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Books-A-Million, Inc. (NASDAQ:BAMM)

F1Q 2015 Earnings Conference Call

May 30, 2014 17:00 ET

Executives

Todd Noden - Chief Financial Officer

Terry Finley - President and Chief Executive Officer

Operator

Good afternoon and welcome to the Books-A-Million First Quarter 2015 Conference Call. This call is being recorded today, May 30. At this time, I would like to turn the conference over to Mr. Todd Noden, Chief Financial Officer of Books-A-Million. Please go ahead sir.

Todd Noden - Chief Financial Officer

Thank you. Good afternoon, everyone. With me today is Terry Finley, Chief Executive Officer and President of Books-A-Million Incorporated. And we are pleased to host this conference call regarding the company’s first quarter results, which were issued this afternoon.

Before we begin, I would like to remind everyone that management’s comments in this conference call, which are not based on historical facts, are forward-looking statements. It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in periodic reports filed with the SEC.

Next, I will begin this afternoon with a discussion of our financial performance for the first quarter and then Terry will provide a discussion of our current business trends.

Quarter end, we are operating 253 total stores and 43 Yogurt Mountain locations. During the quarter, we closed six superstores and temporarily closed two superstores that will be reopened as 2nd & Charles locations in the second quarter. Last year, we closed four stores in trade areas in which we no longer operate other locations. And as a result, we reported discontinued operations for our prior year results. All amounts that I quote today will exclude discontinued operations, except comparable store sales.

Revenues for the 13-week period ended May 3, 2014 increased 0.2% to $103.8 million compared with sales of $103.6 million in the 13-week year earlier period. Comparable sales for the first quarter decreased 2.5% compared with the same period in the prior year. Comparable store sales, excluding sales of eReader devices, declined 2%.

Gross profit as a percent of total revenues after occupancy cost and warehouse operating expense during the first quarter was 27.4% compared to 27.5% last year. This slight decrease was due to higher occupancy costs partially offset by increased real estate revenue.

Operating, selling and administrative expenses increased $0.2 million during the first quarter compared to Q1 fiscal year 2014. This increase is partially due to the consolidation of Yogurt Mountain’s operations, which had operating expenses of approximately $1.5 million during the quarter, which were not present in the prior year. These amounts were offset by lower retail, labor, selling, and new store expenses. As a percentage of revenue, operating, selling and administrative expenses for the first quarter were 28.4% versus 28.2% last year.

Depreciation and amortization expense increased $189,000 to $4.5 million in the first quarter from $4.3 million in the prior year quarter. The increase was primarily driven by the consolidation of the Yogurt Mountain, which had depreciation expense in the first quarter of approximately $200,000.

Net interest expense was $556,000 in the quarter versus $464,000 in the prior year quarter, with the increase due to incurring additional long-term indebtedness within the real estate segment last year.

For the first quarter, our net loss from continuing operations net of controlling interest was $5.6 million or $0.38 per diluted share compared with a net loss from continuing operations of $3.7 million or $0.25 per diluted share in the first quarter of fiscal 2014. Note that the net loss from continuing operations in the prior year included a $2 million income tax benefit. Income tax benefits are excluded from the current year results due to reflecting a full valuation allowance against deferred tax assets.

Now, I will provide you with some balance sheet amounts for the quarter. The following figures are compared to balances at the end as of fiscal year 2014 – at the end of the period fiscal year 2014. Inventory at the end of the quarter was $193.3 million compared to $199.6 million at the end of last year. And this reflects the closure of stores as mentioned before in the proactive inventory management. Accounts receivable and related party receivables were $2.4 million at the end of the quarter compared to $3.7 million at the end of the prior year. This decrease is due to timing of payments.

Net property plant and equipment was $76.8 million compared to $77.4 million at the end of last year. Total debt was $59.9 million compared to $36 million at the end of the year and that increase is reflective of seasonal borrowings.

Our stockholders’ equity exclusive of non-controlling interest was $103.6 million compared to $108.9 million at the end of the year. Our year-to-date capital expenditures for fiscal year 2015 were $5.3 million versus $6 million in the prior year.

And now, I’d like to turn the call over to Terry Finley for a general business update.

Terry Finley - President and Chief Executive Officer

Thanks, Todd and thanks everyone for participating on the call today. Sales for the first half of the quarter was strong driven in large measure by momentum among great fourth quarter lineup of books. And while we saw traffic slow later in the period, we were pleased that we achieved plan in our core book business as well as in the bargain book, media and general merchandise department.

Departmental trends were similar to last quarter with sales in our core book business continuing to stabilize and improve nice year-over-year growth in our gift and general merchandise area and an improved bargain book performance that delivered positive comparisons for the quarter. As has been the longer term trend, our most difficult comparisons continued to come from the NOOK and magazine departments, where the impact of industry wide changes continues to pose the challenge.

In our core book business, the publishing lineup for new releases wasn’t all that exciting during the period, but the great lineup of titles from last quarter and the positive impact of movies and media continued to drive improved results across a broad group of categories. By far and away, the largest gains were again delivered by the teen category, where sales were driven by a wide variety of titles and series, most notably multiple titles by John Green, including The Fault in Our Stars, which comes to the big screen next week as well as Veronica Roth’s Divergent series fueled by the March movie release of the first book of this series.

We also saw significant growth in the kids’ area, where a strong performance in the kids’ fiction, activity and seasonal categories drove the results. And sales from the graphic novel category again grew appreciably on the strength of merchandise related to the hit A&E series, The Walking Dead and the Manga series, Attack on Titans. Several other large volume categories also delivered favorable comparisons, including history and social science.

In our general merchandise area, we continued to see nice growth in our gift department during the period where our expanded offering of toys, games, and puzzles and book-related items continued to resonate with our customers. As has been the case for several quarters, merchandise aligned with several media related pop culture licenses like Doctor Who and online gaming properties like Minecraft were particularly successful. We also saw strong sales on products related to the teen book trends and the success of both The Lego Movie and Disney’s Frozen made significant contribution to our toy and game business.

Looking forward to the second quarter, we remain cautiously optimistic that improved sales trends in the bookstore will continue. Their publishing lineup remains relatively modest, but we are excited to have new commercial fiction from the likes of Stephen King and Tom Clancy. And we are particularly looking forward to the release of the second installment of Hillary Clinton’s memoir, Hard Choices. The media environment remains book rich, with several more film and television tie-ins to help drive sales. As always, we look forward to providing the value and service our customers have come to expect and we remain dedicated to the fundamentals of expense control and inventory management.

Now, we will be happy to take any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) And sir, it appears we have no questions in our queue.

Terry Finley - President and Chief Executive Officer

Thank you. Thank you everybody for being on the call.

Operator

And that does conclude today’s call. Thank you all for your participation.

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