While the numbers may look good. Check out the debt. You are assuming that cash flows will continue for a while. The market is reaching saturation, and one main reason for BKS growth has been the opening of new stores (an average of 86 per year over the last 7 years!). This growth has been very costly, and they have lots of debt right now.
Sound the market turn away, or a competitor such as Borders or even the Web really catch on, B&N could be faced with lots of debt service, and not much cash flow to pay it with. Short term-things look great. Med term-maybe. Long term-I'd take a wait and see.
The BKS debt was the original reason I was much hotter on Borders than BKS. Then I looked at the amount of superstores BKS has, and the debt again, and it basically seems to me that they are in good shape. I think they might have expanded just fast enough to capture enough market share to pay off the debt and then reap the benefits. What I am a little wary of is that international expansion will be more costly and less profitable than national expansion, which might leave the balance sheet a little worse. Hopefully management will test the waters before diving in too deeply. If it is a nice temperature, they will again be ahead of the market to expand their business. As I see it, BKS is using it's size to its advantage, and this strategy seems to be paying off. There is still room for Borders and BKS to grow without hurting each other, but this too will pass, I just don't know when. When that happens, BGP must be in a better comparative position, and cash over debt probably won't be the answer. Popular stores are what's needed for the upcoming competition. Anyone have info on BKS vs BGP, store for store?