The slow deterioration of Barnes & Noble (NYSE: BKS) continued through the company’s fiscal 2018. The bookseller saw sales drop to $3.7 billion, down 6% from 2017.
Same-store sales fell by 5.4% for the year, and the company lost $125.5 million ($1.73 a share) after earning $22 million ($0.30 a share) in the previous year. The loss, however, is not as bad as it looks, as the chain had “non-cash asset impairment charges of $135.4 million, $16.2 million of severance charges, and $15.3 million of strategic initiative costs,” according to the company’s fourth-quarter earnings release.
Even if you dismiss the loss due to the one-time charges, it’s still hard to feel positive about the chain’s direction. CEO Demos Parneros tried to explain his company’s future direction and how it’s doing with its turnaround efforts during the company’s Q4 earnings call.
1. The CEO is confident
Even though sales have shrunk, Parneros believes things are moving in the right direction. His remarks reflected a cautious optimism:
Fiscal 2018 proved to be a challenging year for Barnes & Noble as retail dynamics continue to present headwinds for our business. That said, the actions we’ve undertaken regarding our strategic turnaround plan have laid the groundwork for the future, and we are beginning to see modest improvement in some areas.
He did acknowledge that 2018’s results were “somewhat disappointing,” but he said the chain had made progress. Parneros called 2018 a foundation for further improvements in 2019, including “improving our EBITDA to a range of $175 million to $200 million” from $145 million in 2017.
2. What has Barnes & Noble done?
The bookseller took steps to control costs in 2018. One of them was a significant layoff that included many experienced department leads. Parneros said:
These initiatives include increasing customer engagement to improve conversion, clearing our over-assortment of less productive merchandise, and increasing our omnichannel capabilities.
And while there were cuts to in-store staff, the company added “several key hires” to its leadership team, according to the CEO.
3. What’s next for Barnes & Noble?
Parneros expects same-store sales trends to improve year over year in fiscal 2019. To do that, the company will focus on:
… [E]nhancing the customer experience, better curation, increasing the value for our members and also investing in marketing to drive traffic. We’re also innovating for the future through newly designed stores, focusing on existing high-potential businesses and developing a pipeline of new businesses.
This plan includes opening some new locations using a smaller, more flexible design in 2019. Barnes & Noble expects to open more stores than it closes during the coming year.
4. Join the club
Barnes & Noble launched its first book club in May. The early results, according to the CEO, have been encouraging. As Parneros stated:
I’m really excited about this program, which builds on Barnes & Noble’s unique heritage to bring together and engage readers in a national conversation about books. This is core to what we do at Barnes & Noble, connecting readers and communities through engaging content and programs.
The book club will offer a new title each quarter. Barnes & Noble will host events around the book and offer exclusive content related to the selections.
Will it work?
The challenge for Barnes & Noble is building a business out of its most-devoted audience while also giving casual customers a reason to come in. That’s a challenge given that readers have easy digital access to books, and casual customers may not want to come into a bookstore.
Still, the 2018 same-store sales drop could have been much worse. There are signs — albeit small ones — that the company is stabilizing its business. Parneros needs to build on those while creatively keeping costs down without harming the in-store experience. That’s a tough task, but perhaps not impossible.
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