New York, NY (March 5, 2007) — Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales for the fourth quarter and for the full year ended February 3, 2007, which consisted of fourteen weeks and fifty-three weeks, respectively. The company also announced the consolidation of its Internet distribution center, updated previously issued guidance for 2006 and announced preliminary guidance for the full year 2007.
FOURTH QUARTER AND FULL YEAR 2006 SALES
Barnes & Noble store sales were $1.5 billion for the quarter and $4.5 billion for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble store sales increased 2% for the quarter and the full year as compared to the same periods in fiscal 2005. Comparable store sales decreased 0.1% for the quarter and 0.3% for the year. The company opened 32 Barnes & Noble stores in fiscal 2006 and closed 18.
B. Dalton store sales were $36 million for the quarter and $102 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, B. Dalton store sales decreased 30% for the quarter and 29% for the full year as compared to the same periods in fiscal 2005, primarily due to the closing of 20 stores since the fourth quarter of 2005. Comparable store sales decreased 7.5% for the quarter and 6.1% for the year.
Barnes & Noble.com sales were $164 million for the quarter and $433 million for the full year. Excluding the impact of the extra week in this year’s fiscal calendar, Barnes & Noble.com comparable sales increased 5.1% for the quarter and decreased 1.1% for the full year as compared to the same periods in fiscal 2005.
Consolidated sales were $1.9 billion for the quarter and $5.3 billion for the full year.
DISTRIBUTION CENTER CONSOLIDATION
In 2007, the company will close its Internet distribution center located in Memphis, Tennessee. Upon closing Memphis, all Internet orders will be fulfilled from the company’s newly constructed state-of-the-art distribution center in Monroe, New Jersey and from the company’s Reno, Nevada facility, both of which provide ample capacity and coverage for Internet orders.
As a result, the company will incur charges, net of tax benefits, of $2.2 million in 2006 ($0.03 per share) and $4.9 million in 2007 ($0.07 per share) related to accelerated depreciation, severance, remaining rental obligations and other costs associated with the close-down of the Memphis facility. Included in these charges of $7.1 million are $4.1 million of cash charges.
AFFIRMS 2006 GUIDANCE
Excluding the Memphis distribution center closing charge of $0.03 per share, the company affirms that it will be in the low to middle range of its previously announced 2006 earnings per share guidance for the fourth quarter and full year of $1.86 to $1.96 and $2.20 to $2.30, respectively.
“We achieved our earnings guidance for the fourth quarter and the full year despite sales being at the low end of our sales plan,” said Steve Riggio, chief executive officer of Barnes & Noble, Inc. “The negative impact of the disappointing sales was offset by an increase in gross margin, attributable to fewer bestseller markdowns, lower inventory shrink and improvements throughout our supply chain, all of which enabled us to generate earnings that are within our previously announced guidance.”
FULL YEAR 2007 EXPECTATIONS
The following forward-looking statements reflect Barnes & Noble’s expectations as of March 5, 2007.
- Barnes & Noble store sales are expected to be between $4.6 billion and $4.7 billion, increasing approximately 2% to 4% over 2006. Comparable store sales are expected to be flat to slightly positive for the year, including sales from J.K. Rowling’s Harry Potter & the Deathly Hallows, which will go on sale July 21st. The company notes that while the release of this book will produce a large sales spike in the second quarter, it will be sold at a deep discount, producing very little gross margin.
- The company expects to open between 30-40 new Barnes & Noble stores and close approximately 19 stores.
- Gross margin is expected to decline by 90 to 100 basis points due to the full year impact of the new lower Member prices the company introduced in October 2006. Both new enrollments and sales to the company's Members continue to grow and are running ahead of previous forecasts, negatively impacting both sales and gross margins as the unit sales growth has not yet offset the amount of additional discounts. In addition, gross margin will continue to be compressed by the highly competitive bookselling environment, as well as the deep discounting associated with the new Harry Potter book.
- The company expects to record a one-time charge of $0.07 per share related to the closing of its Internet distribution center, as noted above.
- The company expects to record charges, net of tax benefits, of between $4 million and $6 million ($0.06 and $0.09 per share) related to legal expenses in the company's ongoing investigation of its stock option practices.
On a continuing operating basis, full-year earnings per share are expected to be in the range of $1.65 to $1.80 per share. Including charges for the distribution center closing and legal fees, full year earnings are expected to be in the range of $1.49 to $1.67 per share.
The fully diluted weighted average share count used in the computation of earnings per share for the full year is 70 million shares.
“Over the past few years our earnings and cash flow have benefited from steady increases in gross margin. The gains came from a variety of factors, including lower purchases from book wholesalers, improvements in inventory control and supply chain efficiencies,” continued Steve Riggio. “These gross margin gains have helped produce a compounded earnings per share growth rate from continuing operations (excluding non-operating charges) of approximately 20% over the last five years. At the same time, we have significantly strengthened our balance sheet, which is virtually debt-free. We have decided to reinvest a portion of our cash flow to reward our best customers by the recent lowering of prices to our Members. Though in the short term, this will have a negative impact both on top line and gross margins, we believe that it is the right move for us at this time and for the long term.”
REVIEW OF STOCK OPTION PRACTICES
The special committee of Barnes & Noble's Board of Directors and its independent legal counsel have not yet finished their investigation of the company's stock option practices. Accordingly, the company has not yet determined the amount of any additional non-cash stock based compensation expense related to stock option grants that may be recorded, and the preliminary results and guidance set forth herein do not include any such additional charges and are subject to adjustment based on the results of the internal review.
Barnes & Noble, Inc. will report full-year 2006 earnings on or about March 22, 2007.
This press release contains “forward-looking statements.” Barnes & Noble is including this statement for the express purpose of availing itself of the protections of the safe harbor provided by the Private Securities Litigation Reform Act of 1995 with respect to all such forward-looking statements. These forward-looking statements are based on currently available information and represent the beliefs of the management of the company. These statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks include, but are not limited to, the results of the internal review of the company’s stock option practices and the related inquiries by the Securities and Exchange Commission and the U.S. Department of Justice and related stockholder derivative lawsuits, general economic and market conditions, decreased consumer demand for the company’s products, possible disruptions in the company’s computer or telephone systems, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible disruptions or delays in the opening of new stores or the inability to obtain suitable sites for new stores, higher than anticipated store closing or relocation costs, higher interest rates, the performance of the company’s online and other initiatives, the successful integration of acquired businesses, the successful integration of the company’s new New Jersey distribution center, unanticipated increases in merchandise or occupancy costs, unanticipated adverse litigation results or effects, product shortages, and other factors which may be outside of the company’s control. Please refer to the company’s annual, quarterly and periodic reports on file with the SEC for a more detailed discussion of these and other risks that could cause results to differ materially.