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Barnes & Noble, Inc. (NYSE:BKS)

F1Q13 Earnings Call

August 21, 2012 10:00 am ET

Executives

Andy Milevoj - Vice President, Investor Relations

William Lynch - Chief Executive Officer

Michael Huseby - Chief Financial Officer

Mitchell S. Klipper - Chief Executive Officer, Barnes & Noble Retail Group

Analysts

Matthew Fassler - Goldman Sachs

John Tinker - Maxim Group

David Schick- Stifel Nicolaus

Alan Rifkin - Barclays

Peter Wahlstrom - Morningstar Investment Research

Rick Schottenfeld - Coyote Capital

Operator

Good day, and welcome to the Barnes and Noble's first quarter 2013 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Andy Milevoj. Please go ahead, sir.

Andy Milevoj

Good morning and welcome to Barnes and Noble's fiscal 2013 first quarter earnings conference call. Joining us today are CEO, William Lynch, Mitch Klipper, CEO of Retail, Michael Huseby, CFO and Allen Lindstrom, Corporate Controller, as well as other members of our senior management team.

Before we begin, I would like to remind you that this call is covered by the Safe Harbor disclaimer contained in our press release and public documents and is the property of Barnes and Noble. It is not for rebroadcast or use by any other party without the prior written consent of Barnes & Noble.

During this call, we will be making forward looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties including those contained in our press release. The company disclaims any obligation to update any forward looking statements that may be discussed during this call.

At this time, I would like to turn the call over to William Lynch, Chief Executive Officer of Barnes & Noble.

William Lynch

In Q1, we were able to modestly grow our top line with consolidated sales increasing 2.5% to $1.5 billion and substantially better our EBITDA for the quarter from a loss of $24 million last year to a positive $4 million in EBITDA in Q1 of this year, a $27 million favorable swing in EBITDA year-to-year. We achieved these improved results while continuing to make the investments necessary to grow our digital content business over the mid and long term.

Also in the quarter, we progressed towards the formation of our Newco-subsidiary and the closing of our Microsoft deal, paving the way for Microsoft's $300 million investment in Newco. We expect to complete the transaction this fall. Mike will get into the specifics of the Q1 financial performance in a moment, but I do want to stress the strategic advancements we made this quarter across the business along with some of the challenges we faced.

Starting with the NOOK segment, our Q1 digital content sales, defined as sales from e-books, digital newsstand products and apps, grew 46% when compared to Q1 of last year. Our data indicates that we are maintaining approximately 25% to 30% of the digital book market in the U.S. and our NOOK newsstand is the leading seller of digital magazine subscriptions in the market.

In Q1, overall gross margins on our NOOK segment were 23%. This 23% gross margin rate was a big expansion quarter-to-quarter from the NOOK segment to Q4 GM rate of 1% related to the markdowns on Simple Touch.

A better comparison of this 23% gross margin in Q1 is to the full year fiscal 2012 rate of 13%. This 10 point improvement in the gross margin over the last full fiscal year reflects the growing share of higher margin content sales as part of our overall NOOK business.

Expenses in the NOOK segment grew as planned as we incurred significant upfront costs internationalizing our NOOK digital content retailing platform and e-commerce systems in advance of the launch of our Microsoft partnership. Also, we invested in preparing for the fall launch of our NOOK devices and best in class digital book store in the U.K. market.

As you may have read from yesterday's news, we are launching a NOOK digital storefront in the U.K. in mid-October. We will be announcing partnerships with U.K.'s top retailers to distribute NOOK in the coming days. This will enable us to reap the benefits of these Q1 investments in subsequent quarters in fiscal year '13 as we generate increased revenue and gross margin dollars from the sales of digital content in the U.K.

We anticipate additional content gains through the Windows 8 NOOK reading app and bookstore, once launched. We are maintaining our previous projection that the NOOK business will achieve operating leverage this fiscal year in 2013, shrinking year-to-year losses as we drive rapid digital content growth and prudently manage expenses.

Lastly, in our NOOK business, in this quarter we began shipping the best e-reader on the market in NOOK Simple Touch with Glowlight. Very quickly, Glowlight was ranked the number one rated e-reader by both consumer reports and CNET and became the hottest e-reading product on the market.

In Q1, however, we were never able to fully capture the opportunity from Glowlight's demand and buzz. Suboptimal production yields relating to the complexities in our newly invented breakthrough lighting technology resulted in consistent out of stock positions throughout all of our retail channels this entire quarter.

We have recently refined our manufacturing process and production is now flowing unconstrained. In the last two weeks, our retail channels have been fully stocked with Glowlight for the first time. While it is very difficult to estimate the impact the out of stock situation had on our Q1 NOOK segment performance, we believe it was significant and the device unit growth and digital content growth would have been materially higher, if not for the production shortages.

At retail, we had another very strong quarter with comps increasing 4.6% driven by the growth in our trade book category and contributed by Fifty Shades of Grey. We continue to be encouraged by the performance of our physical brick-and-mortar business. In the beginning of last year, we stated that we expected our stores to benefit from industry consolidation, shrinking the number of places for readers to shop a collection of books and we have certainly seen that positive dynamic fueling our retail business over the last three quarters.

Particularly important was the liquidation of the Borders stores late last summer, but also the reduction of book assortments and shelf space by mass-merchants and other brick-and-mortar channels has had a favorable impact on our business. In addition, our recent strong store performance has been a function of the successful merchandising strategies we implemented in fiscal year '12 and tight expense management.

As previously mentioned, we engaged in a full relay of our adult, trade and juvenile departments and conducted a rollout of the 1,000 square foot educational toys and games departments across most of the stores last year. The team has done an excellent job elevating our merchandising to convert more customers in our stores and Barnes & noble increasingly becomes the only place across this country for consumers to shop a large assortment of printed media.

We saw the benefit of this unmatched selection in Q1. The growth in the book and content market in the coming years will come from digital and we are investing accordingly but as I said before, because of the unique proposition we offer to readers and families and the role our stores play as a demand vehicle for publishers, our retail business will remain a great business for Barnes & Noble in the foreseeable future. We are reaffirming our plans to rollout a handful of stores in fiscal year 2012 with a new merchandising format as we look to the future of retail and it's potential.

Lastly, at Barnes & Noble College, sales were virtually flat as compared to Q1 of last year. Q1 is a historically very light volume period and we will learn more about the success of our recently launched initiatives and marketing programs during the big back-to-school period in this Q2.

What we are seeing encouragingly is an increase in the pipeline of our peers from schools looking to outsource their physical and online campus bookstores. These schools see the growth in text book rentals and recognize the pending growth of digital content and are unable or unwilling to invest in managing the distribution of course materials in these formats themselves.

Our physical on-campus bookstore capabilities combined with the technology platform in NOOK Study we are building for the management, merchandising and distribution of digital content gives Barnes & Noble College a one-stop suite of retail and digital services for schools and students that has a valuable competitive advantage. We are optimistic about the new business opportunities we have been seeing recently from schools and what it will mean in incremental sales and new account growth for BNC in the coming years.

In summary, we are pleased with the improvement in our year-on-year financial performance in Q1 and in particular, a swing to positive EBITDA from a negative EBITDA last year but we also believe our financial performance could have been better and that we left significant opportunity on the table from the early production challenges that constrained the supply of our hot Glowlight product.

As we look to Q2, we are extremely focused on closing the transaction with Microsoft sometime this fall. Additionally, this quarter will also be important for our college business as we execute our back-to-school plans and for the NOOK segment as we launch our digital bookstore with Microsoft on Windows 8 and enter the U.K. with our award winning devices and expansive digital bookstore.

Now, I would like to turn the call over to Michael Huseby, our CFO for a more detailed financial commentary on Q1.

Michael Huseby

Thank you, William and good morning. This morning, before the market opened, we released our first quarter results for fiscal 2013 which ended on July 28.

Consolidated sales increased 2.5% to $1.5 billion for the quarter. Retail sales, which include results for Barnes & Noble's Retail bookstore business and bn.com business increased 2% for the quarter to $1.1 billion driven by 4.6% increase in comparable bookstore sales.

Retail core comparable store sales, which exclude sales of NOOK products, increased 7.6% over the last year during the quarter led by an 8.3% increase in comparable physical book sales. Our strong bookstore sales performance continues to include the beneficial impact of the Borders liquidation last fall that William mentioned. We experienced strong sales of the Fifty Shades trilogy and continued growth in non-book categories such as toys and games.

Sales of NOOK products in our bookstores declined during the quarter due primarily to lower average selling prices.

College sales were relatively small during this first quarter as this is not a back-to-school rush period. College sales were $221 million for the quarter which is essentially flat compared to a year ago as a 2% decline in comparable store sales was offset by some new store openings.

First quarter NOOK sales which includes sales of devices, digital content and accessories were $192 million for the quarter also flat to last year. As William noted, first quarter digital content sales increased 46% over the last year. Content revenue includes sales of digital books, digital newsstand and the apps business. Conversely, device sales declined during the quarter due to lower average selling prices which were approximately 23% lower than a year ago, as well as the production scaling issues with our Glowlight product that William discussed.

Consolidated gross margins increased 126 basis points for the quarter. Retail gross margins continued to benefit from a positive mix shift towards higher margin core products. College gross margin was essentially flat with a year ago. NOOK gross margin decreased 280 basis points to 23% for the quarter as the company recorded the markdowns on the recently announced NOOK price reductions and incur a higher occupancy cost on increased office space in Palo Alto, California.

Selling and administrative expenses decreased 80 basis points for the quarter. Retail's SG&A rate improved 130 basis points as a result of sales leverage and improved store productivity including lower employee related workforce cost. College expenses slightly increased over the last year due to increased investments in digital education and in store openings. NOOK expenses increased primarily to support its international expansion plans as well as increased advertising.

Interest expense was $9 million for the quarter which was in line with the expense a year ago. The company generated EBITDA for $4 million this quarter as compared to a loss of $24 million a year ago, primarily benefitting from the strong performance of our bookstores.

Consolidated first quarter net loss improved 28% to $41 million or $0.78 per share as compared to a loss of $56.6 million or $0.99 per share a year ago. At quarter end, the company had borrowings of $283 millions net of cash on hand against its $1 billion credit facility. Compared to the same time last year, this is a reduction of $205 million as the company used the net proceeds from the Liberty investment last August to reduce our debt.

Inventories increased $386 million as compared to the year-end, primarily due to college building inventory ahead of the fall rush period. Consolidated capital expenditures for the first quarter were $26 million which was in line with a year ago.

In the first quarter, we did not open any Retail bookstores and closed two, College opened 25 new stores and closed five. On April 30, the company announced that it formed a strategic partnership with Microsoft to form a new subsidiary which we are currently calling Newco comprised of the company's NOOK and College businesses. The company continues to be very actively engaged in the formation of Newco and is in the process of implementing the work necessary to close the Microsoft transaction in this fall.

Our outlook for fiscal 2013 remains unchanged. We expect Retail comparable bookstore sales to decline on a percentage basis in the low to mid single digits. College comparable store sales are expected to be flat. NOOK EBITDA losses are expected to decrease in fiscal 2013 as revenues continue to grow and NOOK begins to realize operating leverage, while we continue to make further investments in the digital business.

Additionally, I would like to point out that at the end of today's press release, the company included an additional table which provides fiscal year 2012 segment information for each of the four quarters for its new NOOK operating segment as well as the Retail and College segments.

With that, we open the call for questions. Operator, please provide the instructions for those interested in asking a question.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question from Matthew Fassler with Goldman Sachs.

Matthew Fassler - Goldman Sachs

Thanks a lot, good morning and thanks as well for the additional disclosure. It's very helpful. My first question relates to the rate of digital content growth. The number is still very strong over 40%, at the same time it's moderating and so how should we think about what that says about attach rates? What it says about market share trends, which sounds like they are okay? Is this market growth? So, like to some degree it's such that you are holding share in a market where growth is decelerating. Just any context there would be very helpful.

William Lynch

Matt, this is William Lynch. If you talk to the publishers what you will see is that there was, in the U.S., a bit of a deceleration of the growth overall in the e-book market which was to be expected. If you look quarter-to-quarter, we were basically at the same growth rate we were on digital content at the end of Q4.

As we mentioned, and probably an important data point for you all, is that digital content sales and our cohorts were heavily driven by the first two to three months of device under-shipped. So that, and I am just talking devices not our applications now, so if you look in the first two to three months of device under-shipped, as you might expect consumers fill up their lockers and those first two to three months are vital as it relates to driving at least for our overall content business growth in the business.

Because we had less start, what we call device starts this quarter, largely impacted by our hottest selling product which is Glowlight, that did have an impact. Having said that, what we have seen is growth in other areas including the sale of content through third party applications on other devices as well as some of our, what we call our older classes of customers, buying more content than we expected.

Hence our high digital content growth has been basically flat quarter-to-quarter. That’s what happened in the quarter and hopefully that answers the question.

Matthew Fassler - Goldman Sachs

That’s helpful, and then just a quick second question, then I will leave it to others. So you are going to be on anniversary on most of the Borders closings, presumably soon and we have seen scenarios like this in retail several times over the past several years. In some instances, the halo or the tailwind lasts beyond the anniversary and in some it begins to fade out. I guess your guidance would for some deceleration in the bookstores would suggest that this benefit would begin to fade out but if you could be a bit more explicit with how you think that cycling that Borders closings will in fact impact your bookstore business.

Mitchell Klipper

Hi Matt, this is Mitch Klipper. They do have a halo effect and it does continue into the second year and the third year as well. Of course the second year is nowhere near the impact of first year and the third year as the impact in the second year.

But we know from 50 stores, some of our stores have closed in years past when competitors closed, how much you pick up the first year, the second year and the third year and it all depends on market-by-market, store-by-store and how good was the location that closed compared to the location that you have. So again, it's market-by-market and, store-by-store.

So we do anticipate the increase from the Borders closing to continue but at a much more moderate rate as we closed last October.

Operator

We will take our next question from John Tinker with Maxim.

John Tinker - Maxim Group

Could you just talk a little more about your international move into the U.K. in terms of, given that Kindle and Kobo are established already and you don’t actually have your own stores that will launch your product? How do you see yourself differentiating yourself?

William Lynch

Hey, John, this is William Lynch. Well, as I mentioned in my comments, you will see announcements in the coming days about the top retailers distributing NOOK. So we feel very good about our ability to reach the U.K. consumers and specifically readers and media hungry customers in the U.K., we think our distribution plans are very good and will give us significant coverage in also merchandising exposure for NOOK.

How do we plan to differentiate? One of our catalog, we have the two preeminent digital catalogs in the world and this is a long tail business. Content is a long tail business. The things we have said in previous calls is, in our bookstores everyone thinks that Dan Brown and John Grisham and Fifty Shades of Grey, for that matter and to some extent it is but bestsellers have only been 5% of our sales. So having this long tail on the digital content side across books and magazines is vital as well.

So our catalog is going to be a key differentiator and then the devices themselves. There is a reason we have the top two rated e-readers in the U.S. We think their U.K. consumers are discerning. There will be a flight to quality. We feel very good about our roadmap and our ability to innovate there. We think we have been designing the best reading devices and media tablets in the portable form factor for some time and so certainly on the product side, we will have a very differentiated and compelling story.

That’s how we plan to go to market.

Operator

We will take our next question from David Schick with Stifel Nicolaus.

David Schick- Stifel Nicolaus

Could you talk at all about whether the mix of content sales are changing between books, magazines and apps overtime?

William Lynch

Is this in digital?

David Schick- Stifel Nicolaus

Yes, sorry.

William Lynch

We just launched our app store 18 months ago now and what we are seeing is that growth is basically the same across the formats actually. With the exception of digital newsstand, which has seen an increased growth recently, in essence they are all around that overall content growth percentage. We think there are some things that will accelerate our growth in digital newsstand but in the Q1 quarter, they were all about the same with apps and newsstand being a little higher than e-books.

David Schick- Stifel Nicolaus

Okay, great, and that bookstore comp, we have seen bog books do well for you before and I guess, Shades of Grey is a series but it seems like it might be more than Shades of Grey. Is this equal parts Shades of Grey and educational plays and games or how would you rank order the pieces that are driving that strength?

Mitchell Klipper

Hi, this is Mitch Klipper again. Clearly Shades of Grey had the biggest impact in the numbers but Shades of Grey is a big piece but then you have the relays of the stores last year. The strength from people coming into the stores, traffic is up in our stores which is great to say, for first time in many years. So the traffic is up, the board is closing, still analyzing off of that, Shades of Grey, relaying of the stores getting into the educational toys and games business. So it’s a lot of little pieces with the bigger of the smaller pieces being Shades of Grey and achieving our book business, its about our overall juvenile business is really extremely strong.

Operator

We will take our next question from Alan Rifkin with Barclays.

Alan Rifkin - Barclays

With respect to the NOOK, the EBITDA loss in this quarter really narrowed quite remarkably compared to prior quarters. Do you think Q1 represents really an inflection point where going forward we could start to see EBITDA, as related to the NOOK, actually be improved year-over-year?

William Lynch

Alan, this is William Lynch. Well, clearly, we made no secret that the margin lies in the digital content. If you look at what we have been doing on devices and we have gotten much better over the last three years of designing devices with our supply chain et cetera but as evidenced by the 23% decrease in ASP, what we want to do is be competitive with those devices and that hardware is not where the margin resides. It resides in digital content.

So as you see more and more growth coming from digital content and our reading software, whether its on Windows 8 products and Microsoft or other devices, what you will see is the margins improve and it will be a key driver in the operating leverage we said we would achieve in fiscal year '13 and the nearing of the losses.

So you are on the right track with it follows the digital content.

Alan Rifkin - Barclays

Okay, so just a follow up, if I may. With NOOK ASPs down about 23% and obviously revenues relatively flat, can we infer that units were up about 20%, 23% as well?

William Lynch

We didn’t give a unit number, Alan, and we are not going to give one on the call but as Mike said, ASPs were a big driver in the flat year-on-year on hardware. Hardware is still a big proportion of the overall NOOK revenue segment. Then also, as we said we felt like there was a missed opportunity on the Glowlight supply issues but we are not giving a year-to-year.

Michael Huseby

Yes, Alan, I would say it's that the NOOK segment revenues were basically flat. They were up slightly year-over-year, and we said digital content was up 46%. So the average selling price was down 23%, I don’t think you come to a conclusion that units were up substantially.

Alan Rifkin - Barclays

Okay, and then, you folks said that obviously device sales declined due to the production scaling issues. Have those issues been rectified and could you just make us feel better that with your drop in ASPs, as you hoped to stimulate units, how do we know going forward that we won't see additional scaling issues on the product development side?

William Lynch

Well, I don’t know if I am going to make you feel any better, Alan, but will answer the question. I think that whenever you are inventing something and you see that we are the only ones with light-guide technology in an e-ink product, you are inventing something and so you have to hone the manufacturing process.

In this case, I can tell you definitively, we have adjusted the design and the recipes specifically on the light-guide and we are now pumping out Glowlights, as I mentioned, in the last few weeks to fill the channel. So you see, companies like Walmart, Best Buy, some of our biggest partners just getting that product now.

So I can say assuredly that we have solved the Glowlight manufacturing issues. Going forward, if we continue to push the innovation on new devices, could there be manufacturing optimization happening in the first few months? Sure there could, but I don’t know that we could predict that now.

Alan Rifkin - Barclays

Okay, and one last question, if I may. Are you at liberty to tell us how much Fifty Shades actually contributed to the retail comp?

William Lynch

No, we don’t want to call out specific publications and what their contribution was. There is year-over-year there are other big trilogies and publications such as Hunger Games, Harry Potter. So trying to compare year-over-year gets to be somewhat complicated unless you really go back into the prior periods and try to normalize all those other successful series as well.

Operator

We will go next to Peter Wahlstrom with Morningstar Investment Research.

Peter Wahlstrom - Morningstar Investment Research

Quickly, on retail, you mentioned the focus on cost management and I was wondering how much of that is associated with payroll and how much is associated with the ongoing real estate lease renegotiations and how big could that opportunity be as you look at the next couple of years?

William Lynch

Well, we focused on every component of the business and of course, controlling our payroll while at the same time giving the right service levels in the store, I think our 40,000 booksellers nationwide are very happy with the sales that are coming through the door, the increased traffic. More traffic, more payroll they got. So we have done a great job controlling the payroll.

Occupancy, as we said in the last two years, is always opportunity. Landowners do not want us to leave the center. We are enclosing authentic themes stores this year. So they don't want us to leave. So they are working with us on bringing down the occupancy costs.

Barnes & Noble is still the number requested tenant in a shopping center for their bookstore and those are the real biggest costs, occupancy and payroll. So payroll, we are at well, I don’t think there is much room left but sales are going to continue to increase and the traffic is going to increase. So the stores will get more payroll.

The occupancy, the whole real estate team, development team has done a great job and they are going to continue to do a good job. I think the low hanging fruit is gone. But we still have some of our lease is coming due this year, that there is still some opportunity but the low hanging fruit has definitely behind us but there is still opportunities for us.

Peter Wahlstrom - Morningstar Investment Research

Did I hear correctly that you are planning to open 25 new college bookselling locations and if so, at what point will those roll into the comp number?

William Lynch

We said, we actually did open 25 new locations, not that we are planning to and we closed five. It was net increase of 20 and they will roll into the comp in subsequent quarters.

Peter Wahlstrom - Morningstar Investment Research

Okay, and I am not sure that you have mentioned this already but could you talk a little bit about the text book rental dynamic with the official launch of Amazon coming into the space?

William Lynch

Well, rental has been the fastest growing format. We just rolled out rental to all of our college stores last year. We have been in test mode at the beginning of the year and what you see is that students are liking rental as an option. I think one of the things that makes rental attractive is the fact that we have campus bookstores and so you can go into the bookstore at the beginning of the semester, at any time, really, and the convenience of that is fantastic.

Then we take your credit card and bill you on an ongoing basis. Typically over the 90 day or the semester period and then you can drop it right back in your book store. Shipping heavy books back and forth online for college students who are very busy and the last thing they want to do is go to UPS and we will see how that works.

It could be successful but we think the rental pie is just growing so rapidly and we think we offer the best and most convenient solution for the students. So we obviously track their entry into the rental but we don’t think that’s going to hurt our rental business.

Operator

(Operator Instructions) We will go next to Matthew Fassler with Goldman Sachs.

Matthew Fassler - Goldman Sachs

Thanks a lot. I have a couple of follow ups. First of all, the 23% decline in ASP that you offered was a pretty interesting number. Do you happen to have that number for prior quarters so we could track the progression of ASP trends?

William Lynch

I am sorry. We don’t have it for prior quarters available today.

Matthew Fassler - Goldman Sachs

Okay, and then secondly, just given the role that some of the bestsellers seem to be playing and you just cited some of the trilogies and series that are quite prominent. If you can characterize the typical role of the bestseller at roughly 5% of sales, is that number appreciably higher at a moment like this when you have got two or three blockbusters that are converging at once?

William Lynch

I think that Fifty Shades is, if you look back at Harry Potter, let's take that as an example. We have seen Fifty Shades before. This isn’t an anomaly. I would say, versus some others, it's a bit higher, to give you some guidance but it's not been our bestselling book ever by any means.

Matthew Fassler - Goldman Sachs

But, I guess the convergence of trilogies, I mean, Harry Potter was typically released one at a time and in serial form and now you have the three tales converging and ditto with a couple of the others. Does that create a different level of concentration above the 5% or does it all shake out and displace other bestseller titles?

William Lynch

No, it is more of the latter. If you look last year, at Hunger Games, there was a time when, well, take Stieg Larsson, there was actually a time when he had three of our four top sellers in P and E format and that was a year and half ago and then you had Hunger Games and now you have got Fifty Shades of Grey. Will there be trilogies going forward?

We know the format works and we think it does. So I don’t know that it is appreciably higher than what we have seen in the last year from those others.

Operator

We will go next to Rick Schottenfeld with Coyote Capital.

Rick Schottenfeld - Coyote Capital

In the 8-K for the Newco investment by Microsoft, it says that if you do an IPO or spin off Newco within five years of the initial investment that they have the right to put that back to you. So I was wondering if you have to record that as a contingent liability on your balance sheet and if that affects your ability to draw your credit line?

William Lynch

No, we don’t. It doesn’t fall into a contingent liability definition under accounting rules. It’s a disclosure. Its five years out. It’s a right that they have under the agreement and at this point it's just a disclosure.

Rick Schottenfeld - Coyote Capital

So in terms of that right, what's your anticipation in terms of a spin or an IPO? Right now, your stock is trading, I guess that transaction value, NOOK business, at about $20 or somewhat per Barnes & Noble's share and you are getting no value for that in the market place right now trading at what I would estimate is the value of just your physical bookstores. What's your intention in terms of a spin off or an IPO of that business following the closing?

Michael Huseby

We are not disclosing any such intention currently.

Operator

At this time, there are no other questions in queue. I will turn it back to Mr. Milevoj for any closing remarks.

Andy Milevoj

Great, thank you, and thank you all for joining us today. Please note that our next scheduled financial release will be our second quarter earnings release on or about November 20, 2012. Have a good day.

Operator

That concludes today's conference call. We appreciate your participation.

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