Will Barnes & Noble Die This Holiday Season?

Barnes & Noble (NYSE: BKS) will probably join Sears and JC Penney (NYSE: JCP) in the retail graveyard this holiday season.

The bookseller reported its seventh straight net loss in a row on October 27, 2018. Barnes & Noble has reported net losses and operating losses for every quarter since 1st Quarter 2017.

Notably, Barnes & Noble recorded an operating loss of -$26.7 million and a net loss of -$27.39 million for 4th Quarter 2018. In addition, Stockrow reports Barnes & Noble’s revenues have been shrinking for eight straight quarters.

Barnes & Noble is losing Money Every Time it opens the doors

In addition, Barnes & Noble recorded an operating cash flow of $-50.17 million and an investing cash flow of -$30.47 million on 27 October 2018.

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Thus Barnes & Noble is losing money every time its stores open their doors. That’s reminiscent of Sears which declared bankruptcy in October.

Moreover, it looks as if Barnes & Noble is borrowing money to keep the doors open. For instance, it reported a financing cash flow of $88.04 million on October 27, 2018. In other words, Barnes & Noble borrowed $88.04 million to cover its operating costs.

Is Barnes & Noble for Sale?

Not surprisingly, Barnes & Noble’s management could consider selling the company.

A few potential buyers; including founder and executive Leonard Riggio and a British company called W.H. Smith, have made offers for Barnes & Noble, CNBC reports. However, there is no sign the offers are under consideration.

There are other buyers for Barnes & Noble out there including Amazon (NASDAQ: AMZN). Amazon has the money to buy Barnes & Noble; The Everything Store recorded $29.77 billion in cash and short-term investments on September 30, 2018.

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Why Amazon could Buy Barnes & Noble

Moreover, Barnes & Noble is cheap right now. It had a market capitalization of $538.88 million and a stock price of $7.38 on November 28, 2018.

Either Amazon; or book lover Jeff Bezos, could easily buy Barnes & Noble. Saving Barnes & Noble could be great public relations for Bezos. To explain, Jeff could go from the “man who killed the bookstores” to the man who saved them overnight.

The Barnes & Noble stores could be ideal locations for Go Cashier-less convenience stores or small Whole Foods Cafes. Remember, Amazon owns Whole Foods and is planning to open 3,000 Go locations in the US.

Purchasing Barnes & Noble will give Amazon 630 bookstores in the United States. Furthermore, many of those bookstores are in choice locations in big malls and downtown areas. Hence, buying Barnes & Noble can help Amazon Go and Amazon bookstores expand into many new markets.

An obvious experiment for Amazon is a Go/Barnes & Noble hybrid. In detail, the hybrid store will sell books and food in a cashier-less environment. Such a hybrid could serve as a pickup location for Amazon merchandise.

Barnes & Noble is Out of Cash

I think Barnes & Noble will run out of cash this holiday season because it reported just $11.19 million in cash and equivalents on October 27, 2018.

Thus Barnes & Noble does not have enough money to keep operating. All it will take is another quarter of falling revenues, which is probable, to start the death spiral.

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The death spiral occurs when a retailer runs out of cash and cannot cover expenses like rent. Generally, retailers liquidate locations when the death spiral begins.

I expect the liquidations at Barnes & Noble to begin in January or February 2019. Additionally, bankruptcy is probable in February or March 2019.

Unless, a white knight like Bezos; or a major publisher, rides in and buys Barnes & Noble. Publishers might save Barnes & Noble because it acts a counterweight to Amazon.

On the other hand, Amazon is now big and powerful, so Barnes & Noble’s existence no longer affects it. Hence, the publishing industry has no incentive to save Barnes & Noble.

Can Barnes & Noble Survive

I think the only way Barnes & Noble can survive is with a buyer. Barnes & Noble will die because its business is unsustainable.

Therefore, I advise investors and speculators to stay away from BKS. As a company and a stock, Barnes & Noble is far beyond turning around. Avoiding it is the best way to keep from losing money in the retail death spiral.

Written by

Daniel G. Jennings is a writer who lives and works in Colorado. He is a lifelong history buff who is fascinated by stocks, politics, and cryptocurrency.

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