Correction: An earlier version of this story did not admit the possibility that Nook could be sold to a private investor before 2015. The story has been changed to reflect this possibility.
Barnes & Noble will spin off its long-troubled Nook Media device and digital media sales business by the beginning of 2015, according to a statement about the company’s 2014 financial results.
The plan is for the Nook Media business, which includes Barnes & Noble’s large college bookstore operation, to become its own publicly traded company, separate from Barnes & Noble’s retail operation in the interest of “optimizing shareholder value” if it’s not sold to a private investor before then, according to the statement (below).
Shares of Barnes & Noble stock are up almost 10% in early trading on the news.
For the 2014 fiscal year, ending on May 3, 2014, Barnes & Noble had earnings before interest, taxes, depreciation and amortization (EBITDA, a measure of profit) of $251 million, despite a negative EBITDA at Nook. The company’s $6.4 billion in revenues, a decrease of 6.7% versus a year ago, gave Barnes & Noble a 3.9% profit margin.
As separate businesses, Barnes & Noble’s bricks-and-mortar operations continued to perform well.
The company’s retail segment, which consists of over 600 stores across the U.S. and the BN.com online books business, had revenues of $4.3 billion for the year, down 6% versus a year ago. The company’s EBITDA was $354 million, down about 6% as well due to “sales decline.”
Barnes & Noble’s college bookstore business, which also consists of about 600 college stores across the U.S., had annual revenues of $1.7 billion, down just about 1% from last year. The company’s EBITDA was $115 million.
Nook continued to struggle in 2014, though losing less money than in previous years on declining revenues. It had $506 million in revenue in 2014, down 35% from a year ago. Device sales were hit particularly hard, declining nearly 45% to $260 million for the year. The company lost $218 million in 2014.
The company’s overall performance was impacted by a 53rd week being added to its fiscal year in 2014. In the case of Barnes & Noble’s retail and college businesses, this meant added revenues and profits. For Nook, it meant more revenues, but also heavier losses.
Nook Media, which consists of the college bookstore business and the Nook device and ebook business, had combined revenues of about $2.2 billion and losses of about $103 million, a vast improvement over the digital business alone, but a drag on the traditional college bookstore operation.
Barnes & Noble has engaged Guggenheim Securities as financial advisors and Cravath, Swaine & Moore LLP as legal counsel to handle the Nook spinoff.
Barnes & Noble Reports Fiscal 2014 Year-End Financial Results
Consolidated EBITDA of $251 million – Highest in Four Years
Board Authorizes Management to Separate Retail and NOOK Media Businesses
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 Results from Operations
Segment results for the 53 weeks of fiscal year 2014 and 52 weeks of fiscal year 2013 are as follows:
2014 FYE results
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 53^rd 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 53^rd 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 53^rd 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 on Wednesday, 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.
Download financial tables related to the sales and earnings for the fiscal 2014 fourth quarter and full year ended May 3, 2014:
* Consolidated Statements of Operations (http://gallery.mailchimp.com/34a68cfaf6fcabde00386e423/files/cf8b8a22-3f0f-49ec-8dbc-4bfb25eacbf2.pdf)
* Consolidated Balance Sheets (http://gallery.mailchimp.com/34a68cfaf6fcabde00386e423/files/a9c67946-20ca-4ff3-afb6-054d655ebe35.pdf)
* Segment Information (http://gallery.mailchimp.com/34a68cfaf6fcabde00386e423/files/7e729112-c872-48a8-aeb8-9d9a2a4662fe.pdf)
* Loss Per Share (http://gallery.mailchimp.com/34a68cfaf6fcabde00386e423/files/c6e8ac1d-f66d-4e38-8285-2fd18575f3fb.pdf)
About Barnes & Noble, Inc.
Barnes & Noble, Inc. (NYSE: BKS) is a Fortune 500 company and the leading retailer of content, digital media and educational products. The Company operates 661 Barnes & Noble bookstores in 50 states, and one of the Web’s largest e-commerce sites, BN.com (www.bn.com (http://www.bn.com) ). Its NOOK Media LLC subsidiary is a leader in the emerging digital reading and digital education markets. The NOOK digital business offers award-winning NOOK® products and an expansive collection of digital reading and entertainment content through the NOOK Store® (www.nook.com), while Barnes & Noble College Booksellers, LLC operates 700 bookstores serving over five million students and faculty members at colleges and universities across the United States.
General information on Barnes & Noble, Inc. can be obtained by visiting the Company’s corporate website: www.barnesandnobleinc.com.
This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.
Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the effect of the proposed separation of NOOK Media, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble’s products, low growth or declining sales and net income due to various factors, possible disruptions in Barnes & Noble’s computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risks associated with changes in the strategic direction of the device business, including possible reduction in sales of content,
accessories and other merchandise and other adverse financial impacts, possible risk that component parts will be rendered obsolete or otherwise not be able to be effectively utilized in devices to be sold, possible risk that financial and operational forecasts and projections are not achieved, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble’s online, digital and other initiatives, the success of Barnes & Noble’s strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the Company’s businesses resulting from the Company’s prior
reviews of strategic alternatives and the potential separation of the Company’s businesses, the risk that the transactions with Microsoft and Pearson do not achieve the expected benefits for the parties or impose costs on the Company in excess of what the Company anticipates, including the risk that NOOK Media’s applications are not commercially successful or that the expected distribution of those applications is not achieved, risks associated with the international expansion contemplated by the relationship with Microsoft, including that it is not successful or is delayed, the risk that NOOK Media is not able to perform its obligations under the Microsoft and Pearson commercial agreements and the consequences thereof, risks associated with the restatement contained in, the delayed filing of, and the material weakness in internal controls described in Barnes & Noble’s Annual Report on Form 10-K for the fiscal year ended April 27, 2013, risks associated with the SEC
investigation disclosed in the quarterly report on Form 10-Q for the fiscal quarter ended October 26, 2013, risks associated with the ongoing efforts to rationalize the NOOK business and the expected costs and benefits of such efforts and associated risks and other factors which may be outside of Barnes & Noble’s control, including those factors discussed in detail in Item 1A, “Risk Factors,” in Barnes & Noble’s Annual Report on Form 10-K for the fiscal year ended April 27, 2013, and in Barnes & Noble’s other filings made hereafter from time to time with the SEC.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.