Saturday, December 5, 2015

A Gloomy Report from Barnes & Noble

It is hard not to have a gloomy feeling about the large corporate bookstore after seeing the earnings report for the revamped Barnes & Noble for the quarter ending October 31. Shrinking down Barnes & Noble was expensive anyway, with more than $10 million in one-time expenses and surely a similar degree of distraction occurring during the quarter. Now that the restructuring is complete, it reveals a retail giant utterly dependent on the holiday shopping season. The holiday season is split between quarters, with around 15 percent of holiday gift purchases occurring during the quarter. Even with this advantage, excluding special items, the bookseller reported an operating loss of $10 million.

Barnes & Noble has for years reported losses in the spring and summer quarters. Now it seems the fall quarter is unprofitable too. The latest quarterly loss comes after operating losses of $67 million over the two preceding quarters. It may be unrealistic to expect a profit from Barnes & Noble during any of the first ten months of the year, but if it loses $5 million per month in the off-season, it needs an above-average holiday season to make up the losses. Obviously, it isn’t quite a business model if you need above-average results every time. Statistically, a below-average season must come sooner or later.

There are reasons to doubt the current pace of holiday shopping in general. There was a palpable drop-off in Black Friday traffic and other indications of a generally lackluster season in-store. With store closings and a technically obsolete e-book platform, Barnes & Noble can’t match the results of last year’s holiday quarter. It will be doing well if sells enough calendars, board games, and other high-markup items to show an operating income of $50 million for the current quarter and a loss of $20 million for the year. That would leave the bookseller looking for ways to close stores faster and cut costs in other ways. And if the current quarter’s results are below average?