Barnes & Noble Inc.: How Low Can It Go?

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From Seeking Alpha:

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.

. . . .

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.

. . . .

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.

. . . .

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.

. . . .

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.

. . . .

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.

. . . .

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.

Link to the rest at Seeking Alpha

33 thoughts on “Barnes & Noble Inc.: How Low Can It Go?”

  1. Barnes & Noble Inc., even though it maintains a high dividend payout which keeps shareholders in the fold,

    It might be time to look at the simple facts. The shareholders are the company. While sales fall, stores close, and management cycles through, shareholders are pumping money into their own pockets as fast as they can.

    B&N isn’t going to turn around. The vision is to take as much money as possible for as long possible before it all folds.

    The best option is to get someone to buy the whole thing and pay the shareholders more money. Without a buyer, just keep the dividends flowing.

    Nobody cares about books, authors, literary culture, malls, publishers, smaller stores, or selling embroidered bookmarks. Think of the game Monopoly. How many times can they go around the board and collect $200 before it all comes to an end.

    • The vision is to take as much money as possible for as long possible before it all folds.

      Do you attribute this to blinkered entitlement, or to active malice.

      • I don’t know about him, but I attribute it to the guy actually in control of B&N going ‘I got mine – and I’m going to ride this thing right into the ground!’

      • Do you attribute this to blinkered entitlement, or to active malice.

        I attribute it to a rational decision to maximize return on investment. I expect the same from other traditional players as they wind down their paper operations. Each will follow a different path, depending on their specific situation. But the overall idea is that they are doing the best they can to manage decline in an unfavorable economic environment.

        We have to remember the shareholders own the company. They are entitled. It’s theirs, not ours, not some public trust, and not immune from the same economic pressures that widget-makers face.

        • The reason I phrase my question like that is that as far as I can determine, B&N is borrowing money in order to prop up it’s dividend. If they actually anticipate exiting the business by bankruptcy, then isn’t that borrowing tantamount to an act of fraud? Thus, malice (towards creditors.)

          After all, if they just felt they were entitled to the dividend and assumed somehow that the business was viable in the long term, then that activity could be attributed to ignorance of some sort, which is often the safe bet.

          • The bankers know exactly what B&N is doing. I have no sympathy for bankers. This is what they do everyday. The whole world can see it. So can the publishers. Everybody is maneuvering for advantage.

  2. Barnes & Noble Inc., even though it maintains a high dividend payout which keeps shareholders in the fold,

    Riggio holds around 20% of the shares. 20% of the dividends go straight into his pocket. 20% of $US 43 million for FYE 2018, for a company that no longer has a single full-time employee in many stores. Wow.

    • Felix, I wonder how long it would take and what amount of investment to retool entire online store so it looked and acted like amz and also carried other products besides books.

      Or would that mean if amz had a true coetitor in terms of books, amz pays the authors less to keep up with THEIR shadeholders, er shareholders

      • That last in nothing to worry about: Amazon shareholders aren’t invested for quarterly profits but for stock appreciation. And that isn’t coming from books but from merchants services, AWS, Alexa, and whatever comes next.

        Books aren’t important enough to the shareholders to care about.

  3. This is so frustrating! The new vision they need is to beef up e-commerce, learn how to leverage the power of a vast mailing list, learn the power of curated specials (hello, indies!), and generally stop blowing the publishers under the table. The rapacious stockholders pulling out more than 400% of the actual free cash in a year isn’t helping anything.

    • They don’t need a new vision. They have a vision.

      Look at their behavior. They have no interest in ecommerce, leveraging mailing lists, or curating specials. If they did, they would be putting money into these areas rather than in their own pockets.

      It’s the stockholders’ company. They do what they want with it, and they don’t care what we want them to do with it.

  4. People have been talking about the coming collapse of Barnes and Nobles for at least 5 years. Probably more.

    It still looks like it’s coming, but when? For years it’s been, “any day now…”

    It’s like a betting game and everyone bet wrong. So let me throw my hat in. 1 year. By next Fall, done. My bet is based on nothing whatsoever, just like everyone else’s. Hell, B&N could limp along for another 5 years, who knows? I can’t believe they outlasted Toys R Us and Circuit City.

    • How long did Borders last before they finally went under?

      I think what may be the deciding factor is traditional publishers.

      At what point do they begin worrying about not being paid for books B&N currently has in its inventory?

      At what point will they be able to say B&N isn’t worth depending on for future sales?

      Can books only sold to Walmart, Target, and small book stores keep publishers happy in the face of the Amazonian behemoth?

      • When it comes to pbooks on Amazon, corporate publishing is all talk, no deeds.
        If they were really concerned they would go Agency on print books. They just talk ADS to keep the literati quiet.

        • Ha! Going Agency on print books would doom trad-pub even faster, no one would pay those prices. (And we heard trad-pub and their penned writers whine when Amazon reduced the discount they were selling the books at. 😉 )

          • Don’t be so sure.
            Agency doesn’t automatically mean high prices. Don’t forget, Indies operate under (slightly modified) Agency.
            What matters to consumers is the price, not how it’s set.

            • But agency means no more ‘50% off!’ signs at your local B&M store – and that would have to include Walmart/Cosco. (And so far trad-pub still claims/thinks a hardback is worth $30+.) So the only bargains would then be ‘used’ books.

              Sure, trad-pub ‘may’ some day lower their prices, but will they do it enough (or soon enough) for it to make any difference? 😉

              • No.
                All pbook agency means is that all retailers get the same commission. And it doesn’t have to be 70/30. It could be 50/50. It doesn’t even mean all books get the same retail price. At most it might mean they would stop printing the price on the books.

                One thing it would do is do away with return credits as a fig leaf and make all book shipments officially on consignment. Which means retailers would never own the books they sell and order as many as they can warehouse and return everything without prejudice. 🙂

                (“They’re your books!”)

                • “One thing it would do is do away with return credits as a fig leaf and make all book shipments officially on consignment. Which means retailers would never own the books they sell and order as many as they can warehouse and return everything without prejudice.”

                  At least that way their books wouldn’t be part of what’s used to pay off creditors once B&N finishes sinking – but the as you say, B&N could over-order and return the overload …

                  Me just glad I’m not one of those stuck in the middle of that mess …

      • At what point do they begin worrying about not being paid for books B&N currently has in its inventory?

        Exactly. B&N and publishers are both dealing with the same unfavorable market. Each is trying to keep the cash flow going as long as possible.

        B&N stockholders will keep paying themselves dividends as long as 1) they can squeeze them out of the balance sheet, and 2) publishers keep shipping them books.

        Publishers will keep shipping books as long as they think B&N can make the next payment.

        We may see an orderly end as publishers reduce the receivables they carry from B&N, and B&N’s balance sheet can’t fund anymore dividends. Shareholders and publishers could walk away after taking the maximum profit from their positions.

  5. Well, there is GOOD news for B&N – they are by some measure America’s most reputable retailer.

    America’s top 10 most reputable retailers in 2018 are:

    1. Barnes & Noble [NYSE: BKS]
    2. Amazon [NASDAQ: AMZN]
    3. Cabela’s [NYSE: CAB]
    4. AutoZone [NYSE: AZO]
    5. Costco [NASDAQ: COST]
    6. Ace Hardware

    http://www.globenewswire.com/news-release/2018/09/06/1566628/0/en/Barnes-Noble-1-Most-Reputable-Retailer-in-America-as-Amazon-s-Reputation-in-the-US-Drops.html

    • Thank you for another place not to get my news from.

      I’m guessing firing your more knowledgeable staff is a good thing in ‘Reputation Institute’ (RI) (the [self-claimed] world’s leading provider of reputation intelligence)’s book.

      “What you sell and stand for matters,” said William Shifflett, Vice President, Reputation Institute. “Delivering on products, governance, and citizenship is a priority for retail companies when creating a strong reputation foundation.”

      Is there another B&N I missed? One that Riggio isn’t running into the ground?

      • Remember, most people don’t pay attention to this stuff. All they see when they look at B&N is that they aren’t in the news for anything nefarious, and they sell books. What could be more reputable?

        • By that same token, in what way are they supposedly ‘better’ than Amazon? Certainly not customer satisfaction. 😉

          • Ah, but Bernie Sanders and followers routinely flog and demonize Amazon. As a result there are many who don’t care about customer service, just political alignment.

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