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Barnes & Noble Announces Nook Stake Purchase from Microsoft

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Barnes & Noble, Inc. (NYSE:BKS) had a busy morning around the opening bell, as the largest retail bookstore announced second quarter earnings results and a secondary announcement regarding Microsoft Corporation (NASDAQ:MSFT)’s stake in the Nook e-reader.  Turning to the earnings announcement, Barnes & Noble announced second quarter results of $.12 earnings per share, on revenue of $1.69 billion.  Wall Street was estimating earnings per share to come in at $.31 and profit from a year ago was $.15 per share.  Additionally, Barnes & Noble did not do much to quell fears of continued slump, with fiscal 2015 comparable sales forecast to decline to low-end single digit.

Barnes & Noble to spin-off Nook segment

Management did detail of an agreement with Microsoft Corporation (NASDAQ:MSFT) that would place the bookstore back in full control of its Nook e-reader business, and certainly one of the view bright spots for the struggling retailer.  In the agreement, Microsoft will receive $62.4 million and 2.7 million Barnes & Noble, Inc. (NYSE:BKS) shares for its $300 million investment, or 18% stake in the Nook that the technology giant placed in April 2012.  The news comes as Barnes & Noble tries to rebalance and regain its footing as its core business struggles.  Barnes & Noble officials have said that they bought back Microsoft’s stake to prepare the Nook segment for a spin off.

While Nook has been a saving grace for Barnes & Noble, Inc. (NYSE:BKS) in the past, it really weighed on underlying earnings this time around.  Revenue for the Nook fell -41.3% from a year ago to $64 million, new device and accessory sales fared even worse with declines of -63.7%, and digital downloads fell -21.2% from a year ago.   Barnes & Noble’s college business saw revenues of $751 million, which increased nearly 2% from a year ago and the retail business saw revenues of $888 million, or a year over year decrease of -3.6%.

Barnes & Noble continues to struggle

As you can see, the bookstore’s college business was the only part of the company that grew year over year.  Retail continues to struggle, but sales did increase 0.5% during this quarter.  Nook, once the only big bright spot for Barnes & Noble, is turning into a nightmare for the company, as new sales of devices plummets and the segment losses money.  This quarter was certainly a big wake up call to spin off the Nook business and focus on the core retail stores, college sales, and internet sales.

In the end, it appears Nook is having a difficult time continuing to be relevant when the market has its attention on other e-readers, such as Apple Inc. (NASDAQ:AAPL) iPad, Amazon.com, Inc. (NASDAQ:AMZN)’s Kindle and Kindle Fire, and Google Inc (NASDAQ:GOOG)-based Android tablets.  The market is flooded with different e-readers and the Nook has certainly been lost in the shuffle.  We now await the spin off details and the future of Barnes & Noble, Inc. (NYSE:BKS).

Disclosure: No Positions

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