Retailers in general aren't expecting to do boffo business on Black Friday, but big box bookstores Barnes & Noble (BKS) and Borders (BGP) might be excused for their more intense states of anxiety. Both companies issued quarterly reports Tuesday morning, and based on earnings and sales, both have good reason to be nervous that the holidays won't deliver for them.
Barnes & Noble reported that store sales for its fiscal second quarter, which ended Oct. 31, fell 2% to $950 million, with same store sales falling 3.2%. The total net loss for the quarter was $24 million (or 43 cents a share), broken down to 30 cents of operating loss and 13 cents attributed to re-acquiring shares in its B&N College Division in late September. (The college division is credited with only $65 million in sales, but the data only includes the one-month post-acquisition period.)
Even the good news, such as rising sales through its online division and the "overwhelming customer demand" for its new e-reader, the Nook, is heavily tempered. Customers who order the Nook now won't get it in time for Christmas, and by ramping up its schedule to meet customer demand, Barnes & Noble says it is "incurring higher production costs than originally anticipated and increasing future investments related to its digital strategy, including additional people, technology and in-store marketing support."
Borders in a Bind
Barnes & Noble also cautions against high hopes for the upcoming quarter, as it expects a 1 to 3% drop in store sales and forecasts full-year earnings per share to be in the range of $0.33 to $0.63 -- way off from its previous forecast of $0.59 to $0.89, and even further removed from the over $1 a share forecast analysts were betting on. As a result, company stock -- already affected by Ron Burkle's buying spree and the poison pill the company enacted as defense -- is taking a massive hit in trading today.
But Barnes & Noble has plenty to cheer about compared to its megabookstore rival. Borders reported a sharp drop in sales, which fell 12.7% to $595.5 million for the second quarter, and an operating loss of $39 million (or 64 cents a share.) Same-store sales fared even worse: Superstore comps were down 12.1% to $493 million and Waldenbooks comps were down 7.2% ($73 million). Most of those Waldenbooks stores are slated to close in January.
As a result, Borders finds itself in a bind with the holiday season fast approaching. It has added almost $17 million in book inventory to prepare for the holiday season, but has reduced total inventory -- mostly from its hemorrhaging DVD and multimedia sections -- by $99 million. And now both companies have significant ground to make up between Thanksgiving and Christmas -- a possibility that seems ever further out of reach, based on Barnes & Noble's expectation that "general retail traffic will remain challenged during the holiday selling season."
Learn the most important step in structuring an investment portfolio.View Course »