Barnes & Noble Finances Released: Saved By NOOK

Barnes & Noble has announced its latest quarterly financial results, and the retailer has its digital arm to thank for its 1-percent year-on-year sales growth. According to the results, online sales – including NOOK and ebooks – increased 59-percent over last year, whereas in-store sales decreased by 3-percent. B&N now reckons it has around 20-percent of the ebook market.

The popularity of digital devices and content – together with other recently expanded departments, such as Toys & Games which saw a 42-percent sales increase – has left Barnes & Noble confident about predicting $170m to $205m EBITDA for the full year. As for talk of selling the company, B&N's special committee is still looking into the possibility and "meeting with both strategic and financial institutions."

Press Release:

Barnes & Noble Reports Fiscal 2011 Second Quarter Financial Results
Barnes & Noble.com Comparable Sales Increase 59% – Driven By Digital Initiatives

Barnes & Noble Launches NOOKcolor™ to Critical Acclaim

Holiday Sales Off to a Strong Start

New York, NY (November 30, 2010) – Barnes & Noble, Inc. (NYSE: BKS), the world's largest bookseller, today reported sales and earnings for its fiscal 2011 second quarter ended October 30, 2010.

SECOND QUARTER RESULTS

Total sales for the second quarter were $1.9 billion, including sales of Barnes & Noble College Booksellers ("College") of $798 million. Excluding College, total sales increased 1% over the prior year period. Comparable sales at Barnes & Noble.com increased 59% driven by increases in core products and sales of digital devices and digital content. Barnes & Noble comparable store sales decreased by 3.3% and College's comparable store sales decreased by 1.5%.

The expansion of the Toys & Games department at Barnes & Noble stores produced a 42% sales increase for the department during the second quarter. In the third quarter, the company began testing additional concepts, including an expanded children's offering and digital and electronics accessories, to drive further sales increases in 2011.

For the second quarter, the company reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $46 million. The consolidated second quarter net loss was $12.6 million, or $0.22 per share, in-line with previously issued guidance of earnings of $0.05 per share to a loss of $0.25 per share.

As previously announced, the company continued to invest heavily in digital initiatives including: software and cloud services development costs; expenses relating to NOOKcolor; the addition of hundreds of thousands of titles to its digital catalog including a subscription management platform for digital newspapers and magazines; creating interactive proprietary content for children's books; developing applications to serve multiple reading and smartphone devices – including iPad®, iPhone®, Android™ and BlackBerry®; and the rollout of NOOK Boutiques in Barnes & Noble retail stores.

The additional investments are expected to continue and peak during the second half of the year, and then increase moderately in the years ahead. Payoff for these expenses is estimated to begin to appear in the third quarter, when NOOKcolor is expected to be one of the world's most sought after eReaders, and in the third and fourth quarters, when NOOKcolor owners will begin downloading digital content, including books and magazines.

BARNES & NOBLE LAUNCHES NOOKcolor

At the end of the second quarter, Barnes & Noble launched NOOKcolor, the first Reader's Tablet that enables customers to purchase interactive digital content on a full color touchscreen. Concurrent with the introduction of NOOKcolor, the company introduced NOOKnewsstand™ and NOOKkids™, enabling customers to access periodicals, magazines, and interactive children's books. Additional device features include web browsing, the ability to listen to music and much more.

NOOKcolor has received widespread critical acclaim from many technology publications, including The Wall Street Journal, which called the product "a winner." Orders for NOOKcolor significantly exceeded the company's expectations, and since going on sale on November 16, 2010, it has become the single bestselling product at Barnes & Noble.

"Since launching our eBookstore in the second half of last year, Barnes & Noble has quickly captured approximately 20% of the exploding eBook market. We have plans to grow our share well beyond 20%, and the early success of NOOKcolor is encouraging," said William Lynch, chief executive officer of Barnes & Noble, Inc. "Selling digital content is becoming a big business for us that we expect to grow at exciting rates. Based upon the double-digit comparable store sales achieved over the past weekend, we are further convinced that eReaders and accessories will be a key holiday gift item and driver of holiday sales this year, leading to accelerating eContent sales in the quarters and years ahead. We're continuing to invest in this opportunity to build the most expansive catalog of digital content available for sale, the best reading software on the market, and devices that deliver the most innovative digital reading experiences."

GUIDANCE

Barnes & Noble.com's comparable sales are expected to increase by approximately 75% for both the third quarter and the full year. The company believes these sales increases will be driven primarily by growing sales in core products and the exploding digital content business. By fiscal year end, the company expects that digital content sales will achieve a $400 million full-year run-rate.

Barnes & Noble comparable store sales are expected to increase between 5% and 7% for the third quarter, and to be in a range of flat to 3% for the full year. Increases in sales will be largely driven by sales of NOOK™ devices and accessories, and by increases in children's products and other non-book merchandise.

During the three-day post-Thanksgiving weekend, the company experienced a strong comparable store sales increase of 17.2% at Barnes & Noble stores and a comparable sales increase of 105.7% online.

College's comparable store sales are expected to be in a range of flat to a decrease of 2% for the third quarter and the full year.

The company expects to achieve EBITDA of approximately $160 to $190 million and $170 million to $205 million, for the third quarter and the full year, respectively. Third quarter earnings per share are expected to be in a range of $0.90 to $1.20. Full-year fiscal 2011 losses per share are expected to be in a range of $0.75 to $1.15.

BARNES & NOBLE DECLARES QUARTERLY DIVIDEND

The company's Board of Directors declared a quarterly cash dividend of $0.25 per share payable on December 31, 2010 to stockholders of record on December 10, 2010. At the end of the second quarter, the company had borrowings of approximately $377 million under its $1 billion revolving credit facility. The company's financial position remains strong and the revolving credit facility provides ample room for the company to fund its strategic investments.

UPDATE ON STRATEGIC ALTERNATIVE PROCESS

As previously announced on August 3, 2010, Barnes & Noble's Board of Directors has created a Special Committee to review strategic alternatives, including a possible sale of the company. This review process is currently ongoing and the company is meeting with both strategic and financial institutions.

There can be no assurance that the review of strategic alternatives will result in a sale of the company or in any other transaction. There is no timetable for the review, and the company does not intend to comment further regarding the evaluation of strategic alternatives, until a specific transaction is recommended by the Special Committee or the process is concluded.

CONFERENCE CALL

A conference call with Barnes & Noble, Inc.'s senior management will be webcast beginning at 10:00 A.M. ET on Tuesday, November 30, 2010, and is accessible at www.barnesandnobleinc.com/webcasts.

Barnes & Noble, Inc. will report holiday sales on or about January 6, 2011.