NOOK segment sales drop 32%
Losing a third of something is really significant.
Moe, Larry…and no Curly.
Snap, Crackle…and no Pop.
Life, liberty…and no pursuit of happiness.
Well, that last one might eventually apply to Barnes & Noble and digital content/devices.😉
Barnes & Noble reports their second quarter financial results, and it is sort of the Bizarro world version of Amazon’s.
Amazon’s sales continue to skyrocket, while we don’t see earnings/profit increasing much.
Barnes & Noble’s earnings increased 13.7% YoY (year over year…comparing this year to last year) which might sound like a good thing. If you do it in a sustainable way, great.
They say that they “improved margins” and reduced expenses. Sure, that’s good, and congratulations.
You still have to make money. You still have to sell stuff.
I mean, you could say, “We saved a lot of money on our groceries last month.” “Gee, how did you do that?” “We didn’t eat anything…”😉
Obviously, that would ignore the side of the equation that justifies why you spend money in the first place.
Very simply, Barnes & Noble needs to keep selling things to have the income side be stable. You might be able to cut expenses faster than your sales are dropping for a while, but that can only go so far. Closing stores and reducing staff will cut your expenses, but eventually, you won’t be keeping your customers happen and you’ll hit that tipping point where the purchasing falls off a cliff.
In this case, B&N says (in this short excerpt from the press release):
The NOOK segment, which consists of the company’s digital business (including digital content, devices and accessories), reported revenues of $109 million for the quarter, decreasing 32.2% from a year ago. Digital content sales were $57 million for the quarter, a decline of 21.2% compared to a year ago, due to lower average selling prices and lower device unit sales. Device and accessories sales were $51 million for the quarter, a decrease of 41.3% from a year ago, due to lower unit selling volume and lower average selling prices.
Despite the sales decline, NOOK EBITDA losses decreased $6 million as compared to a year ago to $45 million on lower device markdowns and reduced expenses.”
Notice that their digital content sales were down significantly, but not nearly as much as the hardware/accessory sales.
I started this post talking about the roughly one third loss in the NOOK segment, but I could have just gone straight to the roughly two fifths drop in device/accessory sales.
They are both important, though.
One possible strategy for B&N is to essentially drop the hardware sales, and work on getting their reader apps in more places. They are trying that. In this
“Barnes & Noble Teams Up with Samsung to Make NOOK® the Only Reading App on the New Samsung Galaxy Tab 3 Kids”
They are making the point that it has parental controls, that it is “…compliant with the U.S. Children’s Online Privacy Protection Act (COPPA).”
However, they better hurry up. You can’t lose 20% in your digital content sales in one year and hope to turn that around very quickly.
They could, hypothetically, manage a NOOK turnaround if other elements compensated for the expense. Amazon could lose money on all of its hardware and all of its e-books, and still…well, not make money, because they don’t do much of that, but be fine.😉
In the past, the College stores have been good performers for Barnes & Noble.
This time, they are down 4.6% YoY.
How about the bookstores, where we have probably all spent happy times in the past?
Looking at the core bookstore figures, so ignoring the reduction in sales from store closures, online sales, and the NOOK segment, looks to me to be down 3.7%.
As a former brick-and-mortar bookstore manager, it’s important to note that being down 3.7% doesn’t mean you have 96.3% to go. You can’t go to zero. It could be that you would fail with a reduction of 10%, if your expenses were high enough…and that wouldn’t be super high.
While B&N has reduced expenses, overall, you can’t figure that retail space rent and salaries are going to decrease in the next five years.
I hate to say it, but I don’t see much in here that looks very positive.
Why do I hate to say it?
I may love my Kindle, but that doesn’t mean I have anything against the NOOK devices. There are a lot of people who own them, and I’d like to see them continue to be supported.
There’s also the competition issue. Kindle versus NOOK brought us some improvements. Having a healthy competitor is good for the consumer.
Yes, the Kobo Aura may be driving improvements. There are rumors, as reported in this
that there will be a new Paperwhite in Q2 (the second quarter) of 2014, with a better screen, better fonts, and a light sensor for automatic adjustment.
We Kindle users can be thankful to Kobo for that.
That doesn’t mean that they fill the vacuum if B&N drops out of the hardware race.
There was an old story, supposedly reported in Pravda (the old Soviet era newspaper…which isn’t a direct editorial line to the Pravda that’s around today).
I heard it as the headline being something like, “In international car race, Russian car finishes second from the top, American car is second from the bottom.”
Absolutely true…and the way it goes, they were the only two cars in the race.😉 Coming in first would make the American car second from the bottom: coming in last would make the Russian car second from the top.
Those relative positions only really matter when we assume there were a lot of cars in the race.
In terms of EBRs (E-Book Readers), we want there to be a lot of cars in the race…
What do you think? Can B&N turn it around? Would you buy a NOOK this holiday season, and feel comfortable that it was a good investment? Will the day come when Amazon could go the way of B&N, and would that mean that buying e-books/EBRs is always a risk? Feel free to tell me and my readers what you think by commenting on this post.
This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.