After reporting disappointing earnings with profit plummeting 8.5% to $1.3 billion last quarter, Barnes & Noble hosted an investor call where the company defended its struggling Nook business. The bookstore's Nook division saw a 20% decline in revenue, attributed both to the fall of device and content sales. In addition to hinting at a new device this holiday season, the company said it remains committed to its hardware business, but will shift its focus to producing lower-cost units at higher volumes to drive content sales.
Michael P. Huseby, president of Barnes & Noble and CEO of Nook Media, insisted that the problem doesn't lie within the hardware, with about 10 million units sold. "One thing I would say—and I want to say this—is that the problem is not the devices. The devices that our hardware and software and other members of our Nook team have produced over the last four years are great devices." Instead, he attributes Nook's issues to an inaccurate forecast and the subsequent excess in inventory.
Though the company is exploring a partnership model for manufacturing color tablets, Huseby clarified that the company "intends to continue to design and develop innovative Nook black-and-white and color devices," also mentioning that "at least one new Nook device will be released for the coming holiday."
Rick Schottenfeld at Koyote Capital didn't hold back when grilling Huseby about Nook, saying it was "obvious that this Nook business is dragging down the value of the bookstores."
I mean it's a testament to the value of the bookstores that you're able to lose almost $1.5 billion and still have a strong balance sheet. But at some point, are shareholders going to get a relief from this Nook business from the bookstore side and get an opportunity to realize some of that value?
Huseby responded by highlighting that some of the loss can be attributed to the write-down of inventory in fiscal year 2013. "And we're selling that inventory, actually selling it according to our forecast right now, in fiscal year 2014." Those sales, combined with the college vertical, will help fund Nook Media's needs and its pivot to produce cheaper tablets and e-readers.
[Image: Flickr user Mike Kalasnik]