Nook E-Reader to Give Barnes & Noble ‘Halo Effect,’ CEO Says
The Nook e-reader will give Barnes & Noble a “halo effect,” CEO Steve Riggio predicted on an earnings call. He said the device is “now our single best-selling product” and is “building traffic in our stores.” The Nook contributed to a 33 percent total revenue increase year to year for the company in Q3 ended Jan. 30, to $2.2 billion, said Chief Financial Officer Joseph Lombardi.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
But the e-reader didn’t keep B&N store sales from falling 4.7 percent to $1.4 billion and comparable store sales from dropping 5.5 percent. The device wasn’t available at the company’s brick-and-mortar stores until this month. It was available online at BN.com during the holiday season, but supplies fell short of demand at first. The Nook was in stock at the site Tuesday. The retailer also said its profit fell to $80.4 million, $1.38 per share, from $85 million, $1.42 per share.
The Nook helped the chain’s online sales, which increased 32 percent to $210 million in Q3, Lombardi said. Online sales “accelerated through the quarter” and culminated in a 67 percent increase in sales for January from a year earlier, he said. “Nook demand “clearly contributed to these sales gains,” Lombardi said. Riggio said, “Every metric in our online business is growing,” with traffic up significantly and all product categories seeing growth.
Barnes & Noble’s e-book sales “are simply exploding,” and the retailer is “already seeing signs that our market share in some categories of e-books will soon exceed our market share of physical books in those same categories,” said Riggio. But it’s “not a two-horse race by any means,” because it’s “still very early” for the category, he said -- “the first lap.” Amazon is seen as the company’s largest competitor in this business. But Barnes & Noble’s retail stores give it an advantage, because consumers are able to see, touch and try the Nook before buying it, Riggio said. Consumers will “be the big winners” from the growth of e-books, Riggio said. “Tens of millions of e-books” and other digital content will be made available, “the vast majority” priced “well below” physical versions, he said.
The retailer’s Q4 earnings forecast reflected an “expected boost” from Nook sales, Lombardi said. The company expects store sales to dip 2-4 percent in Q4 and 3-5 percent for the full year. It expects to post a loss of 85 cents to $1.15 per share for Q4 and still expects fiscal 2010 earnings to come in at 23-53 cents.
Barnes & Noble increased investment in its digital efforts, adding an unspecified number of employees, especially at its Palo Alto, Calif., office, said Lombardi. It increased its technology spending overall and “will continue to do so,” he said. Based on “early reads” of demand for the Nook, the retailer is also “increasing our efforts at retail by expanding our in-store marketing support for Nook, as well as appropriate rollouts of successful retail merchandising initiatives that were tested over the past two quarters,” he said. A Barnes & Noble spokeswoman told us her company also made “some organizational changes in December that were part of a realignment.” She declined to say how many job cuts were made as part of the realignment, but an industry source told us 30-40 jobs were slashed in December. She confirmed that Kevin Ryan is “no longer with the company” as vice president of social media. The retailer also hired people in New York, where it’s based, she said without giving the number.
Other Barnes & Noble gains in Q3 included a 13 percent cut in returns to suppliers “due to tighter inventory purchase controls,” said Lombardi. It also continued to gain market share at brick-and-mortar stores despite the lower store and comparable store sales for Q3, he said.