B&N suspends dividends: stock drops 14%

B&N suspends dividends: stock drops 14%

Barnes & Noble released their 3rd quarter (this is fiscal year) financial results.

Things look good.

Comparable sales (looking at this year versus the same period last year) were up 7%.  Not too surprisingly, the online portion was up 64%.  Even the bookstores were up 7.3%…beating the company’s predictions.

The stock market responded…by selling off the stock, dropping it 14.35% in one day.

CNNMoney Stock Chart

I guess that explains why we don’t teach stock market investing in high schools.  😉

Just kidding…some schools do.

Here’s the thing, though.  When I saw the press release yesterday, I thought they might have a bad stock day (I wanted to see how bad). 

Press Release

I’m not at all a stock expert, but I know a couple of things.

The market doesn’t like uncertainty…and they like to get paid.

After you read through what is a justifiably upbeat report on what happened, you got to what they said about the future:

“Due to a competitor’s recent announcement that their company has filed for Chapter 11 bankruptcy protection and the potential short-term impact that their announced store closures may have in the marketplace, the company has decided not to issue sales or earnings guidance for the balance of fiscal 2011.

Additionally, the company’s Board of Directors has decided to suspend its quarterly dividend payment of $0.25 per share.  This will provide the company the financial flexibility to continue investing into its high growth digital strategies, while simultaneously allowing the company to take advantage of any other market opportunities that may present themselves.”

Isn’t the fact that Borders filed for bankruptcy a good thing for Barnes & Noble?  Doesn’t it reduce competition for the brick-and-mortar stores?

It should…but it’s a big change.  There are a lot of things that could happen because of the closure of about a third of Borders stores that might not give B&N a better year:

  • People who find that the Borders stores in their area have closed don’t automatically switch to Barnes & Noble.  They may find alternative sources for books…Costco, Target…and e-books.  If you were a Borders shopper, you may have chosen that brand over Barnes & Noble…which means you may also choose a Kindle over a NOOK.  It might not mean that…but it’s hard to tell.  There is that uncertainty
  • Barnes & Noble may choose to buy some of those stores.  That might mean more of a capital outlay, which would affect the profit in that year
  • The loss of Borders may hasten publishers’ switch to e-books.  If I was B&N, I wouldn’t want to be looking at having more of the competition fight move into Amazon’s court…online.  While Barnes & Noble may now largely own the chain brick-and-mortar business, that will become less important if publishers stop releasing some major books in paper at all, or the prices rise significantly…and market share is lost
  • People may incorrectly conflate Borders problems with Barnes & Noble.  I’ve seen that online: “Borders declares bankruptcy…is Barnes & Noble next?”  The two companies’ situations are very different: Borders would likely have been in trouble even without the rise of the Kindle (in my opinion).   However, customers might start thinking all brick-and-mortar stores are in trouble…they might stop buying gift cards, for example

I think B&N is taking the long view by suspending the dividends.  It may turn out to be a good thing for investors, by allowing them to exploit an opportunity (the Borders bankruptcy filing) and grow the digital side.

The market often seems to have a very short view, though.  If you own Barnes & Noble stock because you want those dividends, you might figure your money could be better spent elsewhere.

Is that “elsewhere” Amazon?

We’ll see some of that today.  I’m watching it rise right now as I write this.  That doesn’t mean it will go up as much as B&N went down, or that this will be the situation in a week.

CNNMoney Amazon Stock Chart

All of this affects what you’ll have to read, even if you don’t invest.  Where people buy books affects which books are in the market.  Independent e-publishing may increase the number of things you have to read…but the loss of major distribution outlets might reduce the “big books” in a year. 

Interesting times…

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

2 Responses to “B&N suspends dividends: stock drops 14%”

  1. willem Says:

    B&N is probably afraid that the clearance sales at the stores Borders are closing will have a negative effect on nearby stores. Why the heck were they paying out a dividend of some $60 million at all?

    Would not invest in either B&N or Amazon. One is of little value and the other is over valued. Then again my track record on the stock market recently leave a lot to be desired.

    • bufocalvin Says:

      Thanks for writing, willem!

      That’s certainly possible…but there may also be a lot of inventory shifting at Borders. Two-thirds of the stores are staying open at this point. There will be sales at Borders that are closing, but the “good stuff” may just hop on a truck to another location.

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