Highlights From Barnes & Noble's (BKS) Q2 Conference Call: 5% Total Sales Decline, But Web Traffic Continues to Increase

August 20, 2009 4:33 PM EDT

Barnes & Noble, Inc. (NYSE: BKS) reports Q2 EPS of $0.14, ex-items, 4 cents above the consensus of $0.10. Total sales fell 5% to $1.2 billion, versus the consensus of $1.16 billion.

Highlights From BKS's Q2 Conference Call:

• For the third quarter, the company expects comparable store sales at Barnes & Noble stores to decline 1% to 3%. The company continues to expect full-year comparable store sales to decline 3% to 5%.
  
• (CFO) Consolidated sales totaled 1.156 billion for the quarter, a 5% decline from last year.
  
• Sales at Barnes & Noble stores were 1.032 billion for the quarter, also a decline of 5% from last year.
  
• Comparable store sales declined 6.9% for the quarter, which is within guidance of a 5 to 7% decrease.
  
• Store traffic was down throughout the quarter and was the main driver in our comparable store sales performance. Our average ticket declined slightly.
  
• Sales at Barnes & Noble.com were 102 million for the quarter, a 2% increase over last year.
  
• Gross margin was better than expected this quarter, and the good news is that gross margin gains were across the board.
  
• Best sellers were lower this year, as last year included strong sales from a few titles, Stephenie Meyer's The Host, Barbara Walters' Audition, and Randy Pausch's The Last Lecture.
  
• In absolute dollars, selling and administrative expenses declined 4.4 million due to planned cost reductions.
  
• Pre-opening expenses were $1.5 million lower this quarter due to fewer store openings.
  
• At quarter end, the company's balance sheet and financial condition remained in excellence shape.
  
• Inventories are down 108 million or 8% from a year ago. The company had 158 million in cash and no borrowings at quarter end or throughout the quarter. Last year at this time, the company had 97 million of net borrowings. This represents a $255 million improvement in the company's net cash position year-over-year at the end of Q2.
  
• For Q3, the company expects comparable store sales to decrease 1 to 3%. This sales guidance is better than trend due to easing comparisons as compared to the prior year period.
  
• The company continues to expect full year comparable store sales to decline 3 to 5%. Additionally, the fall line up looks fairly strong, with Dan Brown's The Lost Symbol being the big Q3 title.
  
• I can update on new business at College. Last week, on the call, I noted that College targets for annual growth rate of new business to be a net $45 million. In general, that is 60 million of targeted new business, offset by 15 million in contracts not renewed.
  
• (CEO) Sales were on plan, margins were ahead of plan, and expenses and inventories were extremely well-managed. While all retailers in America continue to struggle with declines in traffic, our comparable store sales have been consistently in the middle of the pack, if not a bit better.
  
• The affordable nature of the products that we sell, our growing member base, and the effectiveness of our multi-channel marketing programs have enabled us to more than hold on to our market share.
  
• Sales at barnesandnoble.com were up 2% to last year. The good news is also that traffic to the site is growing, customer satisfaction levels are higher than ever.
  
• Further, we had the top two most downloaded apps in the iTunes store, right out of the box: our eReader app, which continues to be the number one book app, and the Barnes & Noble bookstore app, which enables customers to browse, search, and snap photos of covers and to buy - covers of products and to buy them with ease.
  
• In the coming months, we plan to expand our selection of e-books and expect to be offering well over 1 million titles by the end of the year.
  
• (Q&A) Could you just walk us through how the comp trended through the quarter? (A)It was pretty consistent overall. I mean the last couple of days was very tough because it was the Stephenie Meyer release last year. But basically traffic was slow throughout the quarter, and when we looked at our comp rates compared to the retailers who report monthly numbers, we didn't really see much of a change. Perhaps June for us was a little bit better than the average retailer versus where we stood versus them, but not significantly.
  
• I was curious, if you can maybe provide some color on the vendor reaction post your announcement of the College acquisition? And the 30 to 35% accretion that you folks spoke to when you announced the acquisition, can you maybe provide a little bit more color on what type of buying synergies that takes into account? And then I have a follow-up, please. (A) The reaction on - every single University that College does business with was communicated with the day we made the announcement. So, we've certainly had all of those communications, both from a corporate level and the College management team itself, as well as their individual regional Managers, who manage their stores. So all of that communication happened and went well, from what the College management has told us. And the second question was related to the accretion level. The accretion level assumes what the EBITDA run rate was - assumes higher interest costs for the company, because of the new financing to do the facility. And it does not include synergies, which is, as we discussed on our call last week, that's not really what the transaction has. But we'll certainly look for synergies, but we didn't base the information on - nor the accretion analysis - on a whole lot of synergy.

Barnes & Noble, Inc. operates as a bookseller in the United States and the District of Columbia.

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