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Press release from Business Wire

Barnes & Noble Reports Fiscal 2013 First Quarter Financial Results

<p class='bwalignc'> <i>Digital Content Sales Increase 46%</i> </p> <p class='bwalignc'> <i>Bookstore Comparable Sales Increase 4.6%</i> </p> <p class='bwalignc'> <i>Retail EBITDA Increases 88% to $75 million</i> </p>

Tuesday, August 21, 2012

Barnes & Noble Reports Fiscal 2013 First Quarter Financial Results08:30 EDT Tuesday, August 21, 2012 NEW YORK (Business Wire) -- Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its fiscal 2013 first quarter ended July 28, 2012. First quarter consolidated revenues increased 2.5% to $1.5 billion as compared to the prior year. First quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) was $4 million as compared to a loss of $24 million a year ago. The consolidated first quarter net loss declined 28% as compared to the prior year to $41.0 million, or $0.78 per share. “During the first quarter, we continued to see improvement in both our rapidly growing NOOK business, which saw digital content sales increase 46% during the quarter, and at our bookstores, which continue to benefit from market consolidation and strong sales of the Fifty Shades series,” said William Lynch, Chief Executive Officer of Barnes & Noble. “The growth in comps at retail and the continued strong growth of our digital content business, as well as increased cost management focus, were drivers in the business turning from an EBITDA loss last year to slightly positive EBITDA in the first quarter of this year. As announced yesterday, we are excited to expand our award winning NOOK digital bookstore and devices beyond the U.S. market and to work with U.K. retailers to bring millions of U.K. customers the best experience in digital reading.” First Quarter 2013 Results from Operations Segment results for the fiscal 2013 and fiscal 2012 first quarters are as follows:       Revenues       EBITDA $ in millions             Increase/(Decrease)             Increase/(Decrease) Q1 2013 Q1 2012 $       % Q1 2013 Q1 2012 $       % Retail $ 1,119 $ 1,097 $ 22 2.0 % $ 75 $ 40 $ 35 87.8 % College 221 220 0 0.1 % (14 ) (12 ) (2 ) -15.0 % NOOK 192 191 1 0.3 % (57 ) (51 ) (6 ) -11.1 % Elimination (1)   (79 )   (91 )   12 -13.4 %   n/a     n/a     n/a   n/a   Total $ 1,454   $ 1,418   $ 35 2.5 % $ 4     ($24 ) $ 27   116.3 % (1) Represents the elimination of intercompany sales from NOOK to Barnes & Noble Retail and Barnes & Noble College on a sell through basis. Retail The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $1.1 billion for the quarter, increasing 2% over the prior year. Comparable bookstore sales increased 4.6% for the quarter, as compared to the prior year period. Comparable bookstore sales continued to benefit from the liquidation of Borders' bookstores in fiscal 2012 and strong sales of the Fifty Shades of Grey series. Core comparable bookstore sales, which exclude sales of NOOK products, increased 7.6% for the quarter. BN.com sales continued to decline for the quarter. Retail earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $40 million to $75 million during the first quarter, an 88% increase, driven by comparable sales increases, a higher mix of higher margin core products and increased store productivity. College The College segment, which consists of the Barnes & Noble College bookstores business, had revenues of $221 million during this non-back-to-school rush period. Comparable College store sales decreased 2.0% for the quarter, as compared to the prior year period. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period. College EBITDA losses increased by $2 million during the quarter from a loss of $12 million a year ago to a loss of $14 million, driven by new store expenses and investments in digital education. NOOK The NOOK segment, which consists of the company's digital business (including Readers, digital content and accessories), had revenues of $192 million for the quarter, essentially flat as compared to last year. Digital content sales increased 46% for the first quarter. Digital content sales are defined to include digital books, digital newsstand, and the apps business. Device sales declined for the quarter due to lower average selling prices and production scaling issues surrounding the popular newly launched Glowlight product resulting in unmet demand. NOOK EBITDA losses increased by $6 million, from a loss of $51 million to a loss of $57 million, as a result of product markdowns on the recently announced NOOK price adjustments, as well as continued investments in the NOOK business. Newco Formation On April 30th, the company announced that it has formed a strategic partnership with Microsoft to form a new subsidiary, Newco, which is comprised of the company's NOOK digital and College businesses. The company continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the Microsoft transaction. The company expects the Microsoft transaction to close this Fall. Fiscal 2012 Segment Information On June 19, 2012, the company announced that it completed an evaluation of its reporting segments, and reported fourth quarter and full year results for a new NOOK operating segment. At the end of this release, the company is providing segment information for all four quarters of fiscal 2012. Conference Call A conference call with Barnes & Noble, Inc.'s senior management will be webcast beginning at 10:00 A.M. ET on Tuesday, August 21, 2012, and is accessible at www.barnesandnobleinc.com/webcasts. Barnes & Noble, Inc. will report fiscal 2013 second quarter earnings on or about November 20, 2012. About Barnes & Noble, Inc. Barnes & Noble, Inc. (NYSE:BKS), the leading retailer of content, digital media and educational products, operates 689 bookstores in 50 states. Barnes & Noble College Booksellers, LLC, a wholly-owned subsidiary of Barnes & Noble, also operates 667 college bookstores serving over 4.6 million students and faculty members at colleges and universities across the United States. Barnes & Noble conducts its online business through BN.com (www.bn.com), one of the Web's largest e-commerce sites, which also features more than 2.5 million titles in its NOOK Bookstore™ (www.bn.com/ebooks). Through Barnes & Noble's NOOK® eReading product offering, customers can buy and read digital books and content on the widest range of platforms, including NOOK devices, partner company products, and the most popular mobile and computing devices using free NOOK software. Barnes & Noble is proud to be named a J.D. Power and Associated 2012 Customer Service Champion and is only one of 50 U.S. companies so named. Barnes & Noble.com is ranked the number one online retailer in customer satisfaction in the book, music and video category and a Top 10 online retailer overall in customer satisfaction according to ForeSee E-Retail Satisfaction Index (Spring Top 100 Edition). General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com. Forward-Looking Statements This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "will" and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements. Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble's products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders' store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions contemplated by the partnership with Microsoft to form Newco, including with respect to any spin-off, split-off or other disposition by Barnes & Noble of its interest in Newco, are not able to be implemented on the terms contemplated or in the anticipated timeframe, or at all, the risk that the transactions do not achieve the expected benefits for the parties including the risk that Newco's applications are not commercially successful or that the expected distribution of those applications is not achieved, the risk that the separation of the NOOK digital and College businesses or any subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in Newco results in adverse impacts on Company or Newco (including as a result of termination of agreements and other adverse impacts), the potential impact on Barnes & Noble's retail business of the separation, the potential tax consequences for Barnes & Noble and its shareholders of a subsequent spin-off, split-off or other disposition by Barnes & Noble of its interest in Newco, the risk that the international expansion contemplated by the relationship is not successful or is delayed, the risk that Newco is not able to perform its obligations under the commercial agreement, including with respect to the development of applications and international expansion, and the consequences thereof, the costs and disruptions arising out of any such separation of the NOOK digital and College businesses, the risk that Barnes & Noble may not recoup its investments in the NOOK digital business as part of any separation transaction, the risks, difficulties, and uncertainties that may result from the separation of businesses that were previously co-mingled including necessary ongoing relationships, and potential for adverse customer impacts and other factors which may be outside of Barnes & Noble's control, including those factors discussed in detail in Item 1A, "Risk Factors," in Barnes & Noble's Annual Report on Form 10-K and Form 10-K/A, and in Barnes & Noble's other filings made hereafter from time to time with the SEC. Our forward looking statements relating to international expansion are also subject to the following risks, among others that may affect the introduction, success and timing of the NOOK e-reader and content in countries outside the United States: we may not be successful in reaching agreements with international companies, the terms of agreements that we reach may not be advantageous to us, our NOOK device may require technological changes to comply with applicable laws, and marketplace acceptance and other companies have already entered the marketplace with products that have achieved some customer acceptance. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.   BARNES & NOBLE, INC. AND SUBSIDIARIESConsolidated Statements of Operations(In thousands, except per share data)                 13 weeks ended13 weeks endedJuly 28, 2012July 30, 2011   Sales $ 1,453,507 1,418,404 Cost of sales and occupancy   1,039,619   1,030,846   Gross profit   413,888   387,558   Selling and administrative expenses 410,055 411,118 Depreciation and amortization   58,035   55,671   Operating loss (54,202 ) (79,231 ) Interest expense, net   8,941   9,442   Loss before taxes (63,143 ) (88,673 ) Income taxes   (22,163 ) (32,067 ) Net loss $ (40,980 ) (56,606 )     Loss per common share: Basic $ (0.78 ) (0.99 ) Diluted $ (0.78 ) (0.99 )   Weighted average common shares outstanding Basic 58,021 57,153 Diluted 58,021 57,153   Percentage of sales: Sales 100.0 % 100.0 % Cost of sales and occupancy   71.5 % 72.7 % Gross profit   28.5 % 27.3 % Selling and administrative expenses 28.2 % 29.0 % Depreciation and amortization   4.0 % 3.9 % Operating loss -3.7 % -5.6 % Interest expense, net   0.6 % 0.7 % Loss before taxes -4.3 % -6.3 % Income taxes   -1.5 % -2.3 % Net loss   -2.8 % -4.0 %   BARNES & NOBLE, INC. AND SUBSIDIARIESConsolidated Balance Sheets(In thousands)                 July 28, 2012July 30, 2011ASSETS Current assets: Cash and cash equivalents $ 20,221 $ 22,353 Receivables, net 144,297 156,543 Merchandise inventories 1,947,422 1,814,436 Prepaid expenses and other current assets   192,316     156,632   Total current assets   2,304,256     2,149,964     Property and equipment: Land and land improvements 2,541 8,617 Buildings and leasehold improvements 1,200,928 1,208,454 Fixtures and equipment   1,804,193     1,690,529   3,007,662 2,907,600 Less accumulated depreciation and amortization   2,410,984     2,228,562   Net property and equipment   596,678     679,038     Goodwill 518,578 523,006 Intangible assets, net 562,522 563,034 Other noncurrent assets   62,650     56,615   Total assets $ 4,044,684   $ 3,971,657     LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,387,004 $ 1,275,708 Accrued liabilities 474,467 403,667 Gift card liabilities   312,855     301,249   Total current liabilities   2,174,326     1,980,624     Long-term debt 302,800 509,600 Long-term deferred taxes 268,410 279,716 Other long-term liabilities 397,415 434,334   Redeemable Preferred Shares; $.001 par value; 5,000 192,589 - shares authorized; 204 and zero shares issued, respectively   Shareholders' equity: Common stock; $.001 par value; 300,000 shares authorized; 91,833 and 90,641 shares issued, respectively 92 91 Additional paid-in capital 1,347,990 1,327,948 Accumulated other comprehensive loss (16,635 ) (11,630 ) Retained earnings 436,336 505,773 Treasury stock, at cost, 33,743 and 33,453 shares, respectively   (1,058,639 )   (1,054,799 ) Total shareholders' equity   709,144     767,383   Commitments and contingencies   -     -   Total liabilities and shareholders' equity $ 4,044,684   $ 3,971,657     BARNES & NOBLE, INC. AND SUBSIDIARIESSegment Information(In thousands)                   13 weeks ended13 weeks endedJuly 28, 2012July 30, 2011   Sales   Retail 1,119,387 1,097,252 College 220,718 220,494 NOOK 191,975 191,412 Elimination (78,573 ) (90,754 ) Total 1,453,507   1,418,404     Gross Profit Retail 336,736 310,449 College 51,043 51,172 NOOK 26,109   25,937   Total 413,888   387,558     Selling and Administrative Expenses Retail 262,175 270,753 College 65,075 63,376 NOOK 82,805   76,989   Total 410,055   411,118     EBITDA   Retail 74,561 39,696 College (14,032 ) (12,204 ) NOOK (56,696 ) (51,052 ) Total 3,833   (23,560 )   Net Loss EBITDA 3,833 (23,560 ) Depreciation and Amortization (58,035 ) (55,671 ) Interest Expense, net (8,941 ) (9,442 ) Income Taxes 22,163   32,067   Total (40,980 ) (56,606 )       Percentage of sales:   Gross Margin Retail 30.1 % 28.3 % College 23.1 % 23.2 % NOOK 23.0 % 25.8 % Total 28.5 % 27.3 %   Selling and Administrative Expenses Retail 23.4 % 24.7 % College 29.5 % 28.7 % NOOK 73.0 % 76.5 % Total 28.2 % 29.0 %   BARNES & NOBLE, INC. AND SUBSIDIARIESLoss Per Share(In thousands, except per share data)                 13 weeks ended     July 28, 2012   July 30, 2011Numerator for basic loss per share: Loss attributable to Barnes & Noble, Inc. $ (40,980 ) (56,606 ) Preferred stock dividends (3,942 ) - Accretion of dividends on preferred stock   (316 ) -   Net loss available to common shareholders $ (45,238 ) (56,606 )   Numerator for diluted loss per share: Net loss available to common shareholders $ (45,238 ) (56,606 )   Denominator for basic and diluted loss per share: Basic weighted average common shares   58,021   57,153       Loss per common share Basic $ (0.78 ) (0.99 ) Diluted $ (0.78 ) (0.99 )   BARNES & NOBLE, INC. AND SUBSIDIARIESFiscal 2012 Segment Information(In thousands)                                     13 weeks ended13 weeks ended13 weeks ended13 weeks ended52 weeks endedJuly 30, 2011October 29, 2011January 28, 2012April 28, 2012April 28, 2012   Sales   Retail 1,097,252 1,025,802 1,677,326 1,052,533 4,852,913 College 220,494 769,650 525,627 227,891 1,743,662 NOOK 191,412 151,847 426,595 163,617 933,471 Elimination (90,754 ) (55,338 ) (190,424 ) (64,331 ) (400,847 ) Total 1,418,404   1,891,961   2,439,124   1,379,710   7,129,199     Gross Profit Retail 310,449 290,490 518,503 327,998 1,447,440 College 51,172 167,691 106,667 69,781 395,311 NOOK 25,937   13,483   27,646   999   68,065   Total 387,558   471,664   652,816   398,778   1,910,816     Selling and Administrative Expenses Retail 270,753 276,401 320,913 262,244 1,130,311 College 63,376 74,900 71,488 69,600 279,364 NOOK 76,989   64,331   110,469   77,988   329,777   Total 411,118   415,632   502,870   409,832   1,739,452     EBITDA Retail 39,696 14,089 197,590 65,754 317,129 College (12,204 ) 92,791 35,179 181 115,947 NOOK (51,052 ) (50,848 ) (82,823 ) (76,989 ) (261,712 ) Total (23,560 ) 56,032   149,946   (11,054 ) 171,364     Net Income (Loss) EBITDA (23,560 ) 56,032 149,946 (11,054 ) 171,364 Depreciation and Amortization (55,671 ) (57,755 ) (60,273 ) (58,968 ) (232,667 ) Interest Expense, net (9,442 ) (8,460 ) (8,773 ) (8,629 ) (35,304 ) Income Taxes 32,067   3,620   (28,869 ) 20,922   27,740   Total (56,606 ) (6,563 ) 52,031   (57,729 ) (68,867 )       Percentage of sales:   Gross Margin Retail 28.3 % 28.3 % 30.9 % 31.2 % 29.8 % College 23.2 % 21.8 % 20.3 % 30.6 % 22.7 % NOOK 25.8 % 14.0 % 11.7 % 1.0 % 12.8 % Total 27.3 % 24.9 % 26.8 % 28.9 % 26.8 %   Selling and Administrative Expenses Retail 24.7 % 26.9 % 19.1 % 24.9 % 23.3 % College 28.7 % 9.7 % 13.6 % 30.5 % 16.0 % NOOK 76.5 % 66.7 % 46.8 % 78.5 % 61.9 % Total 29.0 % 22.0 % 20.6 % 29.7 % 24.4 % Barnes & Noble, Inc.Media:Mary Ellen Keating, 212-633-3323Senior Vice PresidentCorporate Communicationsmkeating@bn.comorInvestors:Andy Milevoj, 212-633-3489Vice President, Investor Relationsamilevoj@bn.com