Barnes & Noble Falls After Quarterly Sales Trail Estimate

Barnes & Noble Inc. (BKS), the largest U.S. bookstore chain, declined to the lowest price since April after posting fourth-quarter revenue that trailed analysts’ estimates.

The shares fell 4 percent to $14.63 at the close in New York. Barnes & Noble has risen 1 percent this year.

Fourth-quarter sales rose 0.4 percent to $1.38 billion, the New York-based company said today in a statement. Analysts projected $1.47 billion, the average of five estimates compiled by Bloomberg.

“Even though the numbers look slightly worse than consensus, I don’t think the surprise is that the numbers weren’t that good,” said John Tinker, an analyst with Maxim Group LLC. “The surprise is that they weren’t far worse.”

Revenue from the Nook unit, including e-readers, digital content and accessories, fell 10 percent to $164 million in the quarter amid lower average selling prices and a decline in device sales.

Demand for black and white e-readers, which have been available for almost four years, has started to decline as consumers snap up colored tablets made by Amazon.com Inc. (AMZN) and Apple Inc., said Peter Wahlstrom, an analyst for Morningstar Inc. in Chicago.

“There is a perpetual cycle of having to invest in the next device,” Wahlstrom said. “If consumers want a new device every 12 to 18 months, that is a big cost for the company.”

Losing Money

He said that Barnes & Noble is still a distant third to Apple and Amazon.

Barnes & Noble has been losing money for the past two years as it spends on advertising, product development and in-store upgrades to expand the Nook business as more consumers shift to electronic books.

The company is working to boost sales in the Nook unit by expanding outside the U.S. through a partnership with Microsoft Corp. that was announced in April after Barnes & Noble had considered separating the Nook business into its own public company.

The retailer will provide the content and digital-bookstore services through the Microsoft Windows 8 platform into 10 markets within the next 12 months “and then expand beyond that,” Chief Executive Officer William Lynch said today on a conference call.

Tinker said that Barnes & Noble isn’t big enough to absorb the research and development of the Nook, and that its partnership with Microsoft may help scale up production. Tinker rates the company a buy.

Microsoft Investment

Microsoft is investing $300 million for an 18 percent stake in a Barnes & Noble subsidiary that combines its Nook and college bookstore units. The companies plan to collaborate on a Nook application and software for Windows, the latest version of Microsoft’s operating system that will be released later this year.

“Apple and Amazon have a much larger scale in the colored tablet market,” Wahlstrom said. “That’s why you see them jumping into the sack with Microsoft.”

The net loss in the quarter ended April 28 totaled $57.7 million, or $1.08 a share, compared with $59.4 million, or $1.04, a year earlier, the company said. Excluding some items, the loss was 98 cents a share.

Comparable-store sales at the chain’s more than 680 stores rose 4.5 percent. That came after declines in 15 of the past 17 quarters dating back to 2008.

The company said it expects retail comparable bookstore sales to decline in the low-to-mid single percentage points in fiscal 2013 after the boost in sales it received from the Borders liquidation in fiscal 2012.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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