Barnes & Noble Reports Fiscal 2012 Second Quarter Financial Results

Barnes & Noble, Inc. (NYSE: BKS) today reported sales and earnings for its second quarter ended October 29, 2011.

SECOND QUARTER SALES

Total sales decreased 0.6% as compared to the prior year, from $1.90 billion to $1.89 billion. Barnes & Noble store (“Retail”) sales decreased 1% from $931 million to $918 million, with comparable sales decreasing 0.6%. Physical book sales declined, offset by increases in NOOK products and were positively affected by the liquidation of the remaining Borders stores. Comparable store sales improved each month throughout the quarter.

Barnes & Noble College (“College”) sales declined 4% from $797 million to $768 million, due to a shift from selling new and used textbooks to lower priced, higher margin textbook rentals. Comparable store sales increased 0.4%. College comparable store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

BN.com sales increased 17% over the prior year, from $177 million to $206 million. Comparable sales increased 38%, on top of a 59% increase a year ago. This increase was driven by continued growth of digital content sales and purchases of award winning NOOK™ devices. BN.com comparable sales reflect the actual selling price for eBooks sold under the agency model rather than solely the commission received.

SECOND QUARTER EARNINGS

Earnings before interest, taxes, depreciation and amortization (EBITDA) grew 21% over the prior year, from $46 million to $56 million.

Retail EBITDA grew from $1.3 million to $21.0 million, benefiting from higher product margins this year. In addition, the prior year included $10 million of litigation and proxy contest costs. College EBITDA declined slightly from $95.3 million to $93.9 million. BN.com EBITDA losses increased from $50.2 million to $58.9 million, driven by planned product markdowns on the recently announced NOOK price adjustments, as well as higher advertising production costs.

Total company net loss was $6.6 million for the quarter, or $0.17 per share, as compared to a net loss of $12.6 million last year, or $0.22 per share. Included in the current quarter is a $0.06 loss per share related to the company’s preferred stock dividend, in accordance with ASC 260, Earnings per Share. The dividend is deducted from earnings available to common shareholders in the earnings per share calculation and does not impact the company’s results of operations.

BARNES & NOBLE LAUNCHES NOOK Tablet™

On November 7, 2011, Barnes & Noble launched NOOK Tablet, the company’s fastest and lightest tablet with the best in entertainment. msnbc.com cited the product as a “terrific tablet,” The Associated Press called it “really impressive” and Forrester Research Inc. called it a “wow product”. In the first few weeks of launch, NOOK Tablet has become the fastest selling NOOK product in the company’s history.

Concurrent with the launch of NOOK Tablet, the company also announced enhancements and new low prices for NOOK Color™ and NOOK Simple Touch™, retailing at $199 and $99, respectively.

The newly updated NOOK Simple Touch continues to earn high praise from leading tech review outlets. CNET, PCMag and Laptop Magazine rank it among their top-rated touch eReaders with all three naming it “Editor’s Choice” and this week, PC World rated NOOK Simple Touch the #1 eReader (11/29/11).

The consolidated NOOK business across all of the company’s segments, including sales of digital content, device hardware and related accessories, increased 85% in the second quarter to $220 million, on a comparable sales basis.

“The launch of NOOK Tablet, combined with the product enhancements to NOOK Color and $99 NOOK Simple Touch, represents the highest-quality portfolio of digital reading products on the market at incredible values,” said William Lynch, chief executive officer of Barnes & Noble, Inc. “We expect to sell millions of devices during our third quarter, adding to the millions of current NOOK customers. This growing base of customers buying digital content from Barnes & Noble will continue to position us as one of the fastest growing companies in this exploding digital content market, and we project this will generate significant returns on our investments for years to come.”

HOLIDAY RESULTS TO DATE

Over the three-day holiday weekend, comparable store sales increased 10.9% at Barnes & Noble stores, on top of 17% comparable store growth last year. “Based on early sales and traffic results in stores we are encouraged by our prospects for this upcoming holiday,” added William Lynch.

FULL YEAR GUIDANCE

The company expects full year EBITDA to be at the lower end of the previously issued range of $210 million to $250 million. Although the company has seen and continues to expect increases in retail earnings from plan, it plans to invest more heavily in customer acquisition activities to fuel NOOK digital growth. These investments primarily include promotional activity and advertising for NOOK products, as well as technology costs related to developing other opportunities.

CONFERENCE CALL

A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 10:00 A.M. ET on Thursday, December 1, 2011, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report holiday sales on or about January 5, 2012.

ABOUT BARNES & NOBLE, INC.

Barnes & Noble, Inc. (NYSE:BKS), the world's largest bookseller and a Fortune 500 company, operates 703 bookstores in 50 states. Barnes & Noble College Booksellers, LLC, a wholly-owned subsidiary of Barnes & Noble, also operates 637 college bookstores serving over 4.6 million students and faculty members at colleges and universities across the United States. Barnes & Noble conducts its online business through BN.com (www.bn.com), one of the Web's largest e-commerce sites, which also features more than two million titles in its NOOK Bookstore™ (www.bn.com/ebooks). Through Barnes & Noble’s NOOK™ eReading product offering, customers can buy and read digital books and content on the widest range of platforms, including NOOK devices, partner company products, and the most popular mobile and computing devices using free NOOK software.

General information on Barnes & Noble, Inc. can be obtained via the Internet by visiting the company's corporate website: www.barnesandnobleinc.com.

NOOK®, NOOK Tablet™, NOOK Simple Touch ™, NOOK 1st Edition™, NOOK 1st Edition Wi-Fi™, NOOK Color™, Reader’s Tablet™, PagePerfect™, Best-Text™, Fast Page™, NOOK Books™, NOOK Store™, NOOK Bookstore™, NOOK Newsstand™, NOOK Magazines™, VividView™, ArticleView™, NOOK Newspapers™, NOOK Comics™, NOOK Cloud™, NOOK Apps™, FREE NOOK Reading Apps™, PubIt!™, NOOK Discover™, NOOK Kids™, Read and Play™, Read to Me™, Read and Record™, NOOK Digital Shop™, Read In Store™, More In Store™, NOOK Friends™, LendMe®, NOOK Library™, NOOK Boutiques™, The Barnes & Noble Promise™, NOOK Books en español™, NOOK Study™, Free Friday™, Lifetime Library™ and Read What You Love. Anywhere You Like™ are trademarks of Barnes & Noble, Inc. Other trademarks referenced in this release are the property of their respective owners.

Follow Barnes & Noble on Twitter (www.bn.com/twitter), Facebook (http://www.facebook.com/barnesandnoble) and YouTube (http://www.youtube.com/user/bnstudio).

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and information relating to Barnes & Noble that are based on the beliefs of the management of Barnes & Noble as well as assumptions made by and information currently available to the management of Barnes & Noble. When used in this communication, the words "anticipate," "believe," "estimate," "expect," "intend," "plan," "will" and similar expressions, as they relate to Barnes & Noble or the management of Barnes & Noble, identify forward-looking statements.

Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble's products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, and other factors which may be outside of Barnes & Noble's control, including those factors discussed in detail in Item 1A, "Risk Factors," in Barnes & Noble's Annual Report on Form 10-K and Form 10-K/A, and in Barnes & Noble's other filings made hereafter from time to time with the SEC.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described as anticipated, believed, estimated, expected, intended or planned. Subsequent written and oral forward-looking statements attributable to Barnes & Noble or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Barnes & Noble undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this communication.

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
13 weeks ended13 weeks ended26 weeks ended26 weeks ended
October 29, 2011October 30, 2010October 29, 2011October 30, 2010
Sales $ 1,891,961 1,904,146 $ 3,310,365

3,299,989
Cost of sales and occupancy 1,420,297 1,454,026 2,451,143 2,498,169
Gross profit 471,664 450,120 859,222 801,820
Selling and administrative expenses 415,632 403,822 826,750 786,231
Depreciation and amortization 57,755 56,777 113,427 113,681
Operating loss (1,723 ) (10,479 ) (80,955 ) (98,092 )
Interest expense, net 8,460 12,791 17,901 26,053
Loss before taxes (10,183 ) (23,270 ) (98,856 ) (124,145 )
Income taxes (3,620 ) (10,690 ) (35,687 ) (49,023 )
Net loss (6,563 ) (12,580 ) (63,169 ) (75,122 )
Net loss attributable to noncontrolling interests - 12 - 37
Net loss attributable to Barnes & Noble, Inc. $ (6,563 ) (12,568 ) $ (63,169 )

(75,085 )
Basic loss per common share:
Loss attributable to Barnes & Noble, Inc. available $ (0.17 ) (0.22 ) $ (1.16 )

(1.34 )
for common shareholders
Diluted loss per common share:
Loss attributable to Barnes & Noble, Inc. available $ (0.17 ) (0.22 ) $ (1.16 )

(1.34 )
for common shareholders
Weighted average common shares outstanding
Basic 57,261 56,708 57,207 56,239
Diluted 57,261 56,708 57,207 56,239
Dividends declared per common share $ - 0.25 $ -

0.50
Percentage of sales:
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy 75.1 % 76.4 % 74.0 % 75.7 %
Gross profit 24.9 % 23.6 % 26.0 % 24.3 %
Selling and administrative expenses 22.0 % 21.2 % 25.0 % 23.8 %
Depreciation and amortization 3.1 % 3.0 % 3.4 % 3.4 %
Operating loss -0.1 % -0.6 % -2.4 % -3.0 %
Interest expense, net 0.4 % 0.7 % 0.5 % 0.8 %
Loss before taxes -0.5 % -1.2 % -3.0 % -3.8 %
Income taxes -0.2 % -0.6 % -1.1 % -1.5 %
Net loss -0.3 % -0.7 % -1.9 % -2.3 %

BARNES & NOBLE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
October 29, 2011October 30, 2010
ASSETS
Current assets:
Cash and cash equivalents $ 23,633

30,163
Receivables, net 240,600 185,253
Merchandise inventories 1,836,740 1,761,118
Prepaid expenses and other current assets 180,352 126,326
Total current assets 2,281,325 2,102,860
Property and equipment:
Land and land improvements 8,617 8,617
Buildings and leasehold improvements 1,220,869 1,210,233
Fixtures and equipment 1,725,135 1,638,652
2,954,621 2,857,502
Less accumulated depreciation and amortization 2,280,551 2,101,057
Net property and equipment 674,070 756,445
Goodwill 521,899 526,327
Intangible assets, net 574,964 573,789
Other noncurrent assets 55,794 59,845
Total assets $ 4,108,052

4,019,266
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,461,981

1,318,744
Accrued liabilities 724,136 608,301
Short-term note payable - 100,000
Total current liabilities 2,186,117 2,027,045
Long-term debt 274,900 376,900
Long-term deferred taxes 275,868 310,712
Other long-term liabilities 418,923 481,426
Redeemable Preferred Shares; $.001 par value; 5,000 191,681 -
shares authorized; 204 and zero shares issued, respectively
Shareholders' equity:
Common stock; $.001 par value; 300,000 shares
authorized; 90,856 and 90,231 shares issued, respectively 91 90
Additional paid-in capital 1,331,983 1,313,678
Accumulated other comprehensive loss (11,630 ) (13,212 )
Retained earnings 495,830 576,277
Treasury stock, at cost, 33,527 and 33,360 shares, respectively (1,055,711 ) (1,053,650 )
Total shareholders' equity 760,563 823,183
Commitments and contingencies - -
Total liabilities and shareholders' equity $ 4,108,052

4,019,266

BARNES & NOBLE, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
13 weeks ended13 weeks ended26 weeks ended26 weeks ended
October 29, 2011October 30, 2010October 29, 2011October 30, 2010
Sales
Barnes & Noble Retail $ 917,576

930,793 $ 1,918,141

1,957,062
Barnes & Noble College 768,463 796,650 988,254 1,021,512
Barnes & Noble.com 205,922 176,703 403,970 321,415
Total $ 1,891,961 1,904,146 $ 3,310,365 3,299,989
Gross Profit
Barnes & Noble Retail $ 273,069

269,714 $ 567,935

565,385
Barnes & Noble College 167,588 169,150 218,744 219,847
Barnes & Noble.com 31,007 11,256 72,543 16,588
Total $ 471,664 450,120 $ 859,222 801,820
Selling and Administrative Expenses
Barnes & Noble Retail $ 252,052

268,449 $ 501,400

538,599
Barnes & Noble College 73,684 73,869 135,642 134,099
Barnes & Noble.com 89,896 61,504 189,708 113,533
Total $ 415,632 403,822 $ 826,750 786,231
EBITDA
Barnes & Noble Retail $ 21,017

1,265 $ 66,535

26,786
Barnes & Noble College 93,904 95,281 83,102 85,748
Barnes & Noble.com (58,889 ) (50,248 ) (117,165 ) (96,945 )
Total $ 56,032 46,298 $ 32,472 15,589
Net Income (Loss)
EBITDA $ 56,032 46,298 $ 32,472 15,589
Depreciation and Amortization (57,755 ) (56,777 ) (113,427 ) (113,681 )
Interest Expense, net (8,460 ) (12,791 ) (17,901 ) (26,053 )
Income Taxes 3,620 10,690 35,687 49,023
Total $ (6,563 ) (12,580 ) $ (63,169 ) (75,122 )
Percentage of sales:
Gross Margin
Barnes & Noble Retail 29.8 % 29.0 % 29.6 % 28.9 %
Barnes & Noble College 21.8 % 21.2 % 22.1 % 21.5 %
Barnes & Noble.com 15.1 % 6.4 % 18.0 % 5.2 %
Total 24.9 % 23.6 % 26.0 % 24.3 %
Selling and Administrative Expenses
Barnes & Noble Retail 27.5 % 28.8 % 26.1 % 27.5 %
Barnes & Noble College 9.6 % 9.3 % 13.7 % 13.1 %
Barnes & Noble.com 43.7 % 34.8 % 47.0 % 35.3 %
Total 22.0 % 21.2 % 25.0 % 23.8 %

Contacts:

Media Contact:
Barnes & Noble, Inc.
Mary Ellen Keating, 212-633-3323
Senior Vice President
Corporate Communications
mkeating@bn.com
or
Investor Contacts:
Barnes & Noble, Inc.
Allen W. Lindstrom, 212-633-3340
Interim Chief Financial Officer
alindstrom@bn.com
or
Barnes & Noble, Inc.
Andy Milevoj, 212-633-3489
Director of Investor Relations
amilevoj@bn.com
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