Barnes & Noble (BKS)
is a leading bookstore operator that is trying to expand its online sales and diversify into digital content delivery, mainly through its Nook line of electronic readers. But profitability has been uneven as the bookseller treads on the electronic territory of such storied technology companies as online retailer Amazon (AMZN)
and device maker Apple (APPL)
Barnes & Noble this month issued $204 million of convertible preferred stock to Liberty Media (LCAPA)
of Englewood, Colo. The preferred stock is convertible to 16.6 percent of the company's common stock at a price of $17 per share.
The $204 million preferred stock investment represented a retreat by Liberty Media, which announced in May that it intended to acquire 100 percent of Barnes & Noble for $17 per share, or a sum close to $1 billion.
The preferred stock investment followed a study of the strategic options of Barnes & Noble, including a possible sale of the company, by a special committee of the company's board of directors. The board initiated the study last year.
Barnes & Noble rang up annual sales totaling nearly $7 billion in the fiscal year that ended April 30, the most in the history of the 25-year-old New York City company. That represents annual sales growth of about 20 percent, reflecting full-year results of a college-bookstore business that Barnes & Noble acquired in September 2009. The company has more than 700 regular bookstores and more than 600 college bookstores throughout the United States.
But Barnes & Noble had a net loss of $73.9 million in fiscal 2011, compared with net income of $36.6 million in the prior year, as costs grew faster than sales. The combined cost of sales and store occupancy plus selling and administrative expenses rose by about $1.3 billion in fiscal 2011, compared with the previous year, while total sales increased by $1.2 billion.
Borders, a Barnes & Noble competitor, has gone out of business and closed stores nationwide. Barnes & Noble eventually will benefit from Borders' collapse. But inventory liquidation sales at Borders stores have hurt Barnes & Nobles' results.
Mostly neutral ratings
David Strasser, a securities analyst with investment firm Janney Montgomery Scott, had a buy rating on Barnes & Noble stock in late August, calling it undervalued.
Strasser estimated the fair value of the stock at $24 per share, well before the Liberty Media bid. But Strasser was in the minority on Wall Street: Most analysts following Barnes & Noble in late August had neutral hold ratings on the company's stock.
Barnes & Noble will report financial results for the first quarter of its 2012 fiscal year on Aug. 30.
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