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Barnes & Noble (BKS)

Q2 2018 Earnings Conference Call

November 30, 2017 10:00 AM ET

Executives

Andy Milevoj - IR

Demos Parneros - CEO

Allen Lindstrom - CFO

Analysts

Alex Fuhrman - Craig-Hallum

Dave Novak - Consumer Edge Research

Greg Pendy - Sidoti

Randy Baron - Pinnacle Associates

Presentation

Operator

Good day and welcome to this Barnes & Noble Fiscal 2018 Second Quarter Earnings Conference Call. Today's conference is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Andy Milevoj. Please go ahead, sir.

Andy Milevoj

Good morning and thanks for joining us on our fiscal 2018 second quarter earnings conference call. With us today are Demos Parneros, Allen Lindstrom, and other members of our senior management team.

Before we begin, I'd like to remind you that this call is covered by the Safe Harbor disclaimer contained in our press release and public documents and is the property of Barnes & Noble. It is not for rebroadcast or use by any other party without the prior written consent of Barnes & Noble.

During this call, we will issue forward-looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

And now, I'll turn the call over to Demos.

Demos Parneros

Thanks, Andy and good morning, everyone. Today, I'll provide an overview of our second quarter results and discuss some encouraging trends and initiatives that we expect to benefit us in the back half of the year. Our second quarter EBITDA loss was 25 million, primarily driven by our 6.3% comp store sales decline and higher clearance, which I’ll discuss in just a moment. Approximately half of the comp sales decline was due to comparisons to the Harry Potter release a year ago. And as we look at the different components of our business, we continue to be encouraged by the improving sales trends in our book business.

However, sales trends in non-book categories, especially in gift continued to weigh on our comp sales trends. To improve our performance in our gift and toys and games businesses, we began to reduce our over assortment of slower moving non-returnable merchandise. This decision is part of our broader strategy to grow sales and become more productive by featuring a narrower product assortment with higher turnover. Going forward, we will place a greater emphasis on books, while further narrowing our non-book assortment.

Another area where we see opportunity is café. Historically, café sales have followed the overall traffic trends in our stores. During the quarter, we began testing down stack offers on our receipts, directing customers who made purchases to the café for a discounted coffee or buy one get one offer. As a result of this initiative, for the first time in over a year, our café comps were slightly positive in the last month of the quarter. While traffic remains an issue, we are doubling down on our efforts to improve in-store conversion.

Through customer research, we discovered that customers come to Barnes & Noble not only to browse and discover, but also to interact with our booksellers. This is a big takeaway for our store managers from a recent conference. We encourage our booksellers to be more proactive with customers and actively engage with them. As a result, we saw immediate improvements in our conversion rate following the conference with the year-over-year conversion improving 2.7% for the quarter. We also believe this has contributed to the 1.5% increase in comp book sales during the back half of the quarter.

Additionally, we’re encouraged by some of the tests that are currently underway in our test and learn pipeline. We are seeing positive traction in our membership tests that are focused on pricing and benefits. This has led to accelerating growth in both new member enrolments and renewals and we now have over 6.4 million members. Additionally, members in our test stores are lifting sales in both book and non-book categories.

Also as it relates to testing, this month, we opened two new concept stores, one in Plano, Texas and the other in Ashburn, Virginia. These stores are part of our ongoing effort to test new concept stores. The Plano store in particular is one of our new smaller format 10,000 square foot prototype being tested in a company. We are still learning from all of these new stores that we’ve opened across the country and we're excited about the knowledge that we're gaining.

We also have a strong lineup -- title lineup this fall that began in Q2 and will continue into the holiday season. It includes Tom Hanks’ Uncommon Type, John Grisham’s The Rooster Bar, Dan Brown’s Origin, Walter Isaacson’s Leonardo da Vinci and surprise drop in title, Darker by E.L. James. To complement this lineup, we’ll also feature exclusive editions of best-selling titles this holiday season, including The Art of Harry Potter, which includes rare and unpublished works of art and is only available at Barnes & Noble, Shea Serrano’s Basketball and other things, David Baldacci’s End Game and James Patterson’s People vs. Alex Cross among other titles. We’ll also feature authors in our popular signed editions program, which provides for unique one of a kind gift.

Read the rest of this transcript for free on seekingalpha.com