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

Q2 2015 Results Earnings Conference Call

August 28, 2014; 05:00 p.m. ET

Executives

Terry Finley - Chief Executive Officer & President

Todd Noden - Chief Financial Officer

Analysts

Operator

Good evening ladies and gentlemen and welcome to the Books-A-Million, Second Quarter 2015 Conference Call. Today’s conference is being recorded and I will now turn the conference over to Mr. Todd Noden, Chief Financial Officer of Books-A-Million. Please go ahead sir.

Todd Noden

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 second quarter and year-to-date results, which were issued this afternoon.

Before I begin I would like to remind everyone that management’s comments in this conference call, which are not based on historical fact, 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 second quarter and then Terry will provide a discussion of our current business trends.

At quarter end, we are operating 256 Books-A-Million in 2nd and Charles retail stores and 44 company-owned and franchised Yogurt Mountain locations. During the quarter we opened two new traditional stores and three superstores and we also temporarily closed two superstores for remodeling.

Last year we closed four stores in trade areas in which we no longer operate in other locations and as a result we reported discontinued operations for our prior year results. All amounts and comparisons to prior year that I quote today will exclude discontinued operations, except comparable store sales.

In our real estate segment we acquired one center located in Jacksonville, Florida, which brings the total number of owned and operated properties to four commercial retail centers in quarter end.

For our financial results, net sales from the 13-week period ended August 2, 2014 decreased 0.8% to $107.6 million, compare with net sales of $108.4 million in the 13-week year earlier period. Comparable store sales for the second quarter increased 0.1% compared with the same period in the prior year. Comparable store sales excluding sales of the eReader devices increased 0.8%.

Our gross profit excluding other revenue as a percent of net sales after occupancy cost and warehouse operating expense during the quarter was 28.1%, compared to 28.2% last year. This decrease was due to higher occupancy costs, partially offset by higher merchandising gross profit margins.

Operating, selling and administrative expenses decreased $0.1 million during the second quarter compared to Q2 in fiscal year 2014. This decrease is due to lower Books-A-Million retail, labor selling and new store expenses, which were offset by a higher Yogurt Mountain’s operating expenses, due to the consolidation of Yogurt Mountain in last year’s results, which included only a partial amount of operating expenses for the quarter. As a percentage of revenue, operating, selling and administrative expenses for the second quarter were 26.9% versus 26.8% last year.

Depreciation and amortization expense decreased $91,000 to $4.35 million in the second quarter from $4.44 million in the prior year quarter. This decrease is primarily driven by prior year closure of larger format stores.

Net interest expense was $569,000 for the quarter versus $430,000 in the prior year quarter, with the increase due to incurring additional long-term indebtedness within the real estate segment last year.

For the second quarter, our net loss attributable to Books-A-Million was $3 million or $0.21 per diluted share, compared with a net loss of $9.1 million or $0.62 per diluted share in the second quarter of fiscal 2014. Note that the net loss in the prior year included a $6.1 million income tax expense, resulting from a valuation allowance against deferred tax assets. Although the company generated a net pre-tax loss in the current and prior year, income tax benefits are excluded from the current and prior year results due to reflecting a full valuation allowance against these deferred tax assets.

Now, I’ll provide you with some balance sheet amounts for the quarter. The following figures are compared to balances at the end of the year 2014, fiscal year 2014.

Inventory was $194.9 million compared to $199.6 million at the end of the year. These amounts or reductions in amounts reflect store closures and proactive inventory management. Account receivable and related party receivables were $2.6 million compared to $3.7 million at year end.

Net PP&E was $81.3 million compared to $77.4 million at year end and the increase reflects the addition of two retail centers added since year end and capital expenditures related to new stores. Total debt was $60.6 million compared to $35.4 million and this increase reflects our seasonal borrowings.

Stockholders equity exclusive of non-controlling interest was $98.7 million compared to $108.9 million and the decrease reflects our year-to-date net loss and a repurchase of common shares that we reported on June 5, 2014. Lastly, our year-to-date capital expenditures for fiscal year 2015 were $13.9 million versus $19.5 million in the prior year.

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

Terry Finley

Thank you Todd and thanks to everyone for participating on the call today. Sales earlier in the period were softer than we would have liked. However those sales trends improved noticeably throughout the quarter and we were able to finish the Q (ph) with a modest comparable sales increase.

The improvement was based broadly and with most areas of the business showing stronger results in terms of both comparable sales performance and performance against our plan. While the continued improvement in our core book business was a key driver of our results, our bargain book, media, magazine, cafe and gift departments all delivered improved performance.

As has been the long term trend, our most difficult comparisons continue to come from the NOOK department, where the impact of industry-wide changes continues to pose a challenge.

In our core book business, the publishing lineup for new fiction and non-fiction releases provided little excitement during the period, but the positive impact at movies and media continue to drive improved results across a broad group of categories. The teen and children’s book business was particularly strong, driven by the success of movie related tie-ins including John Green’s Fault In Our Stars, and Disney’s Frozen.

We also saw a strong growth in the graphic novel category with continued success with titles related to A&E’s, The Walking Dead series and a renewed interest in several Manga series drove sale increases. In addition several other large volume categories delivered nice year-over-year growth including social science, business and our freight category.

We continue to see nice year-over-year growth also in our gift department during the period, where our expanded offerings of toys, games and puzzles and book-related items continue to meet with approval from our customers.

We saw a strong sales on merchandise related to the teen book trends and success of Disney’s Frozen made significant contribution to our toy and game business. As has been the case for several quarters, merchandise associated with multiple media related pop culture licenses like Doctor Who and online gaming properties like Minecraft continue to perform well.

As we look ahead to the third quarter, we are encouraged by the improved sales trends in the bookstore. The publishing lineup remains relatively modest, but we are excited to have commercial fiction coming from Jan Karon and some great non-fiction offerings from the likes of Walter Isaacson and Bill O'Reilly. And the media environment remains book rich, with the release of screen adaptation of strong teen titles including Lois Lowry's, The Giver; Gayle Forman’s, If I Stay and James Dashner’s, The Maze Runner to help drive sales.

As always, our team remains dedicated to the fundamentals of expense control and inventory management, while providing the best customer experience possible.

We’ll now be happy to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Well Mr. Noden, there are no questions at this time. Do you have any closing comments?

Todd Noden

No, Thank you for everyone that’s participating on the call.

Operator

Again ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.

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