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Barnes & Noble's Week: A Disappointment With a Sequel

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Barnes & NobleIt's been a rough few days for Barnes & Noble (BKS).

Shares of the last major book retailer standing rose on Monday as reports indicated that Microsoft's (MSFT) press event scheduled for later that day would somehow involve the software giant's recent partnership with the Nook.

It didn't. We now know that Microsoft's Surface announcement was all about the company entering the tablet hardware market on its own.

Then we arrived at Tuesday morning's painful quarterly report.

Booking a Loss

Analysts were expecting a deficit of 93 cents a share in the superstore chain's fiscal fourth quarter, an improvement over the $1.04-a-share loss it reported a year earlier. They were also holding out for an 8% uptick in sales.

Barnes & Noble let investors down on both fronts, posting a deficit of $1.08 a share on essentially flat sales growth.
The top-line disappointment is a bit of a shocker. Sales at its stores and at its BN.com website rose a mere 0.5% even though the company is no longer competing against the recently liquidated Borders for book lovers.

The news gets even more ominous when we consider the better than 10% slide in the company's Nook business. Digital download sales were strong, but a sharp drop in hardware sales dragged down the unit's performance.

Lower selling prices, too many third-party returns, and the company's decision to scale back on Nook Simple Touch inventory following a holiday sales shortfall hurt. Now the concern has to be whether weakness on the device end will lead to a softening of digital sales.

50 Shades of Gray Areas

The silver lining is that the company went on to introduce the well-received and illuminating Nook Simple Touch with GlowLight after the quarter came to a close. Barnes & Noble's college bookstore business also had a quarter of reasonable growth.

We'll also see if Microsoft's investment in the retailer's Nook division will pay off down the line. Monday's Surface tablet announcement shouldn't get in the way of that.

The bookseller still has problems, but at least there are reasons to be hopeful that its next chapter will be easier on the eyes than this one.



Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, writing puts on Barnes & Noble and creating a bull call spread position in Microsoft.


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