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Surviving Barnes & Noble in an Amazon World

NEW YORK ( TheStreet) -- My son just finished little league, and it was a bittersweet season. It was enjoyable to watch my son and the team play. I didn't keep track, but they lost most of the games. When you're losing, the last inning isn't a lot of fun. You enter it knowing a miracle is needed to change the outcome to a win.

When your team is behind, your aspiration to win is extinguished with each out, not unlike each reporting quarter with Barnes & Noble (BKS - Get Report). Even when you're losing, there are enough positive events that will cause your mind to play tricks on you. One example is when Microsoft (MSFT - Get Report) announced they were investing in the Nook, shares of Barnes & Noble shot higher. Investors thought for a brief moment that maybe there was a way the team could win.

The immediate and profound sell-off after the announcement was a clear sign of smart money actively exploiting positive news to liquidate their shares. You don't have to take my word for it though, according to Yahoo Finance, institutions sold almost half their holdings in the prior quarter.

On Tuesday, Barnes & Noble only lost about 16.5% from Monday's close. I say only because after the earnings release horror show, shareholders were lucky (so far). Take a look at the revenue, gross profit, and earnings per share chart.

BKS Revenue Quarterly Chart BKS Revenue Quarterly data by YCharts

Notice the pattern of higher revenue coupled with flat gross profit and shrinking bottom-line earnings per share profit. You can see the red line peaks (earnings per share) falling year after year. The first takeaway is they are growing revenue due to competitors leaving the space, but margins are squeezed.

As soon as revenue peaks (and it appears it has), the earnings per share will implode. Some may argue that losing $2.11 "is" an implosion, but they're not listening to Barnes & Noble's CEO William Lynch who stated during the conference call:

"As we announced in this morning's year-end results, Barnes & Noble Retail and Barnes & Noble College delivered a very solid performance in fiscal year 2013..."

I can say my son and the Lowes Creek Red Wings had a very solid performance in the last little league season too, but with more credibility. Barnes & Noble reported an acceleration of losses combined with shrinking revenue. We can agree it was a solid acceleration of losses; doubling from $1.06 a share during the corresponding quarter last year with the performance of 7.3% lower sales.

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