Barnes and Noble announced during a recent investors call that it was 100% committed to separating the Nook digital division from their bookstores. This will create a dedicated Nook company that will be publically traded and give investors an incentive to invest into the companies portfolio of eBooks, e-Readers, tablets and accessories.
In fiscal 2014 we have taken certain actions to strengthen the Company, including the ongoing rationalization of the NOOK business, growing the College business through new contract acquisitions and increased offerings to students and faculty, and initiatives to improve Retail’s sales trends,” said Michael P. Huseby, Chief Executive Officer of Barnes & Noble. “Our fiscal 2014 results and solid financial position at year-end reflect the positive impact of those actions. We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of NOOK Media and Barnes & Noble Retail. We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately. We fully expect that our Retail and NOOK Media businesses will continue to have long-term, successful business relationships with each other after separation.”
The stage has been set for Nook Media to be on its own, since 2012 when Microsoft and Pearson both invested serious capital. This spun the Nook enterprise into its own segment, but was still a big part of Barnes and Noble. In late 2012, B&N founder Len Riggio petitioned the board to let him separate the bookstores from everything else, and the concept was heavily resisted.
Barnes and Noble has been shaking things up on the executive level and many top players have departed the compay. Jim Hilt, head of global ebook sales, and before him digital products director Jamie Iannone and VP of digital products Bill Saperstein all departed in early 2014.
New York, NY (June 25, 2014)—Barnes & Noble, Inc. (NYSE: BKS)today reported sales and earnings for its fiscal 2014 fourth quarter and full-year ended May 3, 2014, and that its Board of Directors authorized management to separate the Barnes & Noble Retail and NOOK Media businesses.
Board Authorization For NOOK Media Separation
With the objective of optimizing shareholder value, the Company’s Board of Directors has authorized management of the Company to take steps to separate the Barnes & Noble Retail and NOOK Media businesses into two separate public companies. The Company’s objective is to take the steps necessary to complete the separation by the end of the first quarter of next calendar year.
“In fiscal 2014 we have taken certain actions to strengthen the Company, including the ongoing rationalization of the NOOK® business, growing the College business through new contract acquisitions and increased offerings to students and faculty, and initiatives to improve Retail’s sales trends,” said Michael P. Huseby, Chief Executive Officer of Barnes & Noble. “Our fiscal 2014 results and solid financial position at year-end reflect the positive impact of those actions. We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of NOOK Media and Barnes & Noble Retail. We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately. We fully expect that our Retail and NOOK Media businesses will continue to have long-term, successful business relationships with each other after separation.”
The Company has engaged Guggenheim Securities, LLC as financial advisors and Cravath, Swaine & Moore LLP as legal counsel.
The Company notes that there can be no assurances regarding the ultimate timing of the proposed separation or that such separation will be completed. Any separation of NOOK Media and Barnes & Noble Retail into two separate public companies will be subject to customary regulatory approvals, securing any necessary financing, tax considerations, final approval of the Barnes & Noble Board of Directors and other customary matters and is dependent on numerous factors that include the macroeconomic environment, credit markets and equity markets.
Fiscal 2014 Fourth Quarter and Year End Results
The fourth quarter and full-year ended May 3, 2014, consisted of 14 weeks and 53 weeks, respectively, as compared to 13 weeks and 52 weeks in the prior year. Comparable sales data in this release exclude the impact of the additional week.
Fourth quarter consolidated revenues increased 3.5% to $1.3 billion versus the prior year. Consolidated fourth quarter earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $11.2 million, as compared to an EBITDA loss of $124.6 million in the prior year. For fiscal 2014, consolidated revenues decreased 6.7% to $6.4 billion versus the prior year. Fiscal 2014 consolidated EBITDA increased to $251 million, as compared to $7 million a year ago.
“We’re pleased with our improved financial performance in fiscal 2014, generating EBITDA of $251 million, the highest it’s been in four years, while executing on our strategic initiatives during the year,” said Mr. Huseby. “Retail improved sales trends during the second half of the year, generating annual EBITDA of $354 million. College increased revenues from higher margin textbook rentals, continued to add new school contracts and developed and soft-launched Yuzu™, our digital education platform, growing EBITDA to $115 million. At NOOK, we executed on our plan to sell through existing device inventory, implemented cost rationalization plans, began to pivot our strategy from device focused initiatives to a content centric approach with the signing of our partnership with Samsung, all while significantly reducing year-over-year losses.”
Fourth Quarter 2014 Results from Operations
Segment results for the 14 weeks of fiscal 2014 and 13 weeks of fiscal 2013 fourth quarters are as follows:
Fiscal 2014 Resultsfrom Operations
Segment results for the 53 weeks of fiscal year 2014 and 52 weeks of fiscal year 2013 are as follows:
(1) Represents the elimination of intercompany sales from NOOK to Barnes & Noble Retail and Barnes & Noble College on a sell-through basis.
(2) This non-GAAP measure has been reconciled to the comparable GAAP measure as required under SEC rules regarding the use of non-GAAP financial measures on the attached Segment Information table.
The Retail segment, which includes the Barnes & Noble Bookstores and BN.com businesses, had revenues of $956 million for the quarter and $4.3 billion for the full year, increasing 0.8% for the quarter, while decreasing 6.0% for the year. The inclusion of the 53rd week contributed $57 million in additional sales in fiscal 2014. Comparable store sales declined 4.1% during the quarter and 5.8% for the full year. “Core” comparable store sales, which exclude sales of NOOK products, decreased 1.9% for the fourth quarter, which included unusually severe February weather. Excluding February, fourth quarter Core comparable store sales decreased 0.5%, in-line with previously reported third quarter results. Core comparable store sales declined 3.1% for the full year. Sales for both the quarter and the year were also impacted by store closures and lower online sales.
Retail generated fourth quarter EBITDA of $53 million, essentially flat as compared to a year ago. For fiscal 2014, Retail EBITDA decreased 5.9% to $354 million, primarily as a result of the sales decline.
The College segment had revenues of $298 million for the quarter and $1.7 billion for the full year, increasing 18.2% for the quarter, while decreasing 0.9% for the year. The inclusion of the 53rd week contributed $15 million in additional sales for fiscal 2014. Fourth quarter sales were positively impacted by timing of the back-to-school rush season, driving comparable College store sales of 2.6% for the quarter. Comparable sales decreased 2.7% for the full year on a higher mix of lower priced used textbook rentals and lower textbook volume. Comparable College store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.
Fourth quarter College EBITDA increased to $14 million, while full year EBITDA increased 3% to $115 million, as higher margins and net new store growth outpaced additional investment spend in our digital education platform, Yuzu. College’s fiscal 2014 EBITDA includes $22 million of expenses for Yuzu, as compared to $7 million in the prior year.
The NOOK segment (including digital content, devices and accessories) had revenues of $87 million for the quarter and $506 million for the full year, decreasing 22.3% for the quarter and 35.2% for the year. The inclusion of the 53rd week contributed $9 million in additional sales in fiscal 2014, including $1 million in additional device and accessories sales and $8 million of additional content sales.
Device and accessories sales were $25 million for the quarter and $260 million for the full year, declining 30.1% and 44.8%, respectively, due to lower selling volume and lower average selling prices. Digital content sales were $62 million for the quarter and $246 million for the full year, declining 18.7% and 20.6%, respectively, due primarily to lower device unit sales.
NOOK EBITDA losses were $56 million for the fourth quarter and $218 million for the full year, both including previously disclosed asset impairment charges of $28 million. Prior year results were adversely impacted by NOOK inventory-related charges of $133 million for the quarter and $222 million for the year, as well as $20 million of primarily goodwill impairment charges. The remainder of the EBITDA loss reduction was primarily attributable to reduced expenses on lower marketing costs and cost rationalization efforts.
The consolidated fourth quarter net loss was $36.7 million, or $0.72 per share, as compared to the prior year net loss of $114.8 million, or $2.04 per share. Fiscal 2014 consolidated net losses were $47.3 million, or $1.12 per share, as compared to $157.8 million, or $3.02 per share, in the prior year.
In the fourth quarter, the Company recorded a $12.5 million tax benefit, driven primarily by the utilization of previously reserved deferred tax assets. Tax expense for the full year was $52 million, largely driven by partnership tax allocations and previously recorded valuation allowances.
For fiscal year 2015, the Company expects both Retail comparable bookstore sales and 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 to continue to decrease EBITDA losses in the NOOK segment.
A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET onWednesday, June 25, 2014, and is accessible at www.barnesandnobleinc.com/webcasts.
Barnes & Noble, Inc. will report fiscal 2015 first quarter results on or about September 4, 2015.