Investments Not Paying Off at Barnes & Noble

Book and music retailer Barnes & Noble(BKS Quote - Cramer on BKS - Stock Picks) managed to turn a profit in its second quarter but missed analysts' earnings estimates and revised downward its sales and earnings forecasts for the second half.

In what Chief Financial Officer Larry Zilavy characterized in a conference call as a "mediocre consumer environment," Barnes & Noble earned $1.4 million, or 2 cents a share, in the second quarter, down from a year-earlier loss of $1.7 million, or 3 cents a share. Analysts had predicted earnings of 10 cents a share. The company cited a 15-cent loss from investments, including a magazine and a magazine subscription business.

The earnings results include the company's interests in Barnes & Noble.com, in a newly public video game and software chain called GameStop, and in more that 600 book and music stores.

Total sales in the second quarter rose about 10.4% to $1.16 billion, from $1.05 billion in the year-ago second quarter.

In a statement, the company said that in light of recent retail sales trends, it revised its second-half comparable-store sales forecast to an increase of 2% or 3%, instead of the previous estimate of 4% or 5%.

As a result, the world's largest bookseller also revised its guidance for bookstore EPS, which includes Barnes & Noble and B. Dalton stores, to 7 cents in the third quarter and $1.35 in the fourth. That segment posted second-quarter earnings of $13.6 million, or 20 cents a share, on a 4.9% sales increase to $884.6 million.

Full-year guidance for consolidated earnings was revised to $1.76 a share, excluding a charge it took in the first quarter. That's below the company's previous guidance of $1.87 a share but roughly in line with the First Call consensus (as adjusted for the second-quarter shortfall). Of the full-year amount, Barnes & Noble and B. Dalton should account for $1.72 a share in earnings, the company said.

The company also said it wrote off $14.7 million, or 13 cents a share, in other investments in the second quarter, including iUniverse.com, Book magazine, enews inc. and Indigo Books and Music.

"Traffic is not as buoyant as we'd like. Consumers are being cautious," said one company official on the Thursday morning conference call.

Chief Executive Steve Riggio said the summer sales trend has been softer than expected but said a strong lineup of fiction in the third quarter should boost sales, particularly in comparison with last year's third quarter, when Sept. 11 kept people out of stores.

Shares in Barnes & Noble were trading down 2.35% at $22.88 before midday.