On Wednesday Barnes & Noble released its annual financial report. The news was all around bad, but that didn't stop B&N from trying to spin the news in their investor phone call.
I've just finished reading the transcript of said call (found on Seeking Alpha). B&N blew an epic amount of smoke in that phone call, but after filtering out the half-truths, drug-induced optimism, and outright fictions, I think I found a few useful nuggets of information.
For one thing, they either can't or won't admit just how bad their position has gotten in the ebook market:
The industry has undergone significant transformation over the past five years, as we all know, as the digital book business grew from about $400 million in 2010 to about $3 billion in 2013, essentially at the expense of physical books. Since that time, e-book sales have plateaued and physical book sales have stabilized. As of today we estimate the physical book sales account for about 85% of the overall U.S. book market and our market share is approximately 20% in the physical space and 9% within the e-book market.
That 9% claim cannot possibly be true, and is a sign that B&N is either doing too much drugs or not enough. B&N 's total Nook revenues for FY2016 were around $192 million. About half of that were ebook sales, and $96 million times 11 does not equal three billion.
Furthermore, it's unlikely that B&N could support 9% of the ebook market on only "2 million Nook users", which according to the transcript is their Nook user base. (A back of the envelope calculation suggests that those user spend an average of less than $100 a year on Nook ebooks and hardware.)
And that number is bound to shrink.
B&N doesn't mention any plans or goals to recruit new Nook customers, or sell more ebooks. Their total Nook plans consist of releasing a new Samsung tablet, promoting Nook Press (the Author Solutions front company that B&N launched in 2014), and cutting costs on the Nook platform.
In comparison, B&N spent a lot of the phone call talking up its other departments. Sorry for the long quote, but it's necessary:
Book sales represent two-thirds of our business and they are complemented by other departments where we have driven growth. We will continue to drive sales in these departments this fiscal year. The first of these departments is music. Who knew two years ago we'd be talking about a growing music business? Well, today we're, thanks to the vinyl revival at Barnes & Noble. Music sales at Barnes & Noble represent almost 2% of total store sales and the music and DVD department represents 6% of sales.
Sales of vinyl records drove our music business to positive comps two years in a row and we expect music to drive significant growth again this year. We will achieve this growth through a thoughtful expansion of our assortment and through exclusive early releases, first-to-market opportunities and signed editions from favorite artists. As our vinyl record sales have grown, we have driven sales of turntables and speakers in kind which will continue to grow in fiscal 2017. We can't talk about growing businesses at Barnes & Noble without talking about our toys and games department. Our toys and games business represents 7% of store sales today.
Our toys and games department features the world's best selection of educational toys and games and provides another great opportunity for an experiential visit that differentiates Barnes & Noble from its competitors, hands-on learning events which are to toys and games what our storytime events are to kids' books. These hands-on learning events are fun, engaging activities that foster critical thinking skills and are designed to promote cognitive development, literacy, creativity, social skills and scientific thinking. In fiscal 2017, we plan to fulfill our educational promise of STEAM which stands for science, technology, engineering, art and design and math, by adding a new art fixture and a new science fixture in our toys and games stores.
In contrast, when the Nook platform comes up in the Q&A segment, B&N concedes they "don't see this business generating positive cash flow".
They do, however, plan to open three of the four new restaurant stores by late October. The Loudoun location was a hole in the ground only a few weeks ago, so I don't think that will be one of the three.
Did you see anything interesting in the transcript?
image by Joelk75