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Barnes & Noble Made the List of "Bankruptcy Stocks to Watch"

This was originally published in mid-January, but it just crossed my desk this morning,

Over at InvestorPlace Bret Kerwell lays out the figures that show B&N is just one bad quarter away from having to file for bankruptcy.

As of the most recent quarter, the company has $11.2 million in cash and $63.7 million in accounts receivable. While it doesn’t have any short-term debt, it does have over $621 million in accounts payable. Further, long-term debt sits at $278 million.

Despite this seemingly lopsided situation, the company still pays out a dividend. Its yield is near 9.9%, a red flag to be sure. And even though the company turned in one of its best holiday comps in recent memory, management warned on profit, saying it may fall up to 10% year-over-year.

It’s been years since since BKS turned in an annual income statement without red ink on its net income line. This one’s bankruptcy seems inevitable at some point down the road.

It’s not just doom and gloom; Barnes & Noble really is in dire financial straits, just like its quarterly reports suggested.

The company is one bad quarter away from needing to file for bankruptcy protection and pray that it can work something out with its suppliers.

And we all know how well that worked out for Borders, don’t we?

image by MikeKalasnik via Flickr

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Paul February 13, 2019 um 9:26 am

It reminds me a bit of another publisher I interviewed for a story I was working on about science publishing (this is back in 2002). I asked why they weren’t investing in new technology to stay competitive, she said that maybe they didn’t need to, maybe all they had to do was to continue to milk the revenue stream until it was time to turn the lights off. Personally I was horrified and thought it was self-defeating. A lot of Barnes & Noble’s actions recently seem to be the same thing. Its a pity.

Chris Lopes February 13, 2019 um 6:47 pm

The more interesting question is what happens to legacy publishers if they do go belly up. The Big Five specialize in moving large amounts of paper from point A to point B. What happens when there is no point B?

Nate Hoffelder February 13, 2019 um 8:07 pm

B&N doesn’t really sell that many books any more, so the impact would be minimal. In fact, the publishers may actually be better off because there would be fewer returned books, and thus less churn.

Thomas Porcello February 13, 2019 um 8:51 pm

B&N’s latest 10-K filing shows books sales at $2.5 billion for the year. The rest is gifts, toys, cafe and 3rd party.

Disgusting Dude February 14, 2019 um 6:31 am

The US (book) publishing sector is $30B a year. About half is consumer book sales so that puts B&N at about 16%. Losing that much shelf space will have an impact.

Of course, the real issue for B&N isn’t that they can move a couple billion bucks worth of books but that moving those books costs more than they bring in. They are effectively subsidizing the publishers with their equity. Factor in the value extracted via the dividends and it’s easy to see how the company ended up where they are. By the OP numbers they owe 15x what they’re owed. Now, much of their debt is actually returnable inventory, but I don’t think publishers can really process a half billion in returns all at once. And that is but one part of the can of worms.

There will be a lot of noise about non-chain bookstores taking up the slack but that is only true to a point: few of those can stock as many different titles as a B&N big box store. It has been pointed out repeatedly on author sites that replacing one 60,000 title B&N with two 30,000 title independents means the top selling books (say top 20,000) get double the shelf space and the rest fight for scraps. Figure two-thirds of the titles get much less shelf-space with a good chunk getting nothing.

B&N closing won’t hurt the sales of rain-maker authors like King, Roberts, Patterson, et al except maybe their backlist sales. But mid-list authors are going to fell the pain.
So are the publishers, because instead of one big account to negotiate coop (paid) placement for 500-600 stores, they’ll have anywhere from zero to 1000 separate stores to deal with. They’re not geared for it.

An actual B&N closure would be a boon for Ingram, B&T, and (naturally) Amazon.

Best guess is somebody steps in to buy some portion of the corpse (200 or so stores?) probably with big publisher support. This time they can’t afford to throw B&N over the cliff like they did to Borders so a total liquidation isn’t likely. But what is coming this year or next won’t be pretty. They should have gone chapter 11 for a painless "rinse" five years ago. Instead, they chose to drain equity value and ride the dying horse to the inevitable end. Their choice.
No pity required.

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