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Barnes & Noble, Inc. Message Board

  • netmargin15 netmargin15 Jan 7, 2012 9:01 PM Flag

    Nook sell-in vs sell-through

    I've been wondering how BKS could claim strong growth in practically every segment outside of College and then reduce sales project for the year by so much.

    The answer seems to be in this quote from the 01/05 press release.

    "BN.com and NOOK comparable sales reflect the actual selling price for eBooks sold under the agency model rather than solely the commission received. Additionally, it includes all deferred eReader device revenues, and includes device sales to channel partners on a “sell-in” basis net of estimated returns."

    The key phrase in the quote is that BKS is counting sales to channel partners on a "sell-in" basis instead of "sell-through" basis. So units sitting in partner stores/warehouses that have not been sold to customers are also being counted as device sales.

    This disclosure along with the reduction in BKS's guidance for the Nook business for the fiscal year from $1.8B to $1.5B would seem to indicate that the distribution channel is stuffed with inventory and we'll likely see a sharp falloff in sales through partners next quarter beyond normal seasonality.

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    • That may be part of it, but there's also this:

      In September, slides were leaked from the company detailing holiday quarter plans.
      http://www.the-digital-reader.com/2011/09/23/barnes-noble-to-launch-2-new-nookcolors-this-year/
      Smart touch $139
      Encore (ie nook color) $250
      Acclaim (ie nook tablet) $349

      The actual selling prices, for all three products, ended up being 30% less.
      Smart touch $99
      Encore (ie nook color) $199
      Acclaim (ie nook tablet) $250

      So, if the nook guidance was put together using the planned prices, as one would anticipate, then they would have been about 30% high on the sales projections for the hardware component even if they sold the same number of units.

      Given that they broke out ~$500 million as the digital sales. That would imply the actual hardware sales were about $1.0 billion this year. They would have projected $1.3-$1.4 billion in sales given the original planned pricing, and they would have been off by 0.3-0.4 billion. As they were.

      And yes, I should have put 2+2 together BEFORE the report.

      Next quarter is even more difficult to project b/c of the NYT/ People arrangement.

      I suspect NYT and People are loaning BKS cash to cover the manufacturing cost upfront, and BKS is paying it back (in full) to the magazines by foregoing their "cut" of the subscription revenue. So the net effect is a $100 subsidy given by BKS, but financed by the publisher. I am not sure how that will be recorded in the books.

      • 2 Replies to popnfresh100
      • They listed:

        > Smart Touch $139
        > Nook Color
        > Encore $249
        > Acclaim $349

        Nook Color is Nook Color at $199
        Encore is Nook Tablet at $249
        Acclaim obviously never came to market.

        Your idea that BKS expected to sell the Nook Tablet at $349 is pretty ridiculous. BKS is fighting the razor battle with their tablet and there's no way they would have been trying to sell their razors with such high markups.

        > "So, if the nook guidance was put together using the planned prices, as one would anticipate, then they would have been about 30% high on the sales projections for the hardware component even if they sold the same number of units."

        If BKS was planning on selling the same number of units at those higher prices, BKS is being run by idiots with ridiculous forecasts and no chance of meeting any of them.

        > "Next quarter is even more difficult to project b/c of the NYT/ People arrangement."

        This one's already blown up. Next quarter will clearly show that BKS doesn't have a chance in hell of surviving.

    • Nice catch. What it means is they're throwing everything but the kitchen sink into the revenue line.

      There are some that would argue, from a GAAP perspective, that the agency revenue shouldn't be recognized as sales, but only as the commission earned. It appears that BKS is taking a more liberal approach to revenue recognition...

      • 1 Reply to laura_propane
      • I think BKS is following GAAP in their earnings report (only commission counted as revenue for agency sales).

        But in these fluff press releases, they're using their own definitions of "comparable sales", which may be technically correct, but leaving the reader with a completely different impression of how sales are going compared to what they will report in their GAAP results.

        That kind of spinning of the numbers to me is the surest sign that the actual results will be atrocious - especially given BKS's pattern of starting the fiscal year with relatively rosy outlook followed by guiding down each and every quarter for the rest of the year. I expect there's plenty more bad news waiting to trickle out.

 
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