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Barnes & Noble Aims to Better Itself by Focusing on College

The bookseller is returning to its roots -- to either score big or get schooled.

A Barnes & Noble bookstore is seen on Ap
Karen Bleier/AFP/GettyImages
Barnes & Noble (BKS), America's only remaining big brick-and-mortar bookstore chain, is hoping to grow its business from the nation's colleges.

The company has a long tradition in the segment, and a surprisingly large chunk of its business derives from academia. In May, it revealed that it's looking to boost the number of its stores on college campuses by nearly 50 percent. How much of a shot does the bookseller have in a field that hasn't been high-growth of late?

Comfortable on the Quad

The modern Barnes & Noble got its start on the college market. In 1965, Leonard Riggio, the company's chairman, founded a textbook-heavy bookstore in New York. It did well enough for Riggio to buy the assets of the storied but down-at-heel Barnes & Noble, which at the time consisted of a single store.

In 2009, Barnes & Noble paid $600 million to buy Riggio's privately held Barnes & Noble College Booksellers. Now, it's one of the firm's three business divisions, responsible for around one-fourth of its revenues. It also rivals the company's key retail division in terms of physical presence. Both units have almost 700 outlets around the country.

EBIT-DArling

Lately, the college unit has been the best performer of those three divisions. For fiscal third quarter of 2014, the firm reported revenues of $486 million for the unit, far outpacing the $157 million brought in by the Nook tablet division (which, confusingly, the college division is technically a part of).

And in terms of earnings before interest, taxes, depreciation and amortization, the college unit was the only one of the trio to grow its profit -- by nearly 4 percent on a year-over-year basis to $34 million. By contrast, the big retail division's EBITDA slid by 7.5 percent (to $216 million) across that span.

College is also arguably struggling the least. Retail has famously taken a beating from the online world, particularly from Amazon.com (AMZN). Nook came late to the tablet party, and its full-featured HD line hasn't made much of a dent in a world ruled by Apple's (AAPL) iPads, Amazon's Kindles and Samsung's (SSNLF) Galaxies.

Even a $300 million investment in the Nook division from Microsoft (MSFT), made in late 2012, doesn't seem to have had much impact, and the future of a recently announced Nook co-branding deal with Samsung is unclear.

So a renewed attack on the higher-education market makes a lot of sense. Still, there are goings-on in the college stores market that give us cause to worry.

Sophomore Slump?

Barnes & Noble hopes to boost the number of college stores from the current 696 to roughly 1,000 over the next five years. The idea is to make money from items beyond the usual textbooks, pens and other student necessities. Barnes & Noble wants to feature large cafes and a wider selection of products, such as clothing and cosmetics.

But college kids aren't spending that much. According to the National Association of College Stores, the market crept up by only 2 percent, to $10.45 billion, from fiscal 2011 to 2012.

And that figure was around $50 million lower than the 2006 amount. This, despite a higher number of available customers: From 2006 to 2012, enrollment grew by 3.7 million students to a 21 million, for a rise of 21 percent. So, more people are going to school, but collectively, they aren't spending more money at campus stores.

Dropping Out

Another possible reason for the college push is that the division might be a big part of a new company. For several years now, rumors have had it that Barnes & Noble will spin off the Nook unit into a separate company, or sell it entirely (perhaps to partner Microsoft).

If that happens, given the struggles of the Nook tablets, such an entity will be even more dependent on the country's higher academic institutions to help drive its growth. Regardless of whether College/Nook wanders off on its own or not, Barnes & Noble is certainly hoping that those students will start opening their wallets a little wider in the near future.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple and owns shares of Amazon.com, Apple, Barnes & Noble, and Microsoft. Try any of our newsletter services free for 30 days.

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darbrow717

Get a college book for pennies on the dollar and jack it up 100-200% so kids need a 2nd loan just to cover book cost. Is that the plan?

June 11 2014 at 11:32 AM Report abuse rate up rate down Reply