Barnes & Noble Bankruptcy Index: Will John Malone still be interested in B&N following their 4Q loss?

After a break of couple of weeks, we're back with our B&N bankruptcy index, following the release yesterday of B&N's fourth quarter report.

Jeffrey Trachtenberg summed B&N's report on the WSJ: "Barnes & Noble Inc., the target of a takeover bid by Liberty Media Corp., saw its digital strategy pay off in its fiscal fourth quarter with healthy gains on the e-book and e-reader front, but investments in that business took a toll on the bottom line."

Still no word about the future of B&N's brick and mortar stores as B&N seems to be putting everything it got on the Nook and e-book sales, a risky bet that might be too risky for a brick and mortar company. Bottom line: This week our B&N bankruptcy index stays in the 50-59 zone: Bankruptcy is a clear and present danger.

Just a short reminder - As Borders filed for bankruptcy couple of months ago, we started looking at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!

80-89: B&N is doing great. Bankruptcy is no longer a real threat.

70-79: B&N could do better and has to be cautious of bankruptcy.

60-69: B&N doesn't look too good and bankruptcy is becoming a more realistic threat.

50-59: Bankruptcy is a clear and present danger.

49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the B&N Bankruptcy Index every Thursday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.
So here's our update for this week (in brackets is last week's grade):

1. Confidence of the stock market in B&N
This parameter will look at the performance of the B&N stock (symbol: BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures (for consistency we look at results from Wed. 6/15 to Tue. 6/21):
6/15: $19.90
6/21: $18.94
Change: -4.82%

As you can see, B&N's stock lost 4.82% last week. Just for comparison, Amazon gained 4.44% last week and the S&P500 Index went up 2.38%.

B&N's stock did well in the last couple of weeks and only fell sharply (about 6%) yesterday following the release of the 4Q report. We'll have to see how the market will digest this report and react to the relatively negative comments from analysts following the report.

This wee's grade is staying the same: 5 (5)

2. What analysts say on B&N
"Although store revenue fell, revenue from other sectors rose. Online revenue rose 54 percent to $217.3 million and college bookstore revenue rose 4 percent to $211.2 million.The revenue results show the diverging trends in book retail -- physical store sales fell while online sales rose. But the two aren't as separate as they may appear, said Simba Information senior trade analyst Michael Norris. "The physical stores are the cyclists shielding the team leader from the wind," he said. "There's no way on this planet that bn.com would have grown as much as it did without the bookstores performing as Nook showrooms for the past year." (Yahoo! Finance)

"The bookseller, which suspended its dividend this year to conserve cash, has been using its profits to invest in e-books and its Nook digital reading devices as sales of paper books falter. That helped attract interest from John Malone’s Liberty Media, which offered $17 a share for the bookseller last month. “They’re spending a huge amount of money developing a reader that people are afraid is going to go the way of the VHS tape or the CD,” Bill Kavaler, an analyst at Oscar Gruss & Son Inc. in New York, said in an interview. Kavaler recommends investors sell the shares." (Bloomberg)

"The company has had to ramp up spending on marketing on product development to stay competitive with Amazon.com Inc. (AMZN), whose Kindle is the top selling e-reader, according to Michael Souers, an analyst for Standard & Poor’s in New York. The Nook is “the only driver of long-term growth and they have to establish that niche,” said Souers, who recommends holding Barnes & Noble shares." (Bloomberg)

The market sentiment looks negative after the release of the fourth quarter report - analysts don't like the fact that B&N put all its eggs in the competitive e-book basket. Therefore our grade goes down by half a point: 5 (5.5)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset. This is also one the reasons their stores keep losing money - Sales at Barnes & Noble stores open at least one year fell by 2.9 percent in the fourth quarter, ended April 30.

Right now all they have is selling more toys and games - CEO Lynch predicted toys and games will become "a very sizeable business for us within a reasonably short time horizon." This doesn't seem to be a very viable strategy to me, as

For all of those at B&N and outside the company who think the brick and mortar stores don't matter so much, especially now when Liberty’s chairman, John Malone has indicated that his primary interest in Barnes & Noble is its Nook e-reader, I'd like to quote again here Michael Norris, an analyst of Simba Information, who said following yesterday's report:

"The physical stores are the cyclists shielding the team leader from the wind," he said. "There's no way on this planet that bn.com would have grown as much as it did without the bookstores performing as Nook showrooms for the past year." (Yahoo! Finance)

This week's grade stays the same: 3.5 (3.5)

4. What B&N is saying about itself
Barnes & Noble said yesterday it is reviewing Liberty Media’s offer, the first bid disclosed publicly since the company put itself up for sale in August. B&N said that while the offer is being considered, earnings projections for fiscal 2012 won’t be announced.

This week's grade stays the same: 6 (6)

5. Steps B&N is taking
No new steps were reported on the report. Apparently B&N won't do anything significant until it will be sold to John Malone if the bid will proceed as planned, even after the release of the 4Q results.

This week's grade stays the same: 6 (6)

6. Competitors
According to Yahoo! Finance, B&N said yesterday results were hurt by Borders' liquidation sales at 200 of its stores. Longer term, however, Barnes & Noble expects to benefit from the store closings. CFO Joseph Lombardi said in areas where a Borders store has closed, nearby Barnes & Nobles are recording revenue increases in stores open at least one year.

Also, it is reported there that "analysts have speculated over the possibility of some combination of Borders and Barnes & Noble as the industry consolidates. But Lombardi dispelled that idea. He said in a statement that over the past 5 years, before Borders filed for bankruptcy court protection, Barnes & Noble considered buying it "many times" but always came to the conclusion it wasn't interested. "We are still not interested," he said."

This week's grade stays the same: 5 (5)

7. Financial strength
Barnes & Noble released its fourth quarter report yesterday, and as the NYT wrote, it wasn’t pretty. "The company lost $59 million in the quarter, or $1.04 a share. Analysts on average had expected a smaller loss of 91 cents a share. Despite a rise in revenue, thanks to higher online and digital sales, Barnes & Noble was hurt by the liquidation of more than 200 Borders stores as part of that retailer’s bankruptcy. Sales at Barnes & Noble stores open at least one year fell by 2.9 percent in the quarter."

If you compare the results to last year's results, it doesn't look any better - B&N's net loss was $59.4 million, or $1.04 per share, for the three months ended April 30, 2011. A year ago B&N reported a net loss of $32 million, or 58 cents per share for the three months ended April 30, 2010.

This is not a good news from a financial strength perspective and therefore our grade goes does by half a point: 6 (6.5)

8. Strength of the digital business
Although store revenue fell in the fourth quarter, online revenue rose 54 percent to $217.3 million. CEO William Lynch said B&N estimates e-books added 1%-2% to its U.S. market share, bring its total to 26%-27%.

Barnes & Noble also said in its report that its Nook sales continued to improve. The company introduced a new $139 Nook last month in an effort to boost its share of the growing e-book market and also offers a NookColor for $249.

This week's grade goes up by half a point: 8.5 (8)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, especially after they received a proposal from Liberty Media to acquire the company. They might be right because after John Malone will buy the company he's the one who will need to handle these problems. Yet, the purchase hasn't been completed yet and even if Malone will purchase the company, I'm sure it is the best interest of B&N to ensure the company reaches its next phase of operations in the best condition possible.

This week's grade stays the same: 5.5 (5.5)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling that things are still not looking too good for B&N even with the offer they have from Malone - their current strategy of putting all their bets on the digital front is very risky given the fact B&N is still mainly a brick and mortar company. Yesterday's report presents this risk and its results very clearly.

This week's grade for this parameter stays the same: 5 (5)

This week's Barnes & Noble Bankruptcy Index: 55.5 points (56)

As you can see, this week's index is set at 55.5 points, which means B&N is getting deeper into the 50-59 zone: Bankruptcy is a clear and present danger. It's still not the red zone but it means that bankruptcy is getting closer and is becoming a real threat to B&N. See you next Thursday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

Barnes & Noble Bankruptcy Index: Borders may have a buyer while B&N put all their eggs in one e-nest

Sorry for the two day delay, but we're here with the weekly update on the B&N bankruptcy index. This week the stock continues to go up, probably still because of B&N's plans to introduce a new e-reader later on this month.

Still no word about the future of B&N's brick and mortar stores as B&N seems to be putting everything it got on the Nook and e-book sales, a risky bet that might be too risky for a brick and mortar company. Bottom line: This week our B&N bankruptcy index stays in the 50-59 zone: Bankruptcy is a clear and present danger.

Just a short reminder - As Borders filed for bankruptcy couple of months ago, we started looking at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!

80-89: B&N is doing great. Bankruptcy is no longer a real threat.

70-79: B&N could do better and has to be cautious of bankruptcy.

60-69: B&N doesn't look too good and bankruptcy is becoming a more realistic threat.

50-59: Bankruptcy is a clear and present danger.

49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the B&N Bankruptcy Index every Thursday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.
So here's our update for this week (in brackets is last week's grade):

1. Confidence of the stock market in B&N
This parameter will look at the performance of the B&N stock (symbol: BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures (for consistency we look at results from Wed. 5/4 to Wed. 5/11):
5/4: $12.01
5/11: $13.46
Change: +12.1%

As you can see, B&N's stock went up in 12.1%. Just for comparison, Amazon went up 2.2% last week and the S&P500 Index lost 0.4%.

I believe the stock is going up this week because of the same reason it went up last week - the excitement from the news on B&N's upcoming announcement (on May 24) on the launch of a new electronic book reader.

StreetAuthority thinks it's also all about the Nook:

Back in March, I suggested "the odds are increasing for a convincing turnaround." My logic rested on two pillars: First, a massive shrinkage in the store base of rival Border's would help drop-in traffic in those neighborhoods affected. Second, the company's Nook electronic reading device was starting to emerge as a real contender among the small group of e-readers. As it turns out, it's the Nook that explains why shares of Barnes & Noble have taken off like a rocket, rising 50% in less than a month. (Seeking Alpha)

So it looks like the stock jumped only because of the news on the upcoming e-reader, but since this trend is already going on for two weeks and gaining some sort of momentum, this wee's grade is going up in half a point: 5 (4.5)

2. What analysts say on B&N

Katie Spence still doesn't believe in B&N:

I'm not giving up my books just yet. There is something about the smell and texture of an actual book that simply can't be replicated by e-books. That said, the future of the brick-and-mortar Barnes & Noble looks bleak. With companies such as Amazon dominating in sales, both in e-books and paperback, the time of bookselling superstores is gone. (The Motley Fool)

Spence sees that B&N is putting all her money and efforts into the Nook and ebook sales and she's wondering "are the Nook and e-book sales enough to keep Barnes & Noble afloat?" That's a good question - B&N is taking a very risky gamble here, leaving the stores, which are still its core business, out of the picture.

We don't see a significant change in the market sentiment and therefore our grade stays the same: 5.5 (5.5)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset.

Still, there's nothing here. Not even a sign of a new strategy. This week's grade stays the same: 3.5 (3.5)

4. What B&N is saying about itself
We didn't find any quotes this week. Our grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking
One interesting step we learned about from the WSJ was B&N's offer to Borders to buy 10 stores, along with the company's website and customer lists. Borders refused to the offer according to the article. This week's grade stays the same: 6 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N. WSJ reported earlier that "Borders Group Inc. is in discussions with a potential bidder for more than 225 stores that would keep the bookstore chain operating as a going concern, said people familiar with the matter. " Still it's not clear if Borders can find a buyer to the whole business, as according to Bloomberg "No Bidder Said to Be Found to Buy All of Borders." We'll have to wait though and see if it such a deal will actually happen or not and what it will include before we change the grade. Therefore this week's grade stays the same: 5 (5)

7. Financial strength
Katie Spence mentions in a comment she made to her article that "if you look at B&N's long term debt you will notice that it is currently at $260.4 million where as previously it was at 0. Additionally, its total current liabilities exceeds it total current assets and that is with a change in its annual reporting date (usually a bad sign for any company). All in all, the signs are looking bad for the brick-and-mortar company."

This is not a good news from a financial strength perspective and therefore our grade goes does by half a point: 6.5 (7)

8. Strength of the digital business
Nothing much happened on this front. This week's grade stays the same: 8 (8)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, or at least not worried enough to begin doing something with their brick and mortar stores (again, we don't believe more toys in the stores and extra room for the Nook is a winning strategy). If we can learn something from the Borders' case, it's how fast things go bad when your reach a certain tipping point of financial distress or distrust of your stakeholders (consumers or publishers for example). This week's grade stays the same: 5.5 (5.5)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling that things are still not looking too good for B&N hasn't changed this week and actually we feel that somehow the company is a bit lost when it comes to find how to generate more sales in its brick and mortar stores. This week's grade for this parameter stays the same: 5 (5)

This week's Barnes & Noble Bankruptcy Index: 56 points (56)

As you can see, this week's index is set at 56 points, which means B&N is getting deeper into the 50-59 zone: Bankruptcy is a clear and present danger. It's still not the red zone but it means that bankruptcy is getting closer and is becoming a real threat to B&N. See you next Thursday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

Barnes & Noble Bankruptcy Index: B&N has plans for a new e-book reader, but apparently not for the stores

This week was about the the new plan of B&N to introduce a new e-reader later on this month, which might be according to the WSJ "a more powerful combination tablet and e-reader". And what about new design for B&N's stores? Nada, at least for now.

Given that B&N is still mostly a store-based retailer, it's not much of a surprise we're not too impressed with this step (unlike the stock market, where the stock rose in 17%) and this week our B&N bankruptcy index stays the same.

Just a short reminder - As Borders filed for bankruptcy, we look at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!

80-89: B&N is doing great. Bankruptcy is no longer a real threat.

70-79: B&N could do better and has to be cautious of bankruptcy.

60-69: B&N doesn't look too good and bankruptcy is becoming a more realistic threat.

50-59: Bankruptcy is a clear and present danger.

49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the B&N Bankruptcy Index every Thursday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.
So here's our update for this week (in brackets is last week's grade):

1. Confidence of the stock market in B&N
This parameter will look at the performance of the B&N stock (symbol: BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures:
4/27: $9.90
5/4: $12.01
Change: +16.9%

As you can see, B&N's stock rose sharply almost 17% last week. Just for comparison, Amazon went up 1.7% last week and the S&P500 Index lost 0.6%.

Most of this happened yesterday due to the news that B&N "plans to make an announcement on the launch of a new electronic book reader on May 24th, according to a regulatory filing released after the close of trading on Wednesday." (Reuters, May 4)

Since it looks like the stock jumped only because of this update, it doesn't really represent any significant change and we'll have to see if this rally will continue next week before we'll make any changes in our estimations of this parameter. Therefore, our week's grade stays the same: 4.5 (4.5)

2. What analysts say on B&N

Arunava De wrote on The Motley Fool:

"It is evident that Barnes & Noble means business when it comes to stabilizing its position in the e-reader market. It is willing to take a fall in net income to get a footing in the battle of book retailers. This aggressive strategy seems to make sense, especially as the physical component of the business becomes less attractive.

In a world where the consumer is on a constant lookout for better shopping and consumption experiences, launching a full frontal attack with better services will probably get results. The only problem here is that with falling earnings, investors are probably going to be apprehensive about B&N’s stock. But if the company can turn the tide, there might just be good profits on the way. But be careful: first, a lot of things have to go right."

We don't see a significant change in the market sentiment and therefore our grade stays the same: 5.5 (5.5)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset.

Still, nada. B&N plans a new e-reader but doesn't seem to plan any new strategy for its brick and mortar stores, at least that's what we can tell from the information the company makes available. Unfortunately I believe there are no secret plans waiting to be disclosed in the right moment - there are just no plans at the moment.

This week's grade stays the same: 3.5 (3.5)

4. What B&N is saying about itself
We didn't find any quotes this week. Our grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking
Two things happened last week - B&N announced that "it has entered into an amendment that will extend its existing $1 billion revolving credit agreement on more favorable terms" and also disclosed that it plans to unveil a new electronic book reader later this month. The first step is aimed to enhance the company's financial flexibility and the second one to improve its competitiveness on the digital front.

In all these are positive steps, but we're not sure yet how they'll impact B&N's efforts to get back on the track (again - no step is taken to improve sales at the stores, which are the more vulnerable part in B&N operations at the moment). This week's grade stays the same: 6 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N. Last Friday, according to Bloomberg, "reported a loss of $24.3 million for the month ended March 26, according to court papers...The current report shows revenue of $165.2 million for the month ended March 26 and total assets of $942.2 million. Cash and equivalents are $80.9 million, the company reported." Our grade stays the same: 5 (5)

7. Financial strength
On February Barnes & Noble published the results for the third quarter. On Monday B&N announced it "has entered into an amendment that will extend its existing $1 billion revolving credit agreement on more favorable terms. "

Here are more details from their press release:

The amended $1 billion revolving credit facility takes advantage of conditions in the financial markets that are more favorable than when the original facility was established. The amended facility has lower interest costs, greater financial flexibility and increases overall borrowing capacity throughout the year...

“Amending our revolving credit facility enables us to lower our anticipated cost of capital and enhance our financial flexibility as we continue to transform the company and execute our strategic plan,” said Joseph Lombardi, chief financial officer of Barnes & Noble, Inc. “We appreciate the strong level of support we received from our lenders.”

This should be helpful, but we don't find this step too significant overall and therefore our grade stays the same: 7 (7)

8. Strength of the digital business
B&N will unveil a new electronic book reader later this month, according to a regulatory filing released after the close of trading yesterday.

WSJ adds that "One possibility is Barnes & Noble will release a more powerful combination tablet and e-reader, perhaps running a more advanced software like Google Inc.'s Honeycomb software. Honeycomb is a version of the Android operating system Google created specifically for tablets."

This is a positive step and our grade this week goes up in half a point: 8 (7.5)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, or at least not worried enough to begin doing something with their brick and mortar stores (again, we don't believe more toys in the stores and extra room for the Nook is a winning strategy). If we can learn something from the Borders' case, it's how fast things go bad when your reach a certain tipping point of financial distress or distrust of your stakeholders (consumers or publishers for example). This week's grade stays the same: 5.5 (5.5)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling that things are still not looking too good for B&N hasn't changed this week and actually we feel that somehow the company is a bit lost when it comes to find how to generate more sales in its brick and mortar stores. Therefore this parameter's grade goes down by half a point: 5 (5.5)

This week's Barnes & Noble Bankruptcy Index: 56 points (56)

As you can see, this week's index is set at 56 points, which means B&N is getting deeper into the 50-59 zone: Bankruptcy is a clear and present danger. It's still not the red zone but it means that bankruptcy is getting closer and is becoming a real threat to B&N. See you next Thursday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

Barnes & Noble Bankruptcy Index: The Nook Color has new features and apps, but what about the stores?

This week was about the the new features B&N introduced to its Nook Color e-reader designed to make the device more competitive with the iPad and other tablets. What about new design for B&N's stores? Nada, at least for now. Given that B&N is still mostly a store-based retailer, it's not much of a surprise this week our B&N bankruptcy index goes down by half a point.

Just a short reminder - As Borders filed for bankruptcy, we look at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!

80-89: B&N is doing great. Bankruptcy is no longer a real threat.

70-79: B&N could do better and has to be cautious of bankruptcy.

60-69: B&N doesn't look too good and bankruptcy is becoming a more realistic threat.

50-59: Bankruptcy is a clear and present danger.

49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the B&N Bankruptcy Index every Thursday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.
So here's our update for this week (in brackets is last week's grade):

1. Confidence of the stock market in B&N
This parameter will look at the performance of the B&N stock (symbol: BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures:
4/20: $10.66
4/27: $9.90
Change: -7.1%

As you can see, B&N's stock fell 7.1% last week. Just for comparison, Amazon lost 0.9% last week and the S&P500 Index gained 1.3%.

Alyce Lomax was unfavorable to say the least about B&N stock on The Motley Fool with headline saying simply -Run From This Stock! And she explains:

Although Barnes & Noble has been able to pull off sales increases over recent years, its gross profit has dropped to 25.6% in the last 12 months, down from highs as great as 37% in recent years. Same-store sales have fallen several years running, and the company failed to turn a profit last year. For the trailing 12 months, Barnes & Noble has reported a disheartening $0.81 loss per share. The recessionary climate hasn't made things easy for booksellers, and its falling profit margins suggest that Barnes & Noble's had to offer deep discounts to keep customers coming back.

What about the Nook and the latest improvements? She's not convinced it can really change the big grimy picture: "The rise of e-books to challenge traditional paper tomes makes matters even worse...This heated competition explains Barnes & Noble's Nook Color enhancements, but such admirable efforts don't guarantee marketplace success."

If you listen to Jim Cramer, he also recommends to be cautious about B&N's stock: The book store chain operator has a great management team, Cramer said. Even so, it's been very tough for them to compete against Amazon.com. He would be cautious with BKS.



As we can see the stock didn't continue to rise as it did last week (jumping 15.5%), which shows that it was more likely a more of a one-week event and not a permanent trend. Therefore, our week's grade for this parameter is going down by half a point: 4.5 (5)

2. What analysts say on B&N

Alyce Lomax wrote on The Motley Fool:

Granted, Barnes & Noble has more than a few positive attributes. It's enjoyed a decent success with its Nook e-reader, and the company recently added several innovative features to its Nook Color, including an app store and the ability to access Yahoo! Mail and Gmail accounts. It's also reportedly looked into taking over a few abandoned Borders stores for its own shops. Still, while B&N may be doing better than Borders, "relatively strong" isn't the same as "strong."

Still, we don't see a significant change in the market sentiment and therefore our grade stays the same: 5.5 (5.5)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset.

First, I want to mention something quite revolutionary that will happen at one of B&N bookstores. This is an update from Forbes:

Yesterday, I received this press release from Loud Crow Interactive:

On Monday, May 2, renowned writer and illustrator Sandra Boynton will become the world’s first author to sign an eBook app for the general public. This historic signing will take place at 7:00 PM at Barnes & Noble’s Upper East Side store, located at 150 E 86th Street at Lexington Avenue, in New York City.

Julie Bosman reported on Sunday on the New York Times on an upcoming campaign of B&N: "The first commercial in the campaign will run on Monday, and a longer 60-second spot will run during “American Idol” on Thursday. Print ads will run in The New York Times and USA Today. On the company’s Facebook page, users will be invited to share their feelings about reading."

Why we put it under brick and mortar bookstores' strategy? Because of the following comment we found on the article:

There are no Barnes & Noble stores in the ads, a nod to the transformation that is under way in the publishing industry. As e-books have taken off, foot traffic in brick-and-mortar stores has decreased, a sure sign that more consumers are doing their book-shopping from home. (Or wherever they and their e-readers happen to be at the moment.)

The fact that there are no B&N stores (unlike a campaign from last year, where Last year, "where initial campaign to introduce the Nook Color opened on a picture of a Barnes & Noble store, the camera zooming through the entrance and landing on a Nook Color, while Sarah Jessica Parker narrated the voice-over"), only shows me that while the Nook is on the top of the to-do list of B&N, the stores are at the bottom of the list, if at all.

The fact that B&N work so hard and put their cash into only improving their digital business' positioning while completely ignoring their brick and mortar stores (as we can see clearly in their new ad campaign), is an indication for us they still don't see the launch of a new strategy as a high priority and therefore this week's grade goes down in half a point: 3.5 (4)

4. What B&N is saying about itself
“We really wanted to reach out to all the readers and get the message out about how wonderful reading is. The world changes, technology changes, but people love to read, and we’re giving them the best way to read.” Sasha Norkin, the vice president for digital and channel marketing for BN.com talking on the new ad campaign.

Our grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking It was a relatively busy week with the new improvements in the Nook Color and the upcoming ad campaign. These are good steps, but still insufficient when you look at the big B&N picture and the challenges the company is facing. This week's grade stays the same: 6 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N. This week Borders, according to Bloomberg, "won approval of an amended executive bonus plan after a judge sought changes to resolve objections from an arm of the U.S. government that oversees bankruptcies. " Our grade stays the same: 5 (5)

7. Financial strength On February Barnes & Noble published the results for the third quarter. We don't have any updates for this week and our grade stays the same: 7 (7)

8. Strength of the digital business On Monday B&N announced it "Expands Award-Winning NOOK Color™ Reading Experience with the Most Requested Tablet Features", or in other words (the WSJ's words..) Barnes & Noble Upgrades Nook to Challenge Tablets.

WSJ adds:

The bookseller hopes the software upgrade will make the Nook Color, which has a touchscreen and runs Google Inc.'s Android software, an alternative for consumers who want features like email and games like Rovio's "Angry Birds." Barnes & Noble is also adding the ability to play Adobe Systems Inc.'s Flash video on its Web browser. Priced at $249 apiece, Nook Color is hundreds of dollars less than competitors that include Apple Inc.'s iPad 2, Motorola Mobility Inc.'s Xoom and the Research In Motion Ltd. PlayBook.

And don't forget the Apps! "Users now will be able to purchase and download apps from the Barnes & Noble website, though initially the selection is limited compared with the wider Android store." Revenues from the Apps? Well, B&N will get 30% of the sale price and the remainder will go to the developer.

The idea was to meet consumers' demand - "Consumers said they wanted tablet-like features," said Jamie Iannone, president of the bookstore chain's digital products division.

Some analysts say it's not Apple Barnes & Noble look at, but Amazon - "I don't think they're responding to the iPad as much as they're trying to beat Amazon to the same punch," said Forrester Research analyst James McQuivey.

He's also providing interesting data: "McQuivey estimates Barnes & Noble has sold 400,000 Nook Colors since the device's October launch and said the device's sales could reach 3 million units by year-end. The black and white Nook was introduced in late 2009 and has sold about 2 million units, according McQuivey."

Ina Fried adds another interesting angle on AllThingsD about the implications on the B&N-Amazon competition:

In addition to boosting the Nook Color’s attractiveness against the current e-reader and tablet competition, the move to open up to developers could serve the company well if Amazon makes a move to offer an Android tablet of its own, something many expect it to do. Amazon has already opened an Android app store, has music and video services that work on Android and also last week launched a version of its Kindle reader software that is optimized for tablets running the Honeycomb version of Android. Amazon has declined to comment on any tablet plans.

Bottom line, this is a positive step and our grade this week goes up in half a point: 7.5 (7)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, or at least not worried enough to begin doing something with their brick and mortar stores (again, we don't believe more toys in the stores and extra room for the Nook is a winning strategy). If we can learn something from the Borders' case, it's how fast things go bad when your reach a certain tipping point of financial distress or distrust of your stakeholders (consumers or publishers for example). This week's grade stays the same: 5.5 (5.5)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling that things are still not looking too good for B&N hasn't changed this week and this parameter's grade stays the same: 5.5 (5.5)

This week's Barnes & Noble Bankruptcy Index: 56 points (56.5)

As you can see, this week's index is set at 56 points, which means B&N is getting deeper into the 50-59 zone: Bankruptcy is a clear and present danger. It's still not the red zone but it means that bankruptcy is getting closer and is becoming a real threat to B&N. See you next Thursday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

Barnes & Noble Bankruptcy Index: B&N stock is rising, but no one really knows why

This week B&N's stock rose in 15%, but we're not sure if there's a good reason for it. In the meantime, competition on the digital front is getting fierce with new features and money going into competing e-readers. In all, this week our B&N bankruptcy index stays the same as last week.

Just a short reminder - As Borders filed for bankruptcy, we look at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!
80-89: B&N is doing great. Bankruptcy is no longer a real threat.
70-79: B&N could do better and has to be cautious of bankruptcy.
60-69: B&N doesn't look too good and bankruptcy is becoming a more realistic threat.
50-59: Bankruptcy is a clear and present danger.
49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the B&N Bankruptcy Index every Thursday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.

So here's our update for this week (in brackets is last week's grade):

1. Confidence of the stock market in B&N
This parameter will look at the performance of the B&N stock (symbol: BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures:

4/13: $9.23
4/20: $10.66
Change: +15.5%

As you can see, B&N's stock jumped 15.5% last week. Just for comparison, Amazon rose 0.87% last week and the S&P500 Index also gained 1.21%.

What happened? Cindy Johnson offered this explanation on The Motley Fool:
Office supply retailer Staples will start selling Barnes & Noble's Nook Color Android-based e-book reader on May 1 in its stores and online for $249. Staples is the world's largest office products company and the second largest e-commerce retailer, with annual sales of $25 billion and 90,000 associates in 26 countries.

But Johnson is a bit skeptic in the explanation that she's offering, mentioning that "the Nook is already available at Best Buy, Amazon, and of course, B&N."

NakedValue also suspects it's something else, although he (or she) is not sure what is it exactly, noting that it might be something bigger:

There is enough reason to believe that Barnes & Noble's big stock move could be the result of something bigger. If so, investors should be prepared for the possibility of follow-up headlines. If the Staples headline is really the sole reason for Barnes & Noble's big move, investors should avoid the stock because the price strength will not last. Not only was the Staples story old, the company is not likely to meaningfully change the prospects at the leading bookstore chain in the country.

Today NakedValue offers another option to be considered:
Barnes & Noble (BKS) may be the stock market's cheapest technology stock with a price/sales of 0.08 and a PEG ratio of 0.59. Sure, the company has a dominant presence as a brick and mortar bookstore chain but the company's surprisingly successful Nook e-reader/tablet gives it tremendous upside potential. JP Morgan estimates that there will be 47.9 million tablets sold in 2011 and 79.6 million sold in 2012. As the market's lowest cost tablet, the color Nook could be worth billions to the right acquirer.

So the bottom line is that no one really knows for sure what happened and why the stock jumped so high in just a couple of days. Therefore we stay cautious and wait until next week to see if this trend is continuing or not. In the meantime, our week's grade for this parameter is going up by half a point: 5 (4.5)

2. What analysts say on B&N

No updates this week. There's no change in the market's sentiment and therefore our grade stays the same: 5.5 (5.5)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset.

This week's grade stays the same: 4 (4)

4. What B&N is saying about itself
No updates this week and our grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking
Nothing happened this week. This week's grade stays the same: 6 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N. This week Borders, according to Bloomberg, "is seeking at least $50 million in additional financing as sales trail expectations and publishers demand cash in advance, said two people who have seen the chain’s plans to reorganize. The retailer may risk liquidation without further investment, easier terms from vendors or a buyer, said the people, who declined to be identified because the process isn’t public. Borders already has a $505 million debtor-in-possession loan from lenders led by GE Capital. Those creditors are helping to fund operations in bankruptcy and have priority over others. "

According to Bloomberg "Annual sales may drop to $1.5 billion, according to court papers, less than half what the chain generated two years ago."

Is it good news for B&N? I'm not sure. It implies of course that B&N can benefit from having a bigger market share, but it also shows the depth of the troubles the brick and mortar bookstores are in and this is still, to remind you, B&N main source of revenues.

Our grade stays the same: 5 (5)

7. Financial strength
Couple of weeks ago Barnes & Noble published the results for the third quarter. We don't have any updates for this week and our grade stays the same: 7 (7)

8. Strength of the digital business
It looks like the competitors are wasting no time in adding new features and raising money.

Amazon's Kindle Will Offer E-Books From Libraries - As the Wall Street Journal reported "Amazon said Wednesday that it will launch the public-library feature—which gives the Kindle the same library-borrowing abilities as competing e-reading devices such as Barnes & Noble Inc.'s Nook and Sony Corp.'s Reader—later this year. "We think customers are going to love this new library feature," said a spokeswoman for the Seattle-based retailer."

The Wall Street Journal also reported on Tuesday that Kobo closed a $50 million funding round:

“It’s about international expansion,” said Todd Humphrey, Kobo’s executive vice president of business development. He said the company will also use the funding to grow its base in the U.S. and Canada and to improve its product. Overall, Kobo said it has 3.2 million users.

The company said the $50 million investment was led by an institutional investor that it declined to name, and that existing investors–which include Indigo Books and Music and Cheung Kong Holdings–also participated in the funding round.

These steps, following the release of the $114 Kindle are adding to the major threats on the estimated 25% market share of the Nook and hence on B&N digital business. Our grade this week goes down in half a point: 7 (7.5)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, or at least not worried enough to begin doing something with their brick and mortar stores (again, we don't believe more toys in the stores and extra room for the Nook is a winning strategy). If we can learn something from the Borders' case, it's how fast things go bad when your reach a certain tipping point of financial distress or distrust of your stakeholders (consumers or publishers for example). This week's grade stays the same: 5.5 (5.5)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling that things are still not looking too good for B&N hasn't changed this week and this parameter's grade stays the same: 5.5 (5.5)

This week's Barnes & Noble Bankruptcy Index: 56.5 points (56.5)

As you can see, this week's index is set at 56.5 points, which means B&N is getting deeper into the 50-59 zone: Bankruptcy is a clear and present danger. It's still not the red zone but it means that bankruptcy is getting closer and is becoming a real threat to B&N. See you next Thursday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at www.ecolibris.net/bookstores_future.asp

Yours,
Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!