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Barnes & Noble: Uninteresting From Cover To Cover

Carlton Getz, CFA profile picture
Carlton Getz, CFA


  • The company's core business continues to erode as the company seeks the balancing point between online and physical retail.
  • The generous dividend is at risk as core operating cash flow metrics decline and the company increasingly relies on one-time adjustments from working capital and other balance sheet accounts.
  • We find little of interest in this story and would pass on the shares.

Barnes & Noble (NYSE: NYSE:BKS) is the largest retailer of books and related materials through physical stores in the United States. The company has been under pressure for something approaching two decades due to the rise of Amazon (NASDAQ: AMZN) and other online and physical competitors which have radically changed the market within which the company operates. The result has been an incremental erosion in the company’s revenues and store counts over time accompanied by losses and/or thin profits. The company’s online revenues remain a small percentage of total revenues – less than 8% - reflecting the company’s continued reliance on physical stores.

The result has also been a sustained decline and stagnation in the company’s share price for more than a decade. The low valuation and generous dividend provide a basis for value oriented investors to assess the company’s operations and market for potential opportunities.

However, as we outline in this article, we find little compelling rationale for an investment in the company from either a dividend or market standpoint. The ongoing risks to the company continue to far outweigh the potential benefits and it’s unclear that the company’s intrinsic value is significantly different – much less significantly higher – than the current market price. In addition, we view the increasing challenges the company will likely face in maintaining its generous dividend to be a material risk to the share price as income investors essentially play chicken with the company’s finances as to when (more so than if in our view) the company adjusts the dividend.

Investment Perspective

First, we find little of particular interest in the company from an investment perspective. The company’s consistent decline in revenues and highly variable net profitability does not lend itself to our value oriented investment approach. In addition, despite relatively little long-term debt, the significant majority of

This article was written by

Carlton Getz, CFA profile picture
The author writes on behalf of Winter Harbor Capital, a private fund, and oversees private portfolios for individual and institutional clients. The author founded an investment company in 1995 with the view that a value oriented investment philosophy focused on intrinsic value and long term opportunities could generate superior absolute returns over time, leading to portfolios with unusual investment tenure sometimes exceeding 10 years. In addition to stints in micro and small capitalization research at Wasatch Advisors in Salt Lake City and in private banking with J.P. Morgan Private Bank in New York City, the author is a registered investment advisor, licensed professional engineer, and graduate of the Darden School at the University of Virginia.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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