $0.30 a share in the prior year. In fiscal ’18, we opened three new stores while closing six, ending the year with 630 stores.
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During fiscal ’18, the company returned $44 million in cash to its shareholders through Board-approved dividend policy. On June 13, the Board declared a quarterly cash dividend of $0.15 a share, payable on July 27 to stockholders of record at the close of business on July 6.
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Hi. Good morning. Thanks for taking my question. I just have a couple. First on NOOK, you mentioned in the year and congrats on moving that to the positive. 2019, anything you could share about thoughts on EBITDA for NOOK?
Hey David, it’s Al. We aren’t specifically providing guidance on the NOOK segment, but I’ll tell you that we expect to continue topline pressures in our NOOK business and continued cost rationalization in that area.
It’s going to be tough to repeat some of the improvements you’ve seen, just given the top line pressures, but we’re going to work — continue to work hard on rationalizing costs between our digital segments, which include both NOOK and e-commerce.
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You guys are being so efficient with the call and the answers, I’m going to try to sneak in one other. We’ve been in your new pilot stores, and they are different and feel different. Anything you can share, I think you mentioned it briefly, but anything you can share on metrics, whether it’s time spent per customer? I think you’ve talked in the past about mix of cafe, but any metrics that folks on the call could think about around those? I know it’s a limited number, but the new concept stores.
Tough to talk about those because the food part of the business is so disproportionately high due to the full restaurant concept in those stores. I mean, they really don’t look like our other stores. But with that said, we’ve learned a lot from those stores. They’ve been great for us in terms of teaching us how to present product differently.
Our displays are different. Some of the adjacencies in the stores are different. We use different signage and colorways. So we’ve taken a lot of weight.
I don’t have a specific kind of dwell time figure. It’s kind of funny. In other businesses, we measure checkout time, which everybody wants to be efficient with checkout time, but in our case, we really want customers to stay as long as they want and browse and discover and buy books and other things.
So, unfortunately, we don’t have that. But I think good takeaways on the book side of the business, and there’s less of the non-books in those stores. So there’s not as much to really take or conclude from that.
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Hi. Thanks for taking my questions. Just a follow-up on the challenging categories of Music and DVD. I mean, at what point in time do you start to make some adjustments to the square footage allocation? We’ve seen it with other retailers that have also gone through kind of turnaround operational changes like at Best Buy, for example.
Just trying to think you expect continued pressure this year, 2019. I mean, how are you thinking about that if you’ve made really good strides? You’re down three in Books, and you’re positive in Café, but you have this drag. I mean, at what point in time do you just continue to make adjustments here, maybe bigger adjustments?
I think that’s a question that we’ve spent quite a bit of time on. Our entire management team has been focused on that and actually we have begun to make changes in those areas. The clear takeaway is to reduce its space as quickly as we can.
At the same time, we want to replace that product with something that is productive and relevant and makes sense and is on brand for us. So a couple of ways that we’re doing that. The first thing is that we’ve designed smaller stores and as we come to end-of-life on — end-of-lease rather, on stores which we’ve talked about in the past is over 100 stores a year, come up for lease renewal.
We can’t downsize all of those stores, but where we can, we will downsize those stores and when we do, we will give much less space, if any, to those categories. So that’s one approach.
Secondly, we talked about some new businesses that we have been testing and experimenting with to go along with our already strong Gift and Toys & Games businesses. Those can have a little bit more space. So it’s little bit re-allocation game that we’re going to be looking at. And that, along with new businesses, are some of the ways that we intend to use the space currently occupied by Music, DVDs.
So, it’s a little bit of a slower process that we’d like. We’d love to do it overnight, but trying to be prudent with usage of our capital and our expense dollars where we’re moving and where we’ve reallocated space, we’ve seen the results.
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Yeah. So, our target size for the new stores is 14,000 square feet. Obviously, it doesn’t work out perfectly every time. If it’s 13,000 or 15,000, we can work with that. Our designs are flexible enough to handle that. We are excited to be launching early fall with the first one of these stores and we intend to get great learning and takeaways from these.
I think the punch line is simple for us. It’s just about store productivity and the first part of the question about music DVD, we know that’s unproductive, but there’s some demand for the product. We certainly don’t need as much space as it has and we can reallocate space and also introduce some new businesses.
So we’re very focused on the customer experience. Customers love our store experience. So we want to keep that, but at the same time, we want to reduce where appropriate. So we want to keep the great experience, but make the stores more productive and make the P&L better at the same time.
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PG notes hot new initiatives like a book club plus gifts, toys and games (which PG thinks he remembers being downsized substantially last year).
And smaller stores – about 14,000 square feet, down from 25,000 to 45,000 square feed during Barnes & Noble’s glory days. 14,000 square feet is about the size of a typical Walgreens, Rite Aid or CVS store.