Barnes & Noble may carve out Nook, cuts forecast

January 06, 2012

The new Nook Tablet is seen during a demonstration at the Union Square Barnes & Noble in New York, November 7, 2011. — Reuters picThe new Nook Tablet is seen during a demonstration at the Union Square Barnes & Noble in New York, November 7, 2011. — Reuters picNEW YORK, Jan 6 — Barnes & Noble Inc cut its Nook sales forecast for this year and shocked investors by saying it was considering a sale of the electronic reader and tablet business, sending its shares down more than 20 per cent.

The bookseller has been banking on the Nook for growth, so news that holiday sales of the basic touchscreen e-reader were disappointing raised investors’ fears that Barnes & Noble was struggling to keep up with Inc’s Kindle.

The largest US bookstore chain has poured tens of millions of dollars into developing and promoting the Nook, hurting its results.

Barnes & Noble lowered the full-year sales forecast for the Nook business to US$1.5 billion (RM4.65 billion) from US$1.8 billion.

It said holiday sales of its Nook Simple Touch, the cheapest Nook device at US$99, fell short of expectations, and cited this as a reason for the lower forecast. One analyst said it was a sign that the retailer could be finding it hard to compete with its deep-pocketed rival.

“They’re going to have to raise capital for Nook if they want to stay viable,” said Morningstar analyst Pete Wahlstrom.

Amazon last week said sold one million Kindle devices, which includes the Fire tablet and a touchscreen device, per week in December.

Barnes & Noble did not give out numbers but said the number of Nook devices sold rose 70 per cent during the nine-week period ended December 31.

The retailer said it expects a loss of US$1.40 to US$1.10 per share in the year ending in July, much worse than the average Wall Street forecast of a loss of 63 cents.

Barnes & Noble put itself up for sale in 2010 but attracted only one firm offer — a bid for US$17 per share, or US$1 billion, last May from John Malone’s Liberty Media Corp. Liberty ultimately decided to invest US$204 million in the company rather than buy it outright.

Shares of Barnes & Noble fell 24 per cent to US$10.30 in morning trading.

When Barnes & Noble introduced the Nook tablet in November, it also cut the prices on other versions of the device, including the Simple Touch, in response to aggressive pricing by

Amazon, a company known for uncutting rivals on price.

But unlike Amazon, Barnes & Noble’s other businesses do not generate enough money to subsidize its e-reader business. Last month, Barnes & Noble posted an unexpected quarterly loss and warned that investing in the Nook would dent results this year. Last February the bookseller suspended its dividend to finance the Nook.

Barnes & Noble now expects earnings before interest, tax, depreciation and amortization of US$150 million to US$180 million for the year ending in July, down from its forecast last month of US$210 million to US$250 million.

And despite the liquidation of its main rival, Borders Group, in September, and Nook sales, Barnes & Noble now expects sales of US$7 billion to US$7.2 billion in the year, down from its initial forecast of US$7.4 billion, suggesting an accelerating decline in book sales.

If Barnes & Noble were to spin off its Nook business, it would become a traditional bricks-and-mortar bookseller similar to Borders, which went out of business last year.

Morningstar’s Wahlstrom said the company could be banking on being “the last one standing.”

Barnes & Noble in August said Borders’ liquidation would boost annual revenue by US$150 million to US$200 million, but now it expects an even bigger boost of US$210 million to US$250 million.

Indeed, sales at Barnes & Noble stores open at least 15 months, excluding Nook and e-books, rose 4.5 per cent during the holidays, an improvement over recent quarters.

But Wahlstrom said splitting off the Nook business would be getting rid of “its one growth driver,” given the long-term, industry-wide decline in book sales.

“We see substantial value in what we’ve built with our Nook business in only two years, and we believe it’s the right time to investigate our options to unlock that value,” William Lynch, chief executive of Barnes & Noble, said in a statement.

Barnes & Noble operates about 700 bookstores as well as a chain of textbook stores on college campuses.

The company, which launched the first version of the Nook in 2009, is second only to Amazon in the e-books market and claims to have 27 per cent of that market. — Reuters