June 25, 2013 Last Updated 9:14 am

Barnes & Noble to stop making NOOK tablets, seeks manufacturing partner but design in-house

Barnes & Noble today announcing fiscal 2013 year-end results, reporting that revenue decreased 7.4 percent to $1.3 billion and reporting a loss of $122 million. The company also announced that it would stop being a manufacturer of tablets, but would instead seek a manufacturing partner for its NOOK line, while continuing to design in-house.

Here is B&N’s earnings release:

NEW YORK–(BUSINESS WIRE)–Barnes & Noble, Inc. (BKS) today reported sales and earnings for its fiscal 2013 fourth quarter and full year ended April 27, 2013.

Fourth quarter consolidated revenues decreased 7.4% to $1.3 billion as compared to the prior year. The consolidated fourth quarter earnings before interest, taxes, depreciation and amortization (EBITDA) loss was $122.0 million, as compared to a loss of $9.7 million in the prior year. The consolidated fourth quarter net loss was $118.6 million, as compared to the prior year net loss of $56.9 million. Fourth quarter net losses were $2.11 per share as compared to a net loss of $1.06 per share a year ago.

For fiscal 2013, consolidated revenues decreased 4.1% to $6.8 billion as compared to the prior year. Fiscal 2013 consolidated EBITDA was $10.3 million, as compared to $176.7 million a year ago. Fiscal 2013 consolidated net losses were $154.8 million, or $2.97 per share, as compared to $65.6 million, or $1.35 per share in the prior year.

Fourth quarter and full-year results were adversely impacted by NOOK inventory charges as discussed in the NOOK section below.

The company ended the fiscal year with cash of $160.5 million and borrowings of $77 million under its $1 billion revolving credit facility, as compared to a net debt position of $270 million a year ago.

The company is currently in the process of evaluating certain prior year amounts, which may result in a revision to the financial statements. The company’s analysis is ongoing, but it does not believe these amounts will be material to the financial statements. Accordingly, the financial information presented in this press release is unaudited and remains subject to change based on this process.

Fourth Quarter 2013 Results from Operations
Segment results for the fiscal 2013 and fiscal 2012 fourth quarters are as follows:
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Fiscal 2013 Results from Operations
Segment results for fiscal year 2013 and fiscal year 2012 are as follows:

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Retail
The Retail segment, which consists of the Barnes & Noble bookstores and BN.com businesses, had revenues of $948 million for the quarter and $4.6 billion for the full year, decreasing 10.0% for the quarter and 5.9% for the fiscal year. The sales decreases were attributable to comparable store sales decreases of 8.8% for the quarter and 3.4% for the full year, store closures and lower online sales. Fourth quarter comparable bookstore sales decreased as a result of lower NOOK unit volume and a stronger title lineup in the prior year period including The Hunger Games and Fifty Shades of Grey trilogies. Core comparable bookstore sales, which exclude sales of NOOK products, decreased 5.8% for the quarter and were essentially flat for the full year.

As a result of the sales decline, fourth quarter Retail EBITDA decreased 23.9%, from $67 million a year ago to $51 million. However, for fiscal 2013, Retail EBITDA increased 16.0% to $374 million, as the sales decline was mitigated by a higher sales mix of higher margin core products and lower expenses.

College
The College segment had revenues of $252 million for the quarter and $1.8 billion for the full year, increasing 10.7% for the quarter and 1.1% for the year, as compared to the prior year periods. Fourth quarter sales were positively impacted by the back-to-school rush season, which extended into the fourth quarter. Comparable College store sales increased 7.5% for the quarter, while decreasing 1.2% for the full year. Comparable College store sales reflect the retail selling price of a new or used textbook when rented, rather than solely the rental fee received and amortized over the rental period.

Fourth quarter College EBITDA improved to $3.8 million, benefitting from higher revenues. Full year EBITDA declined 3.9% to $111.5 million, primarily resulting from increased investments in digital education. College’s full-year product margins improved on a higher mix of higher margin textbook rentals, while expenses increased due to new store growth and continued investments in digital education.

NOOK
The NOOK segment, which consists of the company’s digital business (including devices, digital content and accessories), had revenues of $108 million for the quarter and $776 million for the full year, decreasing 34.0% for the quarter and 16.8% for the year, as compared to the year ago periods. Device sales declined during the fourth quarter due to lower selling volume. Digital content sales increased 16.2% for the full year, however, they decreased 8.9% for the fourth quarter due in part to the device sales shortfall as well as the comparison to the The Hunger Games and Fifty Shades of Grey trilogies a year ago.

The company plans to significantly reduce losses in the NOOK segment by limiting risks associated with manufacturing. Going forward, the company intends to continue to design eReading devices and reading platforms, while creating a partnership model for manufacturing in the competitive color tablet market. Thus, the widely popular lines of Simple Touch™ and Glowlight™ products will continue to be developed in house, and the company’s tablet line will be co-branded with yet to be announced third party manufacturers of consumer electronics products. At the same time, the company intends to continue to build its digital catalog, adding thousands of eBooks every week, and launching new NOOK Apps™.

The company will continue to offer its existing inventory of its high quality NOOK® HD and NOOK® HD+ devices at amazing prices through the holiday. As always, Barnes & Noble will provide world-class pre- and post-sales support in its stores for its NOOK HD and NOOK HD+ customers, as well as ongoing software upgrades and improvements to the digital bookstore service.

“Our Retail and College businesses delivered strong financial performances in fiscal year 2013,” said William Lynch, Chief Executive Officer of Barnes & Noble. “We are taking big steps to reduce the losses in the NOOK segment, as we move to a partner-centric model in tablets and reduce overhead costs. We plan to continue to innovate in the single purpose black-and-white eReader category, and the underpinning of our strategy remains the same today as it has since we first entered the digital market, which is to offer customers any digital book, magazine or newspaper, on any device.”
During the fourth quarter, the company determined that goodwill impairment indicators arose in its NOOK reporting unit as recurring losses have led to revisions in its strategic plans. As a result, the company recorded a non-cash goodwill impairment charge of $18.3 million in selling and administrative expenses. Excluding the impairment charge, NOOK expenses decreased $26 million as compared to a year ago, a 34% decrease in expenses as compared to fiscal year 2012.

NOOK EBITDA losses were $177 million for the fourth quarter, which include an additional $133 million of inventory charges as the company adopted more aggressive promotional strategies given the shift in strategic direction. NOOK EBITDA losses were $475 million for the full year, primarily driven by cumulative NOOK inventory related charges of $222 million.

Guidance
For fiscal year 2014, the company expects Retail comparable bookstore sales to decline in the high-single digits on a percentage basis. College comparable store sales are expected to decline in the low-single digits on a percentage basis.

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