Booksellers Need to Find a New Story

Few Answers from Barnes & Noble

Barnes & Noble, the larger of the two chains, earned $1.84 a share in the fourth quarter, missing the consensus by 4 cents.

For the first quarter, the company forecast results ranging from a loss of a penny a share to profits of 5 cents, excluding charges. According to Thomson Financial, analysts currently expect earnings of 1 cent per share. Barnes & Noble also reiterated full-year guidance of $1.65 to $1.80 a share, excluding items.

Same-store sales fell 0.3% for the year and were down 1.1% at Barnes & Noble.com.

One of the few positives in the earnings report was an improvement in gross margin. However, on the conference call CEO Stephen Riggio acknowledged that a major factor in the higher gross margin was "historically low shrinkage" -- meaning less stuff got stolen. So not only are customers avoiding the stores, so are the thieves.

It will be tough to improve margins unless costs can be cut, as there is no pricing power in the industry. In fact, it's quite the opposite. Booksellers need to discount, especially to their best customers, to keep them active in their loyalty programs.

The performance of Barnes & Noble's Internet business is disappointing. Considering the company's leading brand name, it's surprising that Internet sales comprised only 9.6% of total sales and that same-store sales were down for the year.