James Dennin, Kapitall: Barnes & Noble sales fell, though the company also managed to restore profitability. Will its recovery continue?
Eyes were all on Barnes & Noble (BKS) this week, as the company released earnings. And in a move that belies the complexity of the issues facing the book industry – the company was able to return to profitability, but only by cutting costs.
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While the largest book-seller in America was able to post a second quarter profit, it seems as if nearly all of that new profit came from cutting costs. Revenue fell, and sales fell – even more than analysts were expecting. At one point on Tuesday this week, Barnes & Noble was trading down about 6%.The main reason behind the heavy loss appears to have been the company's digital department. Sales of the Nook – meant to be a competitor to the Amazon (AMZN) Kindle and the iPad (AAPL) - have fallen steeply from the same time last year. Revenue from the company's online stores are falling as well. As Amazon continues to add new content streams, from original television pilots to Jeff Bezos's acquisition of The Washington Post, the Nook just wasn't able to compete. Now all hope might not necessarily be lost. The company is still in transition between CEOs, and, like all retail – they do about 40% of their business during the holidays. And while this year certainly hasn't seen a Hunger Games-like hit, the bookseller is still optimistic about the year's end. Rather then compete with high-end tablets directly, Barnes & Noble is releasing a cheaper, black-and-white version of the Nook this month – with the hope that they can tap into a niche market of heavy readers who are slow to come around on digital trends. It certainly won't turn them into Amazon overnight – but it might help them hold on until a new CEO is hired, and a new direction is found for the company.