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Barnes & Noble totally reverses strategy in train wreck of an investor call

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Want to know what Barnes & Noble’s (s bks) plan is for the future? In that case, it would be wise to ignore pretty much everything the company has said it was going to do in recent months.

Getting out of the tablet business? Nah, Barnes & Noble (s BKS) is going to keep manufacturing color devices in-house. Separating the Nook and retail businesses? Not happening. In an analyst call following this morning’s disappointing earnings report — in which Nook revenues were down 20 percent for the quarter — Barnes & Noble executives provided little reassurance to investors who wanted to know whether the company actually, you know, has a plan going forward.

To be fair to B&N, some of the about-face can likely be attributed to CEO William Lynch’s departure in June. Now, there is not a single person overseeing the entire company: Rather, former CFO Michael Huseby is the CEO of Nook, while Mitchell Klipper remained CEO of the retail segment (which includes Barnes & Noble stores and

One concrete factoid from the call: Barnes & Noble plans to relaunch next year. “The new site will enhance our search and accuracy, provide faster shipping and yield some cost savings,” Klipper said.

“If we want to be in the content business, we need to be in the device business”

The investor call made it semi-clear that the company’s current management is reversing some decisions that might have been spearheaded by Lynch. “Our focus going forward will be on providing customers with a more integrated Barnes & Noble and Nook experience,” Huseby said in a prepared statement at the beginning of the call. He also said:

“When we discussed our fiscal year 2013 results this past June, the company announced its plans to stay in the device business and continue to make black and white e-readers while exploring and transitioning to a partnership model for manufacturing colored tablets. Unfortunately, many people interpreted these comments incorrectly and concluded that we were getting out of the device business. I’d like to be very clear about this today. We want consumers to know that the company intends to continue to design and develop innovative Nook black and white and color devices. At least one new Nook device will be released for the coming holiday, and further products are in development. At the same time, we will continue to offer our award-winning line of Nook products, including Simple Touch, Simple Touch with GlowLight, Nook HD and Nook HD+ at the best values in the marketplace today.”

Huseby was then bombarded with questions from financial analysts who see a lot of value in B&N’s retail stores and wonder why, exactly, the company seems to be placing new emphasis on Nook at a time when it’s performing so badly.

“I’m just a little confused,” Coyote Capital analyst Rick Schottenfeld said. “By my estimation, we’ve lost almost a billion five in the Nook business since inception. And it’s really masking the underlying value of the bookstores…It seems obvious that this Nook business is dragging down the value of the bookstores, and I think shareholders would like to realize some of the value…At some point, are shareholders going to get relief?”

Huseby quibbled with the $1.5 billion estimate and noted that “we don’t expect in the near term that retail will be funding any of Nook Media’s needs.” Then, he said:

“I want to acknowledge that in June, it was a pretty strong message sent to the market that we were shifting toward a — more of a partnership model on the production of color devices. We partner now with large tech companies on our color devices, whether it’s displays, chips. And I think the reason I bring that up is not that that’s consistent with what we said in June, but there’s opportunities to expand those existing relationships with the largest players that there are in this industry to de-risk the business plan, which is really the intent of what [former CEO William Lynch]’s comments were in June, what all of our comments were in June … The problem is not with the devices…The problem was the decisions that were made by management, quite frankly, in terms of demand forecast based on what was thought to be good information.”

Huseby said that Nook’s poor performance has been driven by excess inventory: “We overestimated demand for the products that we put out. As a result of that, we had to discount those products and we’re selling them now. We don’t want to be in that position again…eventually we’ll move to a business of lower priced [devices] at higher volume.”

Huseby elaborated that “Some kind of wholesale outsourcing of our color device business is neither appropriate, nor is it smart for the company.” Nook engineers “don’t deserve to have their jobs outsourced to somebody else.” And:

“If we want to be in the content business we need to be in the device business, no matter how they’re produced. We think we produce better devices than anybody else.”

The split: It’s not happening — unless the right person comes along

In May, TechCrunch reported that Microsoft wanted to buy the Nook business — in which it already has a $300 million strategic investment — outright for $1 billion. Either that was never true or — what seems to be more likely since the NYT found paperwork supporting the proposed deal — Microsoft (s MSFT) has changed its mind.

“It was a tremendous amount of work to separate those businesses,” Huseby said. He acknowledged “that’s where we were moving and that’s what we said, we were preparing those businesses for eventual separation if the opportunity was there in the market.” But “timing is everything, and the performance of the business has an impact on the timing of when you separate the business.” Reading between the lines, it seems as though the Nook business’s bad performance deterred Microsoft.

“Nobody’s given up on realizing that these are separate businesses,” Huseby went on. “Eventually, it makes sense to have these businesses separate. Right now is not the right time … if somebody presents us with an offer that changes our mind, then we would be willing to listen to it.” He reiterated: “We are obviously, as a company, open to any alternative that’s presented to us by outsiders or anybody who has any idea for how we can do things better.”

Analyst David Derman responded: “As I hear you discuss the strategy, it sounds more, and I don’t think this is your intention, reactive than proactive…I’m sure you will continue to proactively consider what makes sense for all shareholders.”

Barnes & Noble took no further questions.

This post was updated Thursday afternoon with analyst names and exact quotations from the earnings call transcript.

9 Responses to “Barnes & Noble totally reverses strategy in train wreck of an investor call”

  1. This is crazy. My opinion is leverage the retail position and maximize what they have. They can’t compete with hundreds of Android makers, Apple and Amazon. They should sell the IP, if they have any, and start selling Android devices and become a dealer for iPad. Then innovate in retail! Change the paradigm of buying books and sell other items that are related. Strengthen their ties with Starbucks. Play in the circles of their partners. I’d argue that this is almost as ludicrous as Blackberry’s insistence on playing outside their enterprise space.

  2. AvidReader

    I like Barnes & Noble and I hope the stores stay open. But Borders Books closed and Crown Books closed and people are not even using libraries (free books) any more. Libraries are places for homeless to hang out during the day. Sad but nobody reads any more … and we are becoming an illiterate nation. Literacy was denied the common man and now it is not wanted. So B&N may got the way of bookstores and newspapers.

    • Maybe you don’t go to the library and maybe the people you hang around with are part of an illiterate nation but don’t put your experience on the rest of the world. The local library near me is usually full more often than not. With people reading. Reading books, reading magazines, reading on their nooks/kindles/ipads/laptops. Using computers, doing homework and loads more.

      I make it a point to visit libraries when I’m on the road and this is more often the case then not. Perhaps you need to revisit your local library, it may surprise you.

      • Yo. I work at the Dallas Library and generally, library patronage is typically individuals 45 and over, parents with children who want to check out children’s books, or people who are financially challenged and need to use the free computers and want to rent DVDs. Also, its a lot of foreign born individuals who now use these services of the library. It is a rare occurrence when I see someone in there who is a teenager or in their 20s or 30s looking to check out a book, use library sources, or even study at the library.

        Why would they want to read? Reading is a skill that takes time and practice….effort. Its so much easier to text, watch YouTube, tweet, go to Facebook, surf the net, or watch movies and TV.

  3. tabulator32

    Heads up, B&N!

    Stop production of the Nook! Design and sell a better device or buy into one of the better devices already out there! You can rename it if you want. Call it the Cranny if it makes you feel better. Just drop the Nook!

  4. The nook is garbage, absolute garbage. I’ve had two that crapped out multiple times. With so many other options in the tablet market, ones that are a million times better, there is no reason to buy a nook anymore. Time to wake up b&n.

  5. B&N is still ignoring the international market – that is a huge audience that has no access to its content and puts them at a disadvantage compared to Kindle and Kobo.

  6. How long can a Barnes & Noble store stay in business when the company is devoting its energy to Nook? Will there only be kiosks in malls across the USA now instead of brick and mortar book stores?

  7. Heath Cajandig

    “If we want to be in the content business, we need to be in the device business”


    “If we want to be in the content DELIVERY/SALE business, we need to be in the device business”