The Book Is Thrown At Barnes & Noble

Bricks-and-mortar book retailing has always been a tough business and is only getting more challenging as consumers shift to online purchases and the reading of digital books on electronic reading devices. Unfortunately for Barnes & Noble (NYSE:BKS), its core retailing business appears to be declining more rapidly than expected. It remains to be seen how much cash flow generation has deteriorated, but the implications are significant as the company will have to spend heavily to compete with a new set of rivals for digital books. IN PICTURES: How To Make Your First $1 Million

Fourth Quarter Sales and Profit Trends
Reported sales rose 19% to $1.3 billion and was almost entirely due to the acquisition of Barnes & Noble College Booksellers and its collection of stores that sell university textbooks and related campus materials. Online sales improved an impressive 51% to account for 11% of the total top line. Flagship bookstore sales fell 3% and made up 74% of total sales. Comparable store sales dropped 3.1% and came in right in the middle of company management expectations.

Reported net income was a loss of $32 million, or 58 cents per diluted share. However, this included two one-time gains. Excluding these gains, operating losses totaled 89 cents per share, which management pointed out was at the favorable end of its expectations.

Full Year Recap
The full year results were similar. Sales totaled $5.8 billion and grew 13%. This time though, the college book selling purchase accounted for all of the growth and offset a drop in sales at the namesake retail bookstores. Comps dropped 4.8%, though online sales improved 24% to account for almost 10% of total annual sales.

Net income was positive at $36.7 million, or 63 cents per diluted share. However, this represented a big drop from last year's $85.4 million in net income, or $1.29 per diluted share.

A Bad Trend
The trends at Barnes & Noble are not encouraging right now. Investors will await cash flow generation trends, which had been strong but details of which were not provided in the earnings release. Online sales are expected to be robust and will include the retail prices for eBooks sold for its proprietary NOOK reader. Comps at the retail bookstores are also expected to grow slightly, with flat trends at the university stores.

Bottom Line
The decline in the traditional book business is happening a bit faster than expected. As a result, Barnes & Noble is "planning to redirect a significant portion of our financial resources towards investments in technology, sales and marketing" to try and shift to digital books and online sales.

The going will be tough in these spaces. Amazon (Nasdaq:AMZN) is the undisputed retailer for books and most other merchandise in cyberspace and also offers the Kindle reading device. Apple (Nasdaq:AAPL) released an iPad - another product that is being snapped up by loyal followers who see it as the next must-have Apple product. Sony (NYSE:SNE) is also in on the mix and all three readers cited above are being sold at Best Buy (NYSE:BBY). (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing these stocks.)

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