How investors can profit in the event Barnes & Noble file for bankruptcy

We are watching Barnes & Noble for sometime, discussing the possibility of bankruptcy, which after the one Borders went through seems less illusory.

If you looked at their latest financial results which were released two weeks ago you could see that bankruptcy is still an option, given the fact that B&N has no viable strategy for its brick and mortar bookstores and put all its efforts into the Nook. We believe that this is a risky strategy considering that B&N competes with Apple and Amazon, which have much deeper pockets and probably better devices to start with.

We're not the only ones who identified the risk of bankruptcy. Motley Fool analysts Austin Smith and Nick Crow also see this risk and they have an interesting video where they discuss how investors can protect themselves from such an event and even profit from it. You can find their video here.

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!

How green is the Kindle Fire - part 3: Will it kill B&N and drive the bookseller into bankruptcy?

Today we continue with our Amazon week. After discussing if the new Kindle Fire and other new Kindles will contribute to making e-reading greener (it will), and comparing Kindle Fire with iPad 2 and Nook Color and see which device is greener (iPad 2), we'll talk today about the impact of the new Kindle products on Barnes & Noble.

First, the bottom line: B&N is in trouble. Now let's see why.

Fortune Tech wrote it very clearly: "While Barnes & Noble has made a valiant effort to keep up with the times with its innovative line of Nook e-readers, it simply can't compete with the likes of Amazon, which introduced its potentially category-killing Kindle Fire last week."

The digital activity of B&N, led by its Nook, was what saved it so far from the same faith of Borders (i.e. bankruptcy) and the focus of its future strategy. In other words, this is what B&N counts on to survive and thrive in the digital age, when brick and mortar stores are no longer cash cows.

And now with the introduction of the new Kindle Fire and the new Kindle products the competition is becoming much harder. Just look at the comparison we provided yesterday between the iPad 2, Kindle Fire and Nook Color. Why would anyone pay now $249 for Nook Color, when they can get the same if not better (updated operating system and so on) Kindle Fire for only $199?

If B&N wants to make Nook Color attractive again they have to reduce its price to at least $199, which means smaller margins for them, which means trouble.

And let's not forget Amazon also announced three more Kindles at the lower end that are priced below B&N's comparable Nooks, which again means trouble for B&N.

What about new B&N products? According to International Business Times, "BN has reportedly been moving toward launching its own new tablet, reportedly called "Acclaim." Reports have suggested the product will be priced at $349. But since Amazon has more content, including streaming movies with its Prime subscriptions, it isn't likely that a higher priced tablet will have much of a chance competing against Amazon's lower-priced tablet. So not only will BN have to slash prices on its Nook products, including the Nook Color, but the company may have already lost on the Acclaim before the public has really even heard about the product."

So, as you can see B&N has to come with an answer to Amazon and do it quickly. The question is if they have an answer and also whether they can afford it. Unfortunately I'm not sure both answers are yes, which means that B&N is indeed in trouble.

To read more of our analysis on B&N visit Barnes and Noble Bankruptcy Index on our website.

To read more on how green is the Kindle, visit our website at http://www.ecolibris.net/kindle.asp

More resources on the ebooks vs. paper books environmental debate can be found on our website at http://www.ecolibris.net/ebooks.asp.


Yours,
Raz @ Eco-Libris

Eco-Libris: Plant a tree for every book you read!

Borders was closed today forever, but at least CEO Edwards has got already job offers..

Today is a sad day for book lovers - GalleyCat reported Borders will close forever today, leaving tens of thousands of booksellers out of work. One who is also out of work, but not worried too much about it is Borders' CEO Edwards.

Edwards did an interview to the Detroit News, and according to the newspaper, "he is an unemployed chief executive without a grudge and with a $125,000 severance check.he doesn't know where he's headed — perhaps Southern California or Oregon, where he led Lucy Activewear and Ellington Leather — but he said he has received job offers from companies impressed with his handling of Borders' bankruptcy."

I'm glad to hear that Edwards already has job offers, but I really couldn't understand how any company can be impressed with his handling the bankruptcy. Borders got the worst outcome possible of this bankruptcy, so what's there to be impressed about exactly?

Also another thing that bugged me on this interview is that Edwards doesn't take on himself any responsibility for what happened - "For most of its life, Borders enjoyed a reputation as the go-to destination for bookworms. But "you can be the best ice salesman in America until the refrigerator comes," Edwards said."

That's it? That's the best you can say? How about 'I take responsibility on what happened'? Nothing even close to that.. Well, if this is the sort of leadership the companies offering him job are looking for then they found their right man!

I still think at least his former employees deserve more than that.

Yours,

Raz @Eco-Libris

Eco-Libris: Plant a tree for every book you read

Is Books-A-Million going to follow Borders into bankruptcy?

Last month it was announced that Books-A-Million agreed to acquire lease interest in 14 of Borders stores for $934,209. Yet last week GalleyCat reported that Books-A-Million will close four outlets. Add to it 11 percent decrease in sales in the last quarter and you start wondering not only if Books-A-Million made the right decision buying Borders' stores, but also if they're actually able to stay in business or will follow Borders into bankruptcy.

I looked into it and found five signs that Books-A-Million, now the second-largest bookseller might be heading into trouble:

1. Sales are shrinking - Last month the company reported on its second quarter results:  

"Net sales for the 13-week period ended July 30, 2011 decreased 11.4% to $106.4 million from net sales of $120.0 million in the year-earlier period. Comparable store sales for the second quarter declined 12.9% compared with the 13-week period in the prior year. Net loss for the second quarter was $2.9 million, or $0.18 per diluted share, compared with net income of $1.9 million, or $0.12 per diluted share, in the year-earlier period.

For the 26-week period ended July 30, 2011, net sales decreased 11.2% to $210.4 million from net sales of $237.0 million in the year-earlier period. Comparable store sales declined 13.1% compared with the same period in the prior year." 

Why? Commenting on the results, Clyde B. Anderson, Chairman, President and Chief Executive Officer, said, "Results for the quarter reflect a continuation of the trends that have been affecting our business since the beginning of the year. A soft publishing lineup, the effect of e-book migration and the impact of Border's liquidation all contributed to the decline in comparable store sales. In this environment we have been focused on further developing the growth categories in our stores in preparation for the second half of the year while our balance sheet remains strong."

What are exactly the "growth categories" they focus on further developing? It's not clear. Somehow I find this explanation as well as action plan not very reassuring to say the least.

2. Cash reserves are down by almost 40% - Although CEO Anderson said "balance sheet remains strong", you see that cash is down by 38% compared to the end of January 2011. The company has now only 4.8 million in cash and almost 95% of its assets are in its inventory ($192.3 million out of total current assets of $203.7 million) - again, not very relaxing given the fast changes the book business is experiencing. 

3. The stock market does not believe in Books-A-Million - If you had $300 on January 1, 2011 and decided to invest $100 in Amazon, $100 in Barnes and Noble and $100 in Books--Million, your investments would generate you the following return as of yesterday:

	1/3/2011	9/9/2011	Return
Amazon	184.22	211.39	14.75%
B&N	15.42	11.38	-26.20%
Books-A-Million	5.86	2.6	-55.63%

The company in its latest annual report explains that "recent market volatility has exerted downward pressure on our stock price, which may make it more difficult for us to raise additional capital in the future."

4. No clear strategy for the brick and mortar stores - Books-A-Million presently operates 232 stores in 23 states and the District of Columbia. Just like with B&N it's not clear what's company's strategy to transform these stores back into an asset. The vast majority of the company's revenues come from bookstores and therefore lack of clear strategy is creating a risk and puts in question the company's ability to increase its sales.

5. No e-reader - Just like Borders, Books-A-Million didn't develop an e-reader of its own and sells B&N's Nook. It means the company is more limited in growing its digital sales and is very much depended on B&N and their success to keep developing the Nook. Bottom line: Books-A-Million does not have the same digital cushion B&N has.

I hope I'm wrong, but Books-A-Million seems to be vulnerable now. If they won't be able to find the right strategy for their brick and mortar business they can be very soon in the same position  Borders found itself not too long ago.

Yours,
Raz @ Eco-Libris

Eco-Libris: Plant trees for your books!

Five signs Barnes and Noble is heading for bankruptcy following its latest quarterly report

Barnes & Noble released today its results for the last quarter, ending July 30, 2011. Although B&N's price went up almost 15% following the release of the quarterly report, I see in this report many signs that worry me, as they indicate the company is on its way to bankruptcy, just like Borders.

Here are the most prominent signs:

1. B&N doesn't have a strategy to transform its brick and mortar bookstores from a liability back into an asset and as a result sales continue to decline - "Revenue in stores open at least one year, a key indicator of a retailer's health, fell 1.6% at regular stores and 1.8% at college bookstores." (Reuters).

2. The Nook itself won't save the company - "Sales of the Nook group of devices, which includes a standalone as well as a touch-screen reader, rose 140 percent to $277 million in the quarter..Barnes & Noble Inc forecast sales of its Nook e-reader and e-books would more than double this fiscal year to $1.8 billion".

According to Reuters, "if the Nook and the e-books sales it generates live up to Barnes & Noble's expectations, they would account for a quarter of the chain's sales and all of its growth." Not only that putting all the bets only on the Nook is a risky move, but even if it will succeed the company still have 75% of business in trouble. The Nook itself just won't save the company, no matter how well it will perform.

3. B&N seems to think only about the short term, ignoring the long-term - "Barnes & Noble says it expects to get a lift in sales of $150 million to $200 million after Borders, which declared bankruptcy in February and said it would liquidate in July, completes liquidation sales and closes."We're convinced this holiday will be the biggest traffic we've had in the stores over five years," Lynch said in a call with analysts." (USATODAY.com) - What will happen after this holiday season and after some Borders' customers will switch to B&N? Lynch has no answer.

4. The stores become a burden on BN.com - "revenue from the website rose 37%, driven by sales of Barnes & Noble's Nook Color and Nook Simple Touch Reader, and digital content." (USATODAY.com). The success of BN.com only demonstrates the weakness of B&N's brick and mortrar stores, which are still the core business of B&N.

5. When toys are your best idea to promote sales in stores you're in trouble - "While traditional physical book sales declined during the quarter, the stores posted large increases in sales of the NOOK product line and Toys & Games." Yet, the stores to remind you are still losing, which means that increasing toys sales do not compensate for declining books sales in the stores. Next idea, please.

And finally, did I mention that there is no buyer to the company? If the picture is so rosy as CEO Lynch presents it, how come no one wants to buy the company and enjoy the fruits of the we-invest-only-in-the-Nook strategy? Maybe it's not as brilliant strategy as B&N wants us to believe?

You can check our updates on Barnes and Noble Bankruptcy Index on our website.

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

Yours,
Raz @ Eco-Libris

Eco-Libris: Plant a tree for every book you buy!

RIP Borders - The bookstore chain is closing its doors

Now it's official - Borders Group announced on Monday that it will close all of its stores and sell the company to a group of liquidators led by Hilco Merchant Resources. It means that almost 11,000 employees will lose their jobs and the chain's 400 remaining stores will close their doors by the end of September.

This is a very sad day to any book lover, no matter if you're a Borders customer or not. The fact is that this isn't just an isolated case, but an indicator to the change in the industry, where brick and mortar stores can't find an adequate reply to the online competition as well as to the growing demand for ebooks and are losing customers until they can no longer stay in business.

NPR report explained the problem:

"Indeed, outside a Borders bookstore in Arlington, Va., shoppers say they rarely buy books the old-fashioned way."I'll go to Borders to find a book, and then I'll to go to Amazon to buy it, generally," customer Jennifer Geier says. With so many people going online to buy books, Borders lost out. The last time it turned a profit was 2006. "

According to NPR the case of B&N is different, but we believe it's actually no different than Borders, at least in the sense that B&N hasn't find yet the way to transform its brick and mortar stores back into an asset. If they won't find the way to do it, they will be left with BN.com and the Nook, but without stores. They still have time to figure it out, but they need to remember their time is running.

Borders stores will begin closing as early as Friday. The New Yorker gives a good advice to spend your gift cards this week. (Please buy books, rather than calendars, lattes, or Moleskine notebooks.) It adds that liquidation will continue through the summer and is likely to be complete by September.

For more news and updates on Borders post bankruptcy visit our website at http://www.ecolibris.net/borders.asp.

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

Yours,
Raz@Eco-Libris

Eco-Libris: Planting trees for your books

Borders is moving towards liquidation - is this the end for the bookstore chain?

Today is an important day for Borders. According to Boston.com, a US bankruptcy court in New York has given Borders today as a deadline to find another bid or its assets will be sold at auction on Tuesday. In other words, the company might be moving towards liquidation which might be the end of for it as a book retailer unless some sort of miracle will happen today.

You can find more details on the latest development on Bloomberg's report (Borders to Seek Court Approval for Liquidators’ Bid Over Offer From Najafi) and the WSJ video report below.



We'll keep you posted with further developments and bring you further analysis later on this week.

For more news and updates on Borders post bankruptcy visit our website at http://www.ecolibris.net/borders.asp.

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

Yours,
Raz@Eco-Libris
Eco-Libris: Planting trees for your books

Is the purchase of Borders by Direct Brands good news for the employees of the book retailer?

It depends who you're asking. According to the Economist (Goodbye to bricks and mortar) it doesn't look too good:

"Whatever happens at the auction will dictate the fate of the bookseller, which has already closed more than a third of its stores. Because Direct Brands is an online- and catalogue-based distributor of music, DVDs and books (such as the mail-order Book of the Month club), some speculate that a deal with Najafi will do little to keep the remaining bookstores open. Rather, the company will probably see value in the Borders distribution network and liquidate most everything else. Regardless, the story doesn’t look good for store employees and their dwindling patrons. (The company, which employs more than 11,000 people, has racked up more than $191m in losses since seeking bankruptcy protection in February, according to the Wall Street Journal.)"

What do you think? We'll be happy to read your comments.

For more news and updates on Borders post bankruptcy visit our website at http://www.ecolibris.net/borders.asp.

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

Yours,
Raz@Eco-Libris

Eco-Libris: Planting trees for your books

My article today on Triple Pundit on Why Bankruptcy is Not Such a Bad Idea for USPS

I'd like to update you on a new article I published today on Triple Pundit entitled "Why Bankruptcy is Not Such a Bad Idea for USPS":

Here's the first paragraph of the article:

Bloomberg Businessweek reported last week that USPS is on the verge of bankruptcy. There are many reasons for that, but one thing I find disturbing is that USPS’ plan to raise its falling revenues is mainly based on sending you more junk mail and convincing banks and other businesses to keep sending you paper bills. So even though I like mail (who doesn’t?), I think bankruptcy might not be such a bad option in this case.

To read the full article go to http://www.triplepundit.com/2011/06/bankruptcy-bad-idea-usps/

Yours,
Raz @ Eco-Libris

Eco-Libris: Promoting sustainable reading

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!