Barnes & Noble (BKS) Misses Q2 EPS Views; NOOK Revs Fell 41.3% (MSFT)

Barnes & Noble (NYSE: BKS) reported Q2 EPS of $0.12, $0.19 worse than the analyst estimate of $0.31. Revenue for the quarter came in at $1.69 billion versus the consensus estimate of $1.69 billion.

Retail

The Retail segment, which includes the Barnes & Noble bookstores and BN.com, had revenues of $888 million for the quarter, decreasing 3.6% over the prior year. The sales decrease was primarily attributable to lower sales of NOOK products, leading to a comparable store sales decline of 1.5% for the quarter, as well as store closures. “Core” comparable bookstore sales, which exclude sales of NOOK products, increased 0.5% for the quarter.

Retail generated EBITDA of $25 million in the quarter, decreasing $11 million as compared to a year ago, as a result of expense deleverage on the sales decline, which was partially mitigated by a higher mix of higher margin core products.

College

The College segment had revenues of $751 million, increasing 1.9% compared to a year ago. Second quarter results include the fall back-to-school rush season. Comparable College sales increased 0.4% for the quarter.

As College developed its textbook rental business, comparable store sales reflected the retail selling price of a new or used textbook when rented, rather than solely the rental fees received to provide a more representative comparable store sales figure. Given the significant expansion of the textbook rental business over the past few years, College comparable store sales now reflect the revenue generated from textbook rentals and are no longer adjusted to reflect the equivalent textbook retail selling price.

College EBITDA declined $4 million as compared to a year ago to $80 million, as revenue growth was offset by investments to support business growth and the digital education platform.

NOOK

The NOOK segment (including digital content, devices and accessories) had revenues of $64 million for the quarter, decreasing 41.3% from a year ago. Device and accessories sales were $18.7 million for the quarter, a decrease of 63.7% from a year ago, due to lower unit selling volume. Digital content sales were $45.2 million for the quarter, a decline of 21.2% compared to a year ago, due primarily to lower device unit sales.

Despite the sales decline, NOOK EBITDA losses decreased $8 million, or 16.8%, as compared to a year ago to $38 million, due to cost rationalization efforts.

Outlook

For fiscal year 2015, the Company continues to expect both Retail comparable bookstore sales and Retail Core comparable bookstore sales to decline in the low-single digits. College comparable store sales are also expected to decline in the low-single digits. The Company expects full fiscal year EBITDA losses in the NOOK segment to decline versus the prior year.

Microsoft Investment and Commercial Agreements Restructured

The Company filed a Form 8-K with the Securities and Exchange Commission stating that Barnes & Noble and Microsoft have agreed to terminate their commercial agreement including any associated obligations for international content acquisition and sale. Such termination will allow the Company to continue its rationalization of the NOOK Digital business and enhances Barnes & Noble’s operational and strategic flexibility. The termination also relieves Microsoft of any obligation to continue to fund support and other payments set forth in the commercial agreement between the partners.

Additionally, the Company stated that it had entered into an agreement with Microsoft to acquire its entire preferred interest in NOOK Media, LLC.

For further details, please reference the separate Form 8-K filing issued this morning.

As a result of today’s announcement, the Company expects that the completion of the potential separation of the Company's businesses could occur by the end of August 2015, although there can be no assurances regarding the timing of such potential separation or that such separation will be completed.

For earnings history and earnings-related data on Barnes & Noble (BKS) click here.

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