Financial Reporting and Analysis: Barnes & Nobles

Abstract

The book industry has grown to severe conditions in recent years which is also evident from the fact that some companies have filed bankruptcy. Despite the economic stability expected in the near term, industry revenue for the book industry is expected to decline in the next 5 years. The industry will continue to experience intense external competition from primarily online retailers. Also, the consumer shift toward digital books will result in fewer physical book sales, which currently account for about 56.0% of sales. As the economy recovers some stores expand to niche markets and adapt to new technology, revenue decline experienced during the past five years will slow. Segment revenue grew at an annualized rate of 6.8% from fiscal 2007 to fiscal 2012 to $7.1 billion. While sales of traditional books suffered, the booming popularity of the Nook offset losses. This was particularly true over 2010 and 2011, when Barnes and Noble's industry-relevant revenue grew by double digits in each of these years. Strong growth in these years was fostered by rising per capita disposable income and consumer spending. Further, the price of the original Nook fell $60.0 in 2010 while the company released a new, cheaper model. These lower prices stimulated demand and thus the volume of Nooks sold rose. The vertical analysis of the company's income statement shows that there have not been any significant changes in proportion of different components. Taking 2007 as a base year, we can see that company revenue has increased by 136%. In contrast, cost of revenue increased by 144%. The acid test ratio also reveals an improvement of 11% during the financial year 2011-12. In 2011, the acid ratio was 0.21 which increased to 0.238 in 2012. The report will provide a comprehensive review of the book store industry and financial analysis of Barnes and Noble.

Contents

ABSTRACT2

I.CORPORATE OVERVIEW5

About the Company5

SEC Filings6

Competition Analysis7

Follett Higher Education Group7

Books-A-Million Inc.8

Borders Group Inc.9

Amazon.com Inc.9

Walmart Stores Inc.9

Industry Analysis10

Products and Services10

Demand Determinants12

Major Markets14

Industry Outlook15

Outside competitors16

Technology Intrusion17

Perusing the Niche Book Stores17

II.CORPORATE AND NON-CORPORATE DISCLOSURES18

Review of the Chairmen's Letter18

Review of the Independent Auditors Report19

Current Credit Facilities20

Review of Management's Discussion & Analysis20

III.FINANCIAL STATEMENT ANALYSIS21

Vertical Analysis22

Horizontal Analysis24

Overview27

Short-Term liquidity and Cash Flow analysis28

Liquidity Ratio Analysis28

Working Capital30

Turnover Analysis30

Operating Performance Analysis31

Capital Structure/Leverage33

Long term Debt to Equity33

Debt to Equity Ratio34

Interest Cover34

Asset Utilization and Productivity35

Corporate Valuation36

Stock Price Analysis37

IV.SUMMARY AND CONCLUSION40

REFERENCES42

Corporate Overview

About the Company

Barnes & Noble is the important book retailer, with more than 1,300 stores across all 50 states. The company offers trade books, paperbacks, e-books, e-readers, newspapers, magazines, and other content across its distribution platform, which includes general retail book stores, college campus book stores and an e-commerce website (www.barnesandnoble.com).

The company is segmented into Barnes & Noble (B&N Retail) and Barnes & Noble College Booksellers (B&N College). B&N Retail consists of 691 stores, which range from 3,000 to 60,000 sq. ft. It also includes Barnesandnoble.com, which encompasses one of the internet's largest e-commerce websites - the Barnes & Noble e-bookstore - in addition to the Barnes & Noble Nook e-reader and ...