Barnes & Noble Inc. (NYSE: BKS) surprised Wall Street today by reporting quarterly earnings that did not suck as bad analysts expected, mainly because it was able to control costs. The question is whether this is sustainable.
Net income at the world's largest bookseller fell to $15.4 million, or 27 cents a share, from $18.05 million, or 26 cents, a year earlier. Sales dropped 1.6% to $1.2 billion from a year earlier when J.K. Rowling's Harry Potter and the Deathly Hallows was flying off the shelves. Barnes & Noble store sales decreased 1.6% to $1.1 billion, with comparable store sales decreasing 4.7%. Barnes & Noble.com sales rose 3.6% to $99.8 million.
Excluding a one-time tax benefit, profit was 15 cents, five cents ahead of the 10-cent average estimate of analysts surveyed by Bloomberg. It was also higher than the company's guidance of 8 cents to 13 cents a share. Gross margins were stronger because of the greater utilization rates of its distribution centers and a lower markdown rate. Selling and administrative expenses fell in the quarter.
Of course, Barnes & Noble will continue to struggle as consumers cut back on their discretionary purchases. Moreover, Amazon.com Inc. (NASDAQ: AMZN) is not going anywhere soon. The company expects to lose 10 to 15 cents in the third quarter. It also lowered its full-year comparable same store sales guidance from "slightly negative to a decrease in the low single digits." The company is maintaining its full-year earnings guidance of $1.70 to $1.90.
At this rate, the company may be able to ride out the economic downturn until it can find a private equity buyer which is about the only hope for shareholders.
Amedisys (NASDAQ: AMED) was started as Outperform at Baird, according to24/7 Wall St. The financial website also reported that Telus (NYSE: TU) was raised to Buy at UBS.
The Wall Street Journalreports (subscription required) of upcoming releases this summer such as Andrew Davidson's The Gargoyle, New York Times reporter David Carr's memoir The Night of the Gun, and Ron Suskind's The Way of the World: A Story of Truth and Hope in an Age of Extremism.
There's a separate article on the release of Stephenie Meyer's book Breaking Dawn, which The Journal calls a "vampire romance novel." Borders Group (NYSE: BGP) said it has sold 250,000 copies in the first 24 hours following the book's release.
That's an impressive number, and it may be some cause for hope for shareholders who have taken a beating in booksellers like Borders, Barnes and Noble (NYSE: BKS) and Books-a-Million (NASDAQ: BAMM).
But don't get too excited. Since the first American edition of the first Harry Potter book in October of 1998, shares of Scholastic (NASDAQ: SCHL), a specialty publisher of children's books, have gone from around $20 per share to their current price of $26 -- a gain of 30% over the course of a decade. Not exactly something to get excited about, especially considering it's one of the bestselling books of all time, ever.
The bookstores might get a temporary jolt from late sumer and fall hits, but the long-term fundamentals of the industry will drive results. A new CD from Eminem -- or even The Beatles for that matter -- wouldn't be enough to save a company like Trans World Entertainment (NASDAQ: TWMC). For bookstores, that means the lower prices and wider selection of Amazon.com (NASDAQ: AMZN), or conveniences of stores like Wal-Mart (NYSE: WMT), as well as the onset of digital delivery are the factors investors have to look at.
And even vampire romance novels can't compete with those.
When it comes to companies lacking in any kind of strategic direction, it's hard to top Border Group (NYSE: BGP). In the midst of its efforts to sell itself, Borders recently launched its own e-commerce site to compete with better-financed, and just plain better, rivals like Amazon.com (NASDAQ: AMZN) and Barnes and Noble (NYSE: BKS).
Browsing NewYorkTimes.com this morning, I noticed a banner ad for "the new Borders.com: Free shipping on orders over $25."
Man, that should do a lot to lure customers away from Amazon and Barnes & Noble. Oh, wait. No it won't, because both of those sites offer exactly the same deal. And, just to add insult to injury, so does Books-A-Million (NASDAQ: BAMM).
Basically, Borders has a weak balance sheet and, in the midst of its efforts to put its shareholders out of their misery with a sale, is blowing money on capital expenditures that will give the company the same service as competitors: meaning that most strategic buyers won't pay any extra for the e-commerce site.
The stock's low price has attracted brilliant investors like William Ackman, but given that the company is continuing to make value-destroying decisions, I don't think it's a stock investors should go near.
According to Yahoo! Inc (NASDAQ: YHOO), the Wall Street Journal reported that a severance plan investor Carl Icahn said is "excessively expensive" would come into play if Icahn is successful in his plan to take control of the company's board; Yahoo! maintained that the plan is structured to prevent Yahoo! from altering or dismantling it while under a proxy challenge.
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) almost reached a strategic deal with a group of Korean financial institutions as part of its recent capital raising initiative, and the investment bank may still sign an agreement with the Korean companies this year, inside sources said.
A source familiar with the matter told dealReporter that Barnes & Noble Inc (NYSE: BKS) is conducting due diligence, but has not established whether it will competitively bid for Borders Group Inc (NYSE: BGP). Should Barnes & Noble indicate real interest, the biding process could be delayed, the source said.
OTHER PAPERS:
The Detroit News reported that Ford Motor Company (NYSE: F), in an effort to keep up with changing consumer demand in the U.S., is assembling a plan that will shift entire truck plants to car production.
In what looks to be a pretty desperate attempt to revive its failing business, Borders Group Inc. (NYSE: BGP) has officially cut its ties with Amazon.com (NASDAQ: AMZN) and launched its own e-commerce website. Under the previous arrangement, shoppers at Borders.com had their orders fulfilled by Amazon, with Borders taking a small commission.
Check out the site here. It offers some great incentives to switch over from Amazon -- like free shipping on orders over $25! Oh wait. Amazon and Barnes & Noble (NYSE: BKS) already offer the exact same deal. Never mind.
Borders invested a lot of money in developing a site with no particular competitive advantages. Most Amazon customers are pretty happy with the service they get, and I just don't see any reason for anyone to switch. The duplication of effort probably makes Borders less attractive to potential strategic buyers like Barnes & Noble, which might have preferred that the company pay down debt instead of building another website.
U.S. stock futures were mixed early Tuesday morning as investors return from a three-day weekend to a shortened week full of economic data. Oil prices have also kept their high levels due to ongoing supply concerns.
On the latest trading day, Friday, U.S. stocks once again finished the day with heavy losses -- it was the third time in four sessions. Reasons for the considerable declines included the continued climb of oil prices, inflation and economic concerns. Both General Motors (NYSE: GM) and General Electric (NYSE: GE) hit multi-year lows Friday. The Dow industrials ended Friday 145 points lower, or 1.16%, the S&P 500 fell 18 points, or 1.32%, and the Nasdaq Composite fell 19 points, or 0.81%. For the week, all three indexes lost some 3% to 4%.
On Friday, investors' mood was dampened by reading from the housing sector, as a report showed considerable inventory and the the number of unsold U.S. homes piled up a 23-year high in April. Just as housing affected trade on Friday, it will no doubt have some impact today with the release of April new home sales due at 10:00 a.m. EDT. Economists expect the report to show yet another decline. Also at the same time, May consumer confidence is due and is also expected to edge lower.
And, of course, the ever (recently) rising oil prices. While no new highs have registered over the weekend, crude prices held above $133 a barrel Tuesday, supported by supply concerns and worries about the health of the U.S. economy and hence the outlook for the U.S. dollar. A militant attack on a pipeline in Nigeria didn't help matters either.
New York-based Barnes & Noble (NYSE: BKS) reported Thursday that it lost $2.22 million, or 4 cents per share, in the quarter ended May 3. That compares with a loss of $1.67 million, or 3 cents per share, in the year-ago period. Excluding a charge related to the settlement of a long-standing dispute with the State of California, the bookseller would have earned 5 cents per share.
The company said revenues edged up to $1.16 billion in the first quarter, from $1.15 billion in the year-ago period. Analysts surveyed by Thomson Financial had expected a profit of 5 cents per share on revenues of $1.17 billion.
Barnes & Noble also reported that same-store sales declined 1.5% in the period. Based on the challenging retail environment, the company said that it expects same-store sales for the second quarter to decline as well from the year-ago period, when Harry-Potter-mania was in full swing. It also projected that full-year same-store sales would be negative.
It seems that the BCE (NYSE: BCE) buyout plan, has hit yet another bump on the road, only this one could not be as easy to overcome. A Quebec appeals court reversed a lower court and rejected the $33 billion buyout plan accepting the claim of a group of bondholders that the deal is unfair to them. BCE shares are plunging nearly 15% in premarket trading.
Earnings today are due from Barnes & Noble (NYSE: BKS) -- just after the company said it was interested in buying Borders (NYSE: BGP) -- and Gap (NYSE: GPS) -- a day after the clothing retailer announced an expansion in Russia.
Suntech Power Holdings Co. (NYSE: STP) shares are jumping over 7.5% in premarket trading after the solar energy company reported that first-quarter earnings more than doubled on 76% higher revenue. Earnings reached $55.8 million, or 33 cents an American depositary share and revenue reached $434.5. Analysts estimated 28 cents for the quarter.
The performance of Borders (NYSE: BGP) has given investors little to smile about. From its 52-week high of $24.15 reached in May, the stock has descended all the way down to $6.35. Back in March the company put itself up for sale with one obvious interested party being Barnes & Noble (NYSE: BKS). I can't see any reason for the company to double-down on bricks-and-mortar retailing.
Now, The Wall Street Journalreports (subscription required), citing an unnamed source, that Barnes & Noble has "assembled a team of executives and advisers to study the possibility" of acquiring Borders.
The Journal adds that "When Borders made its announcement, Barnes & Noble Chairman Leonard Riggio said he would feel compelled to take a look at Borders. But the formation of the team suggests Barnes & Noble is a serious contender."
I'm not so sure about that. Given Borders' status as the number two in the industry and the beating the stock has taken, Barnes & Noble is compelled to look at the company now that it's looking to sell. I question whether the assembly of a team to examine the company means that the company is that serious about an acquisition. It's just a necessary step in exploring an acquisition.
Add in the possible antitrust hurdles of combining the top two bricks-and-mortar booksellers and you have a deal that would appear to be in the very early stages of coming together. It seems likely that the stock will pop on the report, but I wouldn't buy into the hype just yet. The same factors that make Borders unattractive as a stand-alone company combined with its huge debt load may make finding a buyer tough in this market.
When I go to a Barnes & Noble (NYSE: BKS) or a Borders (NYSE: BGP) store, I really can't tell much of a difference. That's not a bad thing – at least for me. Hey, I have lots of choices – and not just books.
But for investors, the situation is a problem. So, instead of fighting, why not B&N and Borders join forces?
Well, according to the Wall Street Journal [a paid publication], there are signs of a possible deal as B&N has put together a team to explore the option.
However, there is a big hurdle: antitrust regulators. The federal government will scrutinize the deal heavily given that Barnes & Noble is #1 and Borders is #2 in the US marketplace.
Barnes & Noble will argue that the market is much different now with online operators like Amazon.com (NASDAQ: AMZN).
Barnes & Noble Inc (NYSE: BKS) is considering a bid for rival bookseller Borders Group Inc (NYSE: BGP), the Wall Street Journal reported, a move which would allow Barnes & Noble to improve profits and reduce costs. Antitrust issues could prevent a deal.
The Wall Street Journal also reported that Carl Icahn's effort to remove Yahoo! Inc's (NASDAQ: YHOO) board has picked up new supporters, including T. Boone Pickens, who acquired a 0.75% stake. Some Yahoo shareholders believe it is still too early to predict whether Icahn will be able to carry July 3's shareholder vote.
A Financial Times investigation discovered that Moody's Corporation (NYSE: MCO) incorrectly awarded top ratings to billions of dollars to debt products due to an error in its computer models. Moody's said it is in the process of "conducting a thorough review" of the rating of the constant proportion debt obligations, which should have been up to four notches lower.
OTHER PAPERS:
According to the people briefed on the matter, the New York Times reported that the buyout of Penn National Gaming Inc (NASDAQ: PENN) by Fortress Investment Group (FIG) and Centerbridge Parters may involve revised terms. The sources said the negotiations may "delay or even imperil" the deal.
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U.S. stock futures were mixed early Tuesday morning as investors return from a three-day weekend to a shortened week full of economic data. Oil prices have also kept their high levels due to ongoing supply concerns.
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