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Sometimes, all an investor can do is get out of the way. That seemed to be the case on Wednesday when shares of Barnes & Noble (NYSE: BKS) fell faster than a hardbound volume of the collected works of Shakespeare dropped from a high-rise building.
Barnes & Noble stock fell more than 27% after the brick-and-mortar retailer that’s been trying hard to adapt to a digital world reported that its fiscal first-quarter loss widened to almost $35 million amid weak sales of both paperbound and digital books.
In a nutshell, it doesn’t look good for this 29-year-old book retailer.
Barnes & Noble said that its total revenues fell 1.5% in the quarter to $1.2 billion – a performance that’s really not bad considering all the pressure brick-and-mortar retailers have come under.
But here’s another telling number: Sales from the company’s NOOK e-reader segment (a number that encompasses NOOK devices, accessories and digital content) fell a staggering 22.4% in the quarter. Translation: The NOOK is no Kindle and Barnes & Noble’s leading strategy for transitioning to a digital world isn’t going so well.
Barnes & Noble is losing out to a range of competitors, from Amazon.com (NASDAQ: AMZN) to Apple (NASDAQ: AAPL), which also offer devices for downloading and reading books, magazines and other digital content.
Today it’s going on 20 years since the consumer Internet was born, and well over a decade since brick-and-mortar retailers have been losing ground to their online rivals. Barnes & Noble has fought mightily to stay alive through these transitions, and the fact that it still has more than 600 stores in operation would seem to say something about its staying power. Barnes & Noble has, to date, survived when a range of competitors from Borders to small independent bookstores have closed shop.
But survival does not equal success, and the events that transpired on Wednesday – both the dismal earnings report and the market’s unforgiving reaction – suggest that investors may have been a bit in denial about this company’s ultimate demise.
It’s hard to imagine a world without any Barnes & Noble bookstores where you can go to read book jackets, peruse the extensive offering of magazines and maybe pick up a greeting card. But if you’ve been in a Barnes & Noble recently you may have observed that the old magic of a place where book lovers gathered is diminished, and what’s replaced it is an unfocused hodgepodge of poorly organized books and gifts.
Barnes & Noble may indeed survive in some trimmed down fashion, but that doesn’t mean its stock will have a comeback. Right now it looks like Barnes & Noble stock, which has lost 50% of its value over the past decade, is looking to find its right value as a company that’s a shadow of its former self.
It could be the subject of a good book … but buying Barnes & Noble stock is probably not a good investment strategy.
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