Shares of Barnes and Noble (BKS) traded down 4% Tuesday, despite beating analysts' targets for revenue and earnings per share. The drop in the share price is something shareholders have grown accustomed to as the company tries to compete with Amazon (AMZN) and save itself from the bankruptcy that rival brick and mortar chain Borders just went through.
In the first quarter, Barnes and Noble saw revenue of $1.5 billion, an increase of 2.5%. This beat analysts' targeted number of $1.48 billion. The company's net loss dropped 28% to a loss of $41.0 million. The company posted negative earnings per share of $0.78. Analysts had been expecting a loss of $0.98 per share. The company reported strong sales in its digital content segment (+46%), and reported that sales of Fifty Shades of Grey were extremely high. Here is a look at sales by segment (last year's first quarter sales):
· Retail: $1.1 billion ($1.1 billion)
· College: $221 million ($220 million)
· NOOK: $192 million ($191 million)
Along with strong digital sales, Barnes and Noble was helped by strong sales in its brick and mortar locations. Same store sales grew 4.6% in the first quarter. The liquidation of rival Borders stores helped the company's sales. Same store sales at the company's college units decreased 2.0%.
A recent announcement by the company should have shareholders and future investors doing more research. Barnes and Noble is set to hit the United Kingdom with its NOOK e-readers in the fall. The United Kingdom represents the first international market for Barnes and Noble's e-reader devices. Along with the e-readers, Barnes and Noble will have an online NOOK store that has over 2.5 million books, magazines, and comics for readers to choose from.
Barnes and Noble does of course have stiff competition in the aforementioned Amazon. Amazon launched their popular Kindle in the United Kingdom. British book retailer Waterstones even ditched their own version of an e-reader to enter into a partnership to sell Kindles in their stores. Both Amazon.com and Barnes and Noble are not selling their newest and most popular versions in the United Kingdom (Kindle Fire, Nook Tablet).
On April 30th, Barnes and Noble announced a partnership with Microsoft (MSFT). The new partnership will spin off the company's NOOK and college units into a newly formed company called Newco. This new venture is expected to be completed in the fall. When this announcement was made in April, shares of Barnes and Noble shot up to $20.75. Many investors piled into Barnes and Noble believing the company was undervalued and the spinoff would show the company's assets value.
Shares of Barnes and Noble now trade down at $11.87. Over the last fifty two weeks, shares have traded in a range of $9.35 to $26.00. Shares are down 16% since the beginning of 2012. Over 20% of the company's shares are now traded short, representing a good short squeeze going forward. I think the new European deal could be beneficial for the company. As the price wars continue against Amazon, look for Barnes and Noble to make a statement and release its Tablet in the country before the Kindle Fire becomes available to the British consumers. Sales from England are not baked into the share price, as the company has traded down since the announcement. As the deal with Microsoft closes, look for upward movement in Barnes and Noble shares. The time to begin acquiring shares is coming soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.