Summary:

Barnes & Noble has a $300m investment from Microsoft and will launch the Nook in the UK this fall. But the country’s largest bookstore chain is struggling to compete against Amazon. Nook device sales fell during Q1 2013, though digital content sales were up.

Nook Digital Shop
photo: Barnes & Noble

Barnes & Noble reported first quarter earnings for fiscal year 2013 on Tuesday morning. The bookstore chain’s revenues were up slightly, to $1.45 billion, and in line with analyst estimates of $1.48 billion. But Nook sales were flat, despite the launch of the Nook Tablet and front-lit Nook e-reader during the year.

The company reported a net loss of $41 million for the quarter, or $0.78 per share, compared to a loss of $57 million, or $0.99 per share, last year.

Despite bad news for Nook devices, investors appeared pleased by the narrowing loss, with shares up 3.6 percent in pre-hours trading as of 9:20 a.m.

Nook sales fall, though digital content sales increase

Nook sales — which include devices, digital content and accessories — were $192 million for the quarter, compared to $191 million last year. While digital content sales (ebooks, digital newsstand and apps) increased 46 percent (the actual revenue figure was not broken out), device sales actually declined “due to lower average selling prices and production scaling issues surrounding the popular newly launched Glowlight product resulting in unmet demand.” That was a “missed opportunity,” B&N CEO William Lynch said in an investor call Tuesday morning. Barnes & Noble dropped the prices across its Nook Tablet line in mid-August.

Apps and digital newsstand sales were “a little higher” than ebook sales, Lynch said in the investor call. Overall, the company says it has a 25 to 30 percent ebook market share, unchanged from previous periods.

Barnes & Noble announced Monday that it will launch the Nook in the United Kingdom this fall, but it has not yet stated who its retail partners will be. “We have one of the two preeminent digital catalogs in the world, and this is a long tail business,” Lynch said. And “we think there will be a flight to quality” among UK consumers once the Nook is released there.

Bookstore sales up slightly — thanks, Fifty Shades of Grey

Barnes & Noble no longer breaks out BN.com sales; rather, it lumps together bookstore and online sales into one retail segment. While bookstore sales rose, BN.com sales fell. Retail revenues were $1.1 billion for the quarter, up two percent over last year, with comparable bookstore sales up 4.6 percent. The company attributed the gain to “the liquidation of Borders’ bookstores in fiscal 2012 and strong sales of the Fifty Shades of Grey series.”

Revenues at B&N College bookstores was $221 million, flat with last year. Comparable college store sales were down two percent.

Microsoft and NewCo

In April, Microsoft invested $300 million to spin off Barnes & Noble’s Nook and college businesses into a separate entity, for now called NewCo. “The company continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the Microsoft transaction. The company expects the Microsoft transaction to close this Fall.”

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