Filed Under: ,
Tickers in this Article: BKS, BGP, BAMM, AMZN, SNE
Brick-and-mortar bookseller Barnes & Noble reported a losing second quarter, as expected, as the bookselling business continues to find the difficulties formidable for both short and long term. The company posted a loss of $24 million, or 43 cents a share, 30 cents excluding the company's buyback of its college bookstores, which compares with last year's same quarter loss of $18 million or 34 cents per share. Although revenue increased by 4% to $1.16 billion from $1.11 billion, the bookseller is looking at a difficult holiday season ahead.

IN PICTURES: How To Make Your First $1 Million

Finding its Nook
Barnes & Noble is unveiling its entry into the e-reader fray, Nook, which has already seen brisk orders that caused the company to ramp up production. Although Nook is a late entry compared to the current industry leader, Amazon's (Nasdaq:AMZN) Kindle, Barnes & Noble hopes to close the gap rapidly. Borders (NYSE:BGP), the other major brick-and-mortar book seller, features the Sony (NYSE:SNE) e-reader so is not as directly involved in the e-reader competition. Although e-books and other forms of e-publishing currently comprise only 2% of book sales, e-books and e-readers are on the cusp of the potential paradigm shift of reading habits.

More Earnings

Borders also reported quarterly earnings, and the troubled bookseller came in with a $38.5 million loss or a loss of 64 cents a share. Borders has battled poor sales, negative cash flows and debt in the past, and its stock closed at $1.74 per share after its report. Smaller bookseller Books-A-Million (Nasdaq: BAMM) also reported its earnings, posting a $1.6 million loss or 10 cents a share loss, compared with a $2.2 million loss or a loss of 14 cents per share in the same quarter a year ago. Books-A-Million has a somewhat more diversified product mix than just books.

Book Wars
Although all three book retailers, Barnes & Noble, Borders and Books-A-Million sell online, they must face the online book gorilla Amazon, whose customer service, price, convenience and loyalty is still way ahead of the mainly brick-and-mortar players. Barnes & Noble did $120 million in online sales for the quarter, a 9% gain from last year's same quarter, but this is minuscule compared to Amazon's online bookselling revenue, which is a large part of Amazon's roughly $20 billion total annual revenues. Amazon is dominant in the space, and looks to continue this dominance versus the other main booksellers, although price cutting if not price wars loom for the holidays. With book buyers likely still in a bargain-shopping mood, this could foreshadow a tough holiday season for the mainly brick-and-mortar stores.

The Bottom Line: Future Shock for Booksellers
The future has arrived. Not to belabor this, but you're not reading this article in a print vehicle such as a magazine, newspaper or book. That's old tech, rapidly becoming passé, like it or not. The verdict on print has been handed down. Content is online, digital, e-content. The brick-and-mortar booksellers are going to have not only to fight through the recession this holiday, but also the long-term cultural shift that is already underway, at the speed of digital technology.

Bookstore stocks, no matter how well the underlying booksellers might be run are not something to buy and hold for twenty years, or maybe even a couple of years, because in twenty years there probably won't be any bookstores. Think of it, have you been to the record store recently to buy an album on vinyl or on a compact disc? Didn't think so. Download your music? That's right. The e-reader revolution may not be as swift, but it's happening. Invest accordingly. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center