From Seeking Alpha:
For some unfathomable reason, shares of Barnes and Noble rose 32% over the past twelve months. In my view, the party is very much over, as the financial performance of this company has absolutely fallen off a cliff.
Perhaps this is the state of retail in the Amazon world, but it’s best for investors to avoid this name, as the party is soon over in my view. It’s not a controversial statement to say that this company is in the midst of an existential crisis because of Amazon. The competition from Amazon shows up in the poor financial showing here.
. . . .
Since 2012, retained earnings have dropped from about $586 million to $-81 million. When I input these variables in my online financial calculator, the software returned an error message that read “please use reasonable numbers.” Apparently the rate of decline that retained earnings have shown has been “unreasonable.” The revenue decline is more “reasonable” (at least from the calculator’s perspective). Sales have declined at a CAGR of -5% since 2012. In any event, equity is evaporating here at an alarming rate. The cause of this is obviously a decline in the company’s net income. Net income has been consistently negative since 2012, with the exception of 2015.
. . . .
Since the beginning of fiscal 2016, the company has paid about $68 million in dividends on common shares and approximately $4 million of dividends on preferred shares. I usually like dividends, but in the case of a company that is losing money, it strikes me as irresponsible. In my view, every dividend paid simply hastens this company’s fall.
. . . .
While the company was spending approximately $90 million giving money to shareholders (while destroying their retained earnings), it also took on approximately $191 million of additional debt. This is troublesome for two reasons. First, the weighted average of interest rates on this debt is approximately 8.21%, which is quite high. Second, the company is losing money, and at some point the intersection of declining revenues and net income on the one hand and increased leverage on the other will lead to a critical event that will be bad for shareholders.
Link to the rest at Seeking Alpha and thanks to Dave for the tip.
tom said:
> That would mean something
> if B&N owned those storefronts.
they don’t own most of the storefronts.
they lease them. tenants in a mall rarely
own their space. the mall landlords do.
> They don’t; they lease them.
right. that’s true for most b&n locations.
b&n might own a few standalone buildings,
and perhaps even the land underneath ’em,
i don’t know, and it doesn’t really matter,
as what i am talking about here are leases.
but there’s big value in having a network of
such leases which spans the entire country,
because that makes it significantly easier to
satisfy a client looking for such a network.
otherwise, you’ve got to patch one together,
negotiating a lease for every single location.
and once the world knows you’re doing that,
the cost of each individual location skyrockets,
and it makes the cost of the network ludicrous.
especially if you’re looking for prime locations,
and don’t want to be stuck in a mall’s dead spot.
> The only way for them to make money off of
> those leases is to shut down the stores and
> sublet the locations, and they are not doing that.
they most certainly _will_ do that. shut down.
the only question is whether it’s sooner or later.
business has been trending down, is down now,
and looks to continue trending down longterm,
so i think it’ll be sooner, not later. i say 2017.
june or july, if you want me to be that specific.
(if it’s not this summer, it will be next summer.
there’s no value in missing the holiday quarter.)
> From what I can see, the only ‘big money’
> propping up the B&N share price is
> the money that the company itself
> is borrowing to buy its own stock.
you can’t get anyone to loan you any money
if you don’t have something they will want,
sooner or later. that network of storefronts
is the thing the banks want, sooner or later.
and those lenders will decide when they want
to call in the loans, whether it’s sooner or later.
they’ll do it when they think the payoff is big.
probably when one of their other clients that
is growing finds itself needing such a network.
-bowerbird
b&n has great value as a real-estate play —
largish rooms in prime spots cross-country.
including high-profile malls where b&n is
right next to an anchor tenant. (or at times
where it actually _is_ one of the anchors.)
not since big-box-electronic chains went down
years back has such a widespread network of
choice storefronts been available, nor will any
others be available in the foreseeable future,
not until huge-room department-store chains
start to fall. and when that happens, the entire
world of brick-and-mortar stores will be at hand.
the big money propping up the b&n share-price
knows what it’s doing, and it’s definitely not books.
-bowerbird
That would mean something if B&N owned those storefronts. They don’t; they lease them. The only way for them to make money off of those leases is to shut down the stores and sublet the locations, and they are not doing that.
From what I can see, the only ‘big money’ propping up the B&N share price is the money that the company itself is borrowing to buy its own stock.
If I can gently point out a context problem:
As far as the investment-analyst community is concerned, the dominant aspect of B&N’s value is now (and has been for more than a decade) a real-estate play based on ownership and leases, not in its continuing operations. Whether this is correct is a matter for debate; whether it is the prevailing view is really not (just read investment-analyst reports in detail, some of which are probably available at your local library).
And, more to the point, whether the real-estate-play value of B&N increased sufficiently to support a 31% increase in per-share price against a general market increase somewhat lower than that is also open to debate.
None of which is to defend the mathematical illusion of “retained earnings” (which are, themselves, a fiction), any apparent misconduct, or anything else. It is merely to point out that “continuing operations” are not the only thing at issue… especially for a company that did a lot of churning of ownership, financing, and leases during and in the aftermath of the 2007-08 mortgage bubble, and is now locked in for many years at advantageous rates (especially given the Borders situation).
The only trouble with that is that the advantageous rates are only advantageous if B&N were to shut down its stores and sublet to other merchants. Instead, they are squatting on those leases and squandering their value on a declining business that they have no idea how to revive.
If the prevailing view is actually correct, then B&N is worth more dead than alive. Where is Larry the Liquidator when we need him?
“Since 2012, retained earnings have dropped from about $586 million to $-81 million. When I input these variables in my online financial calculator, the software returned an error message that read “please use reasonable numbers.””
this is easily the funniest thing I expect to read all week.
This^^
I guess the software writers didn’t account for foolishness and greed.
IMO it will be a fine thing if these stores (1) thrive and (2) lose the bias somehow that they can’t carry print books by indies. That will skate close enough to success for my money.
Others who comment here have characterized this as “cashing out.”
As I see it, B&N is a large company that is used to being a large company and (anthropomorphically) can’t imagine being anything else. Their corporate culture doesn’t have the tools to adapt to an environment of falling sales and revenue. All the talk about “B&N needs to do this” and “B&N needs to do that” don’t mean beans. They really just don’t know how.
They’ll collapse, and there will be a wave of little mammal-type bookstores opening up in their wake, with lots of happy “I’ve always wanted to do this!” articles announcing them. And frankly, won’t that be a good thing?
Ah! Possible corporate shenanigans at the upper levels. That would make a lot of sense. The rich get richer, the executives get their bonuses on the quarterly bottom line, eveything is going to the dogs in the company, and then it gets sold – and the sellers make more money.
I think there have been several movies with that premise.
All ‘based on a true story.’
Borrowing money to give to shareholders sounds like a straight-up scam. Wonder how much of that Riggio collected (on phone, can’t look up, but I know it could be found in SEC filings.)
Thay may just be trying to prop up the stock price.
(“It’s just pining for the fjords.”)
But it’s risky for sure.
If they slip into involuntary chapter 11 they could get pushed into outright liquidation if they convert too much equity into debt.
Looks like an all or nothing gamble.
Not only a scam; there could be fraud implications that could get very serious.