Barnes & Noble Second Quarter Earnings Preview

Barnes & Noble [[BKS]] is scheduled to report their second quarter 2009 results before the market opens on Thursday, August 20. Based on our analysis, we at are expecting BKS to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $1.16 billion and EPS of $.10. This would represent a 5% decline in revenues from last year’s $1.22 billion in the same period. The current analyst consensus estimates calls for revenues of $1.16 billion and EPS of $.09. On May 21, the company provided second quarter guidance of $.05 – $.15 EPS on a 5 – 7% decline in same-store sales.


We are looking for Barnes & Noble to report earnings at the midpoint of their guidance range after delivering stronger than expected results last quarter. While the book seller continues to face severe economic headwinds, we believe the company remains focused on maintaining gross margins and reducing expenses.


Barnes & Noble has made a couple of significant announcements recently as the book retailer struggles to play catch up with Amazon [[AMZN]]. On July 20, Barnes & Noble announced that they are launching their own eBookstore and expect to have their own electronic book reader in place by mid-2010. While these are certainly positive developments, they come at a time when Amazon has already carved out massive market share in the ebooks space with their popular Kindle reading device.


Stock Performance

Since the beginning of 2009, Barnes & Noble’s shares have gained nearly 57% and have significantly outperformed the 7% gain in the Dow Jones industrial average. Last year was a different story however, with BKS’s stock falling 56% and badly underperforming the 34% drop in the Dow Jones industrial average.



Shares are now trading at 17x consensus 2010 EPS estimates. This is a premium to other consumer discretionary stocks, but a significant discount to Amazon’s well deserved premium. With the monster move that BKS’s stock has already seen this year, we would expect limited upside in the stock for the remainder of the year.


Recommendation: Hold with a $24 price target.


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