Thursday, March 17, 2011

B&N Pines for a Storybook Ending

WSJ: "It's never fun to realize, after starting a book, that the plot is so familiar it loses any element of surprise. The question for Barnes & Noble shareholders is whether they are living such a predictable tale. The stock's 47% plunge in the past three weeks, to below $10, its lowest point since the early 1990s, suggests investors feel that way. Last month's suspension of the dividend, to preserve cash for digital investments, likely sent income-oriented investors heading for the exits. But despite Barnes & Noble's claim to be 'now a growth company,' growth investors appear to be staying away—with good reason."

The chain gets smaller margin on eBooks than on physical books, the latter market shrinking as the former grows. It also has the brick-and-mortar monkey on its back, plus:

"It doesn't help that Barnes & Noble has taken on long-term debt for the first time in several years, partly to fund the $596 million cash buyout in 2009 of the Barnes & Noble college-store chain from Len Riggio, chairman and 30% shareholder. The price paid was more than Barnes & Noble's now-shrunken market capitalization. While the college chain's earnings have proved valuable as Barnes & Noble invests in digital, its sales at stores open more than a year have declined since the purchase. The deal would have looked better for Barnes & Noble shareholders if Mr. Riggio had taken stock rather than cash."

My late father-in-law Bill Bartkovick, a longtime Senior VP at B&N, founded the Barnes & Noble College Division. He would be the first to tell you that this division's days are numbered [see story below], and that the deal benefited Lenny and his family entirely at the expense of shareholders.