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Barnes & Noble 4Q profit drops as sales decline

Shoppers scaling back on discretionary purchases like books and music hurt profits at Barnes & Noble Inc., which said Thursday that its earnings fell 29 percent in the period that included the dismal holiday season — usually retailers' busiest time of the year.
/ Source: The Associated Press

Shoppers scaling back on discretionary purchases like books and music hurt profits at Barnes & Noble Inc., which said Thursday that its earnings fell 29 percent in the period that included the dismal holiday season — usually retailers' busiest time of the year.

But the nation's largest bookstore chain posted adjusted results that beat Wall Street's forecast, and gave an outlook for the current quarter that was in line with what analysts expect. Its shares rose nearly 5 percent.

Chief Executive Stephen Riggio said the 2008 fiscal year was by far the most difficult year the company has ever experienced. While traditional booksellers have long struggled with increased competition from discounters and online sellers like Amazon, the extremely weak holiday season hurt Barnes & Noble sales for the quarter.

The New York-based company earned $81.2 million, or $1.46 per share, in the fourth quarter ended Jan. 31, compared with $115 million, or $1.79 per share, a year earlier. Excluding a severance charges and a charge related to the sale of its majority stake in Calendar Club, the company earned $93.3 million, or $1.67 per share. Analysts had expected $1.48 per share.

Barnes & Noble sold its interest in Calendar Club — a provider of calendars, games, puzzles, gifts and music boxes — back to the company and its chief executive last month for $1 million in cash. Calendar Club added $113.5 million to Barnes & Noble's 2008 revenue.

Total sales for the fourth quarter fell 6 percent to $1.63 billion from $1.74 billion a year earlier. That was also below $1.78 billion expected by analysts surveyed by Thomson Reuters.

Sales at stores open at least a year, or same-store sales, dropped 7.3 percent. Same-store sales are a key indicator of retailer performance since they measure growth at stores that were open in both periods and exclude sales from newly opened ones.

Riggio said the year that just ended was the first in which the company's comparable store sales slipped every quarter.

However, he said Barnes & Noble was able to weather the tough quarter by tightly controlling inventory and expenses and shifting away from poor-performing products like music.

As a result, the company improved its margins, reduced its inventory levels by 11 percent and generated operating free cash flow of $150 million for the quarter, which was above the company's expectations.

For the full year, Barnes & Noble's profit slid 44 percent to $75.9 million, or $1.32 per share, from $135.8 million, or $2.03 per share, in the prior year. Annual revenue dipped 3 percent to $5.12 billion, while same-store sales declined 5.4 percent.

Looking forward, the company forecast a first-quarter loss of 10 cents to 20 cents per share, while analysts expect a loss of 17 cents per share. Same-store sales are predicted to decline between 6 percent and 9 percent during the quarter.

Barnes & Noble anticipates full-year profit of 95 cents to $1.25 per share, with same-store sales off 4 percent to 6 percent. Analysts are anticipating 2009 net income of $1.11 per share.

Investors did not get a glimpse of the bookstore chain's plans for its latest acquisition, electronic bookseller Fictionwise, as executives said they will not release details until later. The company has said it plans to launch an e-bookstore later this year.

Barnes & Noble shares rose 99 cents, or nearly 5 percent, to close at $22 on Thursday.

Analysts were pleased with the results but cautious about the company's potential.

CL King & Associates lowered its rating to "neutral" from "strong buy" based on the recent rise in stock price. Analyst William Armstrong wrote in a note that while he still likes the company's fundamentals for a variety of reasons, he lowered the rating given its limited growth potential and a recent run-up in the stock price.

Standard & Poor's Equity Research analyst Michael Souers said in a note that the shares are overvalued and he remains concerned about declining adult readership levels and economic factors. S&P maintained a "strong sell" recommendation on Barnes & Noble shares.

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AP Retail Writer Michelle Chapman in New York contributed to this report.