Barnes & Nobles Q4 and FY 2012 revenue up, losses up, hopes Microsoft hurries up

Barnes & Noble has released its financial results for both the final quarter and full financial year of 2012. It's a picture of a company that's holding steady in the face of continued onslaught from its rivals, albeit with some hope on the horizon. In preparation for its as-yet-unnamed venture with Microsoft, the company has begun the process of spinning off its Nook and College businesses -- while sales from stores and BN.com now come under the umbrella term of "retail."

On that front, it sold $1.1 billion worth of books in the quarter and $4.85 billion for the year -- down from $4.92 billion in 2011. Nook-wise, the company had turnover of $933 million, with device sales increasing 1 percent for the quarter and 45 percent of the year -- but had to eat a loss on taking back unsold Simple Touch readers. Content sales on its various devices increased 65 percent in the quarter and 119 percent in the year -- clearly showing where the market is headed.

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Barnes & Noble Reports Fiscal 2012 Year-End Financial Results

Fiscal 2012 NOOK Comparable Sales Increase 45%

Fiscal 2012 Comparable Digital Content Sales Increase 119%

Fourth Quarter Bookstore Comparable Sales Increase 4.5%

Fiscal 2012 EBITDA Increased 5% to $171 million

Fiscal 2012 Retail EBITDA Increased 22% to $317 million

NEW YORK--(BUSINESS WIRE)--Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its fiscal 2012 fourth quarter and full year ended April 28, 2012. The company also announced that it recently completed the evaluation of its reporting segments and will now report results for a separate "NOOK" operating segment. BN.com, previously a separate reporting segment, will now be included in the Retail segment.

Fourth quarter consolidated revenues increased 0.4% to $1.4 billion as compared to the prior year. The consolidated fourth quarter earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $11.1 million improved 51% as compared to the prior year. The consolidated fourth quarter net loss improved 3% as compared to the prior year to $57.7 million, or $1.08 per share.

For fiscal 2012, consolidated revenues increased 2% to $7.1 billion as compared to the prior year. Fiscal 2012 consolidated EBITDA increased 5% to $171.4 million. Included in these results are pre-tax legal and settlement-related net expenses of $20.7 million, and $14 million relating to patent litigation with Microsoft, which as announced on April 30, 2012, has been settled. The fiscal 2012 consolidated net loss improved 7% as compared to the prior year to $68.9 million, or $1.41 per share.

The company's effective tax rate was 27% for the quarter and 29% for the full year due primarily to a $5.9 million compensation-related permanent tax difference charge related to prior periods, which was charged to the current period. The impact of this charge to fourth quarter and full year earnings per share was $0.10.

"We grew our business in 2012 while continuing to make the necessary investments for the future of the business," said William Lynch, Chief Executive Officer of Barnes & Noble. "In digital, our NOOK content sales continued to explode with 119% year-on year growth. In the quarter we also announced a historic new partnership with Microsoft that will include a significant investment in Newco, and that will capitalize the company to fuel continued growth in digital and international expansion. Lastly, we announced NOOK Simple Touch with GlowLight, that we started shipping in the first quarter of fiscal 2013, which has quickly become the highest rated eReader in the market. At retail, we had a terrific year growing comparable bookstore sales 4.5% for the quarter and 1.4% for the year, a result of our effective new merchandising efforts and continued industry consolidation. As we look out to fiscal 2013, we feel the company is strategically well positioned to grow value for shareholders."

Retail

As a result of the change in segment reporting, the Retail segment now includes results from the Barnes & Noble bookstores and BN.com. Retail sales were $1.1 billion for the quarter and $4.9 billion for the full year, increasing 0.5% for the quarter while decreasing 1.5% for the fiscal year. Comparable bookstore sales increased 4.5% for the quarter and 1.4% for the full year, as compared to the prior year periods. Comparable bookstore sales benefited from the liquidation of Borders' bookstores during fiscal 2012, increased sales of NOOK products, and a strong title lineup including The Hunger Games and Fifty Shades of Grey trilogies. Core comparable bookstore sales, which exclude sales of NOOK products, increased 6.9% for the quarter and 0.7% for the full year. BN.com sales continued to decline for the quarter as well as the fiscal year.

College

The College segment, which includes results from the Barnes & Noble College bookstores, had revenues of $228 million for the quarter and $1.7 billion for the full year, increasing 5.7% for the quarter and decreasing 1.9% for the year, as compared to the prior year. As compared to the year ago period, fourth quarter sales were positively impacted by the recognition of textbook rental sales deferred from the third quarter. However, full year sales were lower as compared to a year ago, due to a shift from selling new and used textbooks to lower priced textbook rentals. Comparable College store sales decreased 2.2% for the quarter and 0.3% for the full year, as compared to the prior year periods. College comparable 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.

NOOK

The NOOK segment, which consists of the company's digital business (including Readers, digital content and accessories), had revenues of $164 million for the quarter and $933 million for the full year. NOOK segment comparable sales increased 1% for the fourth quarter while increasing 45% for the full year, as compared to the prior year periods. Device sales declined during the fourth quarter due to higher third-party channel partner returns, lower selling volume and lower average selling prices. In order to optimize the supply chain for new products, the company took back NOOK Simple Touch inventory following the previously announced holiday sales shortfall. Digital content sales increased 65% for the fourth quarter and 119% for the full year on a comparable basis, growing comparable digital content sales to $483 million for the full year. Digital content sales are defined to include digital books, digital newsstand, and the apps business.

Comparable NOOK sales reflect the actual selling price for digital books sold under the agency model rather than solely the commission received. Additionally, such sales include all deferred NOOK device revenues, and device sales to third-party channel partners on a "sell-in" basis net of estimated returns.

Newco Separation

On April 30th, the company announced that it has formed a strategic partnership with Microsoft to form a new subsidiary, Newco, which is comprised of the company's NOOK digital and College businesses. The company continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the separation and close the Microsoft transaction.