Summary:

Buried in the middle of a holiday sales report, Barnes & Noble (NYSE: BKS) announced that it will “pursue strategic exploratory work to sepa…

Nook Digital Shop
photo: Barnes & Noble

Buried in the middle of a holiday sales report, Barnes & Noble (NYSE: BKS) announced that it will “pursue strategic exploratory work to separate the Nook business” from the rest of the company. “We see substantial value in what we’ve built with our Nook business in only two years, and we believe it’s the right time to investigate our options to unlock that value,” B&N CEO William Lynch said. B&N projects the Nook business will reach $1.5 billion this year.

Following the news, Barnes & Noble shares are down 22.5 percent in pre-market trading this morning.

The news follows a WSJ report yesterday that Barnes & Noble is selling off Sterling Publishing. Barnes & Noble told me it does not comment on “rumors,” and may hope to avoid getting scooped by announcing the Nook news itself.

In the release, the news is sandwiched between holiday sales results. The company cautions that “there can be no assurance that the review of a potential separation of the NOOK digital business will result in a separation. There is no timetable for the review,” but since Barnes & Noble is choosing to publicly announce this in a press release, it seems possible that an announcement of a separation is imminent–or this could be a way to attract interest from potential buyers.

As previously reported, Barnes & Noble also confirmed that it is “in discussions with strategic partners including publishers, retailers, and technology companies in international markets that may lead to expansion of the Nook business abroad.” Nook is expected to expand to the UK this year, with many suggesting Waterstones as a possible retail partner.

Uh, now for those holiday results! (All are for the nine-week period ending December 31, 2011.) Unit sales of all Nook devices (the Nook Simple Touch e-reader, Nook Color and Nook Tablet) were up 70 percent over the same time last year, with a “substantial portion” of the increase coming from “third-party retailers as the Company expanded Nook distribution.”

»  Nook business across the company–including digital content, device hardware and accessories–was up 43 percent to $448 million, but the Nook Simple Touch appears to be performing very poorly. B&N says Nook Tablet sales “exceeded expectations,” while Simple Touch sales “lagged expectations, indicating a stronger customer preference for color devices.” Later in the report, B&N says, “the Company over-anticipated the growth in consumer demand for single purpose black-and-white reading devices this holiday”–to the extent that the company downgraded its projected full-year earnings to a range of $150 to $180 million (from a previously projected $210 to $250 million).

I wonder if the company plans to phase the e-reader out (or stop releasing new models) if it spins off the Nook business–though it says it “plans to continue to market this successful product for years to come.” (Abroad, maybe?)

»  Digital content sales, including e-books, digital newsstand and apps, were up 113 percent over the same time last year. The company expects digital content sales to total $450 million for FY 2012. “Due to the increased significance of the Nook business platform” (and in possible preparation for a sale), B&N said it may start reporting Nook sales as a “separate operating segment.”

»  BN.com sales were up 43 percent over the previous year, to $327 million, an increase “driven by continued growth of the NOOK business, offset by a decline in online physical product sales.”

»  Sales in Barnes & Noble retail stores were up 2.5 percent over last year, to $1.2 billion, with “retail core comparable stores sales,” i.e. non-digital products, up 4.5 percent over last year. And “physical book sales on a comparable basis increased by 4 percent at Barnes & Noble stores, exhibiting growth for the first time in five years.” This increase is partly due to the fact that competitor Borders is now out of business. B&N said it expects a sales lift of $200 to $230 million in FY 2012 as a result of Borders’ closure (down from the $300 to $400 million left it said it expected in November) and “reinvested the Borders upside in its digital business.”

»  Sales of toys and games in retail stores were up 30 percent. The company calls particular attention to children’s tablets, “LeapFrog® LeapPad™ Explorer and Vtech Innotab Tablet.”

So…who will buy Nook?

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