New York, NY (March 17, 2005)—Barnes & Noble, Inc. (NYSE: BKS), the world’s largest bookseller, today reported sales and earnings for the fourth quarter and for the full-year ended January 29, 2005.
Barnes & Noble store sales were $1.4 billion for the quarter and $4.1 billion for the year, increasing 5% and 7%, respectively, over the prior year periods. Comparable store sales increased 1.7% for the fourth quarter and 3.1% for the year. The company opened 32 new Barnes & Noble stores for the year and closed 13 locations ending the year with 666 stores.
B. Dalton sales, which comprise approximately 4% of total bookstore sales, were $60.9 million for the quarter, a decrease of (24%) over the prior year, and $176.5 million for the year, a decrease of (20%) over 2003, due primarily to the closing of 41 stores. The company operated 154 B. Dalton stores at year-end. Comparable store sales decreased (3.2%) for the fourth quarter and decreased (2.2%) for the year.
Fourth quarter earnings per share for retail bookstores were $1.51, an increase of 8% over the prior year. Full-year 2004 earnings per share for retail bookstores increased 18% to $2.07, against a 15% increase in 2003.
Barnes & Noble.com’s sales were $151.5 million and $419.8 million for the fourth quarter and full year, respectively. Barnes & Noble.com’s fourth-quarter earnings were $0.01 per share. Full year losses of ($0.28) per share were an 18% improvement over the prior year, against a 39% improvement in 2003.
On November 12, 2004, Barnes & Noble, Inc. completed its tax-free spin-off of GameStop Corp. to Barnes & Noble, Inc. stockholders. Due to the spin-off, Barnes & Noble, Inc. is no longer consolidating GameStop’s financial results and has reflected GameStop’s results on a discontinued operations line on the company’s financial statements. Barnes & Noble, Inc.’s share of GameStop’s net earnings, for the periods prior to the spin-off, was $0.04 per share during the fourth quarter and $0.25 per share for the full-year.
Consolidated net earnings from continuing operations for the fourth quarter increased 7% to $112.3 million or $1.52 per share. Consolidated net earnings for the year from continuing operations, excluding the debt redemption charge of $14.6 million, increased 18% to $131.7 million. Earnings per share for the year from continuing operations, excluding the debt redemption charge of ($0.11), was $1.79 per share, compared to pro-forma earnings per share of $1.41, an increase of 27% over the prior year.
“Barnes & Noble generated a significant amount of value for its shareholders in 2004,” said Steve Riggio, chief executive officer of Barnes & Noble, Inc. “Using its strong free cash flow, the company completed the Barnes & Noble.com merger and began construction on its new 1.1 million square foot distribution center. The company redeemed its $300 million convertible notes resulting in a reduction of approximately 9 million dilutive shares. Barnes & Noble distributed over $500 million of GameStop stock directly to its shareholders through a tax-free spin-off. And most importantly, shareholder value was enhanced by another year of double-digit earnings growth of the core book business.”
LEASE RELATED ACCOUNTING ADJUSTMENTS
In light of a recent SEC clarification, the company has re-evaluated its lease accounting practices. Like many other companies within the retail industry that are correcting commonly accepted lease accounting practices, the company has changed the way it accounts for its leases, including the accounting for tenant allowances and rent holidays (store build-out period).
Consistent with common retail industry practice, the company had classified tenant allowances received as a result of store openings as a reduction in capital expenditures. The company has reclassified tenant allowances received from a reduction of depreciation expense to a reduction of rent expense. As a result, the company has increased gross margins and increased depreciation expense by $34 million in fiscal year 2004. On the balance sheet the company has increased net property and equipment, and increased other long-term liabilities by $223 million to reflect the aggregate amount of all unamortized tenant allowances received. There is no earnings impact due to this reclassification.
In addition, consistent with common industry practice, the company had recognized the straight line expense for leases beginning on the commencement date of the lease, which had the effect of excluding the construction period of its stores from the calculation of the period over which it expenses rent. In order to correct the straight line rent expense to include the store build-out period, the company has decreased net income on an after-tax basis for fiscal year 2004 by $472,000, or $0.01 per share. The company has reduced net income for prior fiscal years by an aggregate amount of $18.6 million, $17.9 million of which relates to periods prior to fiscal year 2001. This change is expected to be immaterial to fiscal year 2005 annual earnings.
These adjustments will have no impact on cash flows, revenues and comparable store sales.
GUIDANCE FOR 2005
For the first quarter, the company expects comparable store sales at Barnes & Noble stores to be in the low single digits, and for the full year comparable store sales are expected to increase approximately 3%. Sales at Barnes & Noble.com are expected to increase at similar levels.
Barnes & Noble, Inc.’s first quarter earnings per share are expected to be in a range of $0.11 to $0.13, and for the full year earnings per share are expected to be in a range of $1.94 to $1.98.
Included in the company’s guidance are expense redundancies related to the conversion and transition plan for the company’s new distribution center. The company has forecast a $0.08 per share impact for the costs associated with these redundancies. Excluding these costs, the company’s 2005 earnings per share guidance reflects an increase of 13% to 15%.
The company has decided to adopt Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment,” and begin expensing stock options as of the beginning of fiscal year 2005. As a result of this accounting change, the company expects to realize additional expenses of approximately $0.04 per share in the first quarter and $0.14 per share for the full year. For comparative purposes, the charge for adopting SFAS 123R has not been incorporated into guidance.
A conference call with Barnes & Noble, Inc.’s senior management will be webcast beginning at 11 A.M. ET on Thursday, March 17, 2005, and is accessible at www.barnesandnobleinc.com/webcasts. The call will be archived at www.fulldisclosure.com for one year.
Barnes & Noble, Inc. will report first-quarter earnings on or about May 19, 2005.
Here you can download financial tables related to the sales and earnings for the fourth quarter and for the full-year ended January 29, 2005.
Fourth Quarter Summary (11K)
Consolidated Statements of Operations (14K)
Consolidated Balance Sheets (12K)
Fourth Quarter Summary (Pro Forma) (11K)
Consolidated Statements of Operations (Pro Forma) (14K)
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