Barnes & Noble To Split Retail, Nook Businesses
Bookseller Hopes to Complete Separation by First Quarter of Next Calendar Year
By Anna Prior
Wall Street Journal
Updated June 25, 2014 9:53 a.m. ET
The company hopes to complete its split early in the next calendar year. Bloomberg
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Barnes & Noble Inc. said it would pursue a split of its retail and Nook e-reader businesses into two separate public companies, the next chapter in its bid to shore up its foundering business as readers' book-buying habits evolve.
The bookseller said it plans to complete the separation by the end of the first quarter of the next calendar year.
The company has struggled as its Nook device—the company's bid to compete with Amazon.com's edge in the e-book market—has failed to catch on. It has scaled back its investment in that division, but the operations have been a drag on its consumer stores business that accounts for most of the company's revenue.
The Nook segment posted a 22% revenue decline to $87 million in the May quarter, the company said Wednesday, while digital content sales fell 19% to $62 million.
Barnes & Noble's retail segment, meanwhile, posted a 0.8% increase in revenue to $955.6 million as the latest quarter included an extra week. However, sales, excluding newly opened or closed locations, fell 1.9%, excluding Nook items. The company pointed to "unusually severe February weather," as one reason for the decline.
"We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of Nook Media and Barnes & Noble Retail," said Chief Executive Michael Huseby. "We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately."
The decision to split the businesses marks a reversal from the company's position in August, when it abandoned plans for a separation after considering the idea for 18 months. At that time, Leonard Riggio, the book retailer's chairman and largest shareholder, also decided against making a personal offer to buy the company's consumer bookstores.
Barnes & Noble was caught dozing by digital books and devices. It wasn't until 2009, two years after Amazon.com Inc. introduced its Kindle e-reader and digital bookstore, that Barnes & Noble launched its own e-book store, followed by a Nook e-reader. Heavy losses on the Nook then forced the company to retreat.
William Lynch, who was a prime player in the Nook push, resigned as CEO last year, and the company named Mr. Huseby as CEO in January. His strategy has been to fine-tune the still-profitable consumer bookstores and light a digital spark at its college bookstores.
The consumer business has also widened its offerings to include educational toys, games and other nonbook categories, which carry higher profit margins. At the same time, the retailer has cut back on its book inventory.
Overall, for the fiscal fourth quarter ended May 3, the company posted a loss of $36.7 million, or 72 cents a share, compared with a loss of $114.8 million, or $2.04 a share, a year earlier.
Revenue rose 3.5% to $1.32 billion, though the year-earlier quarter included one less week.
Analysts polled by Thomson Reuters had projected a per-share loss of 59 cents a share and $1.19 billion in revenue.
Gross margin widened to 32.1% from 18.1% as input costs fell 14%.
Write to Anna Prior at anna.prior@wsj.com
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