Barnes & Noble Inc., even though it maintains a high dividend payout which keeps shareholders in the fold, is increasingly under pressure to successfully turn the company around as it continues to shed revenue and same-store sales.
The other major problem is it has failed to attract meaningful sales to its e-commerce platform, which had sales plunge by over 9 percent in the last reporting period.
With its struggle to survive it has resulted in an incoherent vision of the future for the company, as it tries to find something that’ll stick and help the company work from a sustainable bottom. As it is, it has yet to find a bottom, even with a wide variety of steps being taken to turn things around.
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To say the latest performance of Barnes & Noble was underwhelming would be an understatement; it was a terrible thing to hear and see.
Once again, retail sales were down, dropping to $765 million, a decline of 3.9 percent. Citing lower store traffic, same-store sales fell 4.1 percent in the fourth quarter.
Same-store sales unrelated to books plunged 4.5 percent, while book sales were down 3.4 percent year over year. For non-book sales, the major negative catalyst categories there were DVD, Gift and Music. They were all down in the double-digit range.
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For full year, same-store sales were down 5.4 percent on declining traffic. Online sales were a disaster, down 9.6 percent for the year. Most of that was attributed to lower conversion rates, primarily because of a poorly designed e-commerce site in my opinion.
Consolidated gross margins for the quarter fell $13.5 million on lower sales volume. The company said that was “due primarily to occupancy de-leverage and higher markdowns to clear-up non-returnable merchandise.” On the higher markdowns, it’s a concern because of the inability of management to select the type of merchandise that consumers want.
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One of the major problems in my view now that Barnes & Noble has gone through a prolonged period of being disrupted, is it has struggled to find a vision. It has been somewhat successful outside of its core business, with toys and games experiencing some success, along with its café business. This is obviously not enough to offset plummeting sales.
Also, an obvious issue for the company is the declaration by its former CEO that it had in fiscal 2018 “created an aggressive long-term strategic turnaround plan, which we have already begun to execute.” That should have already been in place many years ago. Part of that problem is the removing of CEOs on a consistent basis, making it hard for Barnes & Noble to put a long-term vision in place.
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One positive step the company is taking in regard to growth is its attempt to enhance the customer experience at its stores. To do that it’s focusing on its core business as a bookseller by developing and offering its Barnes & Noble Book Club, which launched in May 2018. The problem concerning this to me is why it took so long to do the obvious.
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As mentioned earlier, e-commerce sales once again plummeted, this time by almost 10 percent. This is problematic to me because it appears Barnes & Noble is looking at highly-trafficked neighborhood stores as its future model. If that’s the case, then having a well-functioning e-commerce option that includes local delivery is a must.
From looking at the e-commerce site, it appears the company has given up on growing that part of its business. It seems it has been intimidated by the expertise of Amazon to the point of giving up. I think that’s a huge mistake. If it can make some decent improvements to its e-commerce website and provide a nice delivery option to consumers, it should do very well in complementing its new physical stores, or some of the downsized stores from existing locations.
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The major problem Barnes & Noble has to me is a management one. Until that is solved and it puts together a vision of the future that it is committed to and adheres to for the long haul, it’s going to be a company that struggles to survive.
If the cash flow ever dries up and the hefty dividend yield is cut, it could signal the end of the company – either through bankruptcy or being acquired.